<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
Commission file number 1-8158
VARCO INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-0472620
(state or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
743 NORTH ECKHOFF STREET, 92868
ORANGE, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code: (714) 978-1900
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------- -------------------
Common Stock New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [_]
As of March 1, 2000, 65,424,115 shares of common stock were outstanding.
The aggregate market value of the common stock on such date (based upon the
closing price of such shares on the New York Stock Exchange) held by persons
other than affiliates of registrant was approximately $755,190,000; the basis of
this calculation does not constitute a determination by the registrant that such
persons are affiliates, as defined in Rule 405.
DOCUMENTS INCORPORATED BY REFERENCE
Part II, Items 5, 6, 7 and 8 The Company's Annual Report to
Shareholders for the year ended
December 31, 1999.
<PAGE>
As stated in the Annual Report on Form 10-K for the year ended December 31,
1999, of Varco International, Inc. (the "Company"), as originally filed (the
"1999 Form 10-K"), on March 24, 2000, the Company and Tuboscope Inc., a Delaware
corporation ("Tuboscope"), entered into an Agreement and Plan of Merger dated as
of March 22, 2000 (the "Merger Agreement"). Pursuant to the Merger Agreement,
and subject to the conditions set forth therein, including approval of the
transaction by the shareholders of the Company and Tuboscope, the Company will
be merged with and into Tuboscope. The name of the combined company will be
Varco International, Inc.
In connection with the proposed merger, the Board of Directors of the
Company postponed the Company's 2000 Annual Meeting of Shareholders and called a
Special Meeting of Shareholders to be held on May 30, 2000, to vote on the
Merger Agreement. If the Merger Agreement is approved, the Company will be
merged into Tuboscope, and the Company will not have an Annual Meeting in 2000.
The purpose of this amendment is to furnish the information required by Items
10, 11, 12 and 13, which was incorporated by reference in the 1999 Form 10-K and
to add four exhibits in Item 14. Accordingly, Part III, Items 10, 11, 12 and 13
of the 1999 Form 10-K are amended to read in their entirety as set forth below,
and the list of exhibits contained in Item 14 of the 1999 Form 10-K is amended
to read in its entirety as set forth in the Exhibit Index included following the
signature page of this amendment.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
GEORGE BOYADJIEFF, a director of the Company since 1976, is the Chairman of
the Board and Chief Executive Officer of the Company. He has served as Chief
Executive Officer since April 1991, and as Chairman since May 1998. Mr.
Boyadjieff served as President from 1981 until February 2000. 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 received Bachelor of Science
and Master of Science degrees from the University of California at Berkeley. Age
61.
WALTER B. REINHOLD, Chairman Emeritus of the Company, has been a director
of the Company since 1970. He served as Chairman of the Board from 1976 until
May 1998 and 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 received a Bachelor of Arts
degree from Stanford University. Age 75.
GEORGE S. DOTSON, a director of the Company since February 1997, is a
Director and Vice President of Helmerich & Payne, Inc. and President of its
subsidiary, Helmerich & Payne International Drilling Co., an owner-operator of
drilling rigs providing drilling services to both the land and offshore oil and
gas drilling industry. Mr. Dotson has held these positions since 1977. He is a
director of Atwood Oceanics, Inc. Mr. Dotson is a graduate of Massachusetts
Institute of Technology and Harvard Business School. Age 59.
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., investment
bankers, from 1985 until 1991. He is a director of Western Digital Corporation
and REMEC, Inc. Mr. Horn is a graduate of the University of Paris. Age 71.
Member: Audit Committee
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 received a Bachelor of Science degree from
Stanford University. Age 73. 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 67.
1
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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 2 Vice Chairman of the Board from
September 1989 to March 1990. Ms. Suggs is a director of Whitney Holding
Corporation and Global Marine Inc. Age 61.
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 69. Member: Audit Committee; Compensation Committee
EUGENE R. WHITE, a director of the Company since October 1990, is a
consultant to Amdahl Corporation. Mr. White previously 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 Needham & Co.
Mr. White received a Bachelor of Science in physics from the University of
Maine. Age 68.
JAMES D. WOODS is the Chairman Emeritus of, and a consultant to, Baker
Hughes Incorporated ("Baker Hughes"). He was CEO from April 1987 and Chairman
from January 1989 until January 1998. 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., Wynn's International, Inc., Howmet
International, Inc., OMI Corporation and Kaiser Aluminum Corporation. 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 68. Member: Compensation Committee
Executive Officers
Information regarding the Company's executive officers is included in Item
1 of the 1999 Form 10-K.
Section 16(a) Beneficial Ownership Reporting Compliance
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 and with respect to 1999 were complied except that
Roger D. Morgan, an executive officer of the Company filed one late report
reporting one transaction and George S. Dotson, Andre R. Horn, Jack W. Knowlton,
Leo J. Pircer, Carroll W. Suggs, Robert A. Teitsworth, Eugene R. White and James
D. Woods, each of which is a director of the Company, each filed one late report
reporting one transaction.
2
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ITEM 11. EXECUTIVE COMPENSATION
Compensation and Stock Option Information
The following table shows information about the compensation of the Company's
Chief Executive Officer and its four highest paid executive officers for the
years indicated. Two additional tables provide detailed information about these
employees' stock options.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Long-Term
Annual Compensation (a) (b) Compensation
-------------------------------------------------
Awards
-------------
All Other
Name and Principal Position Year Salary Bonus (c) Securities Compensation (d)
Underlying Options
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
George Boyadjieff 1999 $580,000 $ 580,000 103,881 $11,038
Chairman and Chief 1998 $580,000 $ 587,719 37,520 $11,751
Executive Officer 1997 $550,000 $1,038,566 66,164 $10,398
Richard A. Kertson 1999 $300,000 $ 180,000 35,821 $14,844
Vice-President Finance and Chief 1998 $300,000 $ 212,000 12,938 $15,661
Financial Officer 1997 $275,000 $ 388,208 22,056 $11,185
Roger D. Morgan 1999 $240,000 $ 170,400 27,463 $10,481
Vice-President and President Varco 1998 $230,000 $ 224,825 9,919 $10,876
Systems Division 1997 $211,000 $ 325,901 16,922 $ 9,758
Mark A. Merit 1999 $230,000 $ 113,275 27,463 $10,137
Vice-President and President-Shaffer 1998 $230,000 $ 64,400 9,919 $10,928
Division 1997 $216,000 $ 170,814 17,324 $ 9,587
Michael W. Sutherlin 1999 $240,000 $ 134,400 27,463 $11,054
President and Chief Operating Officer 1998 $230,000 $ 154,100 9,919 $11,497
1997 $211,000 $ 247,567 16,922 $ 9,767
</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
3
<PAGE>
100% of their bonus. Mr. Boyadjieff deferred $50,000 of his 1997 bonus and
$100,000 of his 1998 bonus; Mr. Kertson deferred $310,739 of his 1997
bonus; Mr. Morgan deferred $6,302 of his 1997 salary, $6,812 of his 1998
salary and $9,000 of his 1999 salary; and Mr. Sutherlin deferred $12,007
of his 1997 salary, $12,548 of his 1998 salary, $12,881 of his 1999
salary, $50,640 of his 1997 bonus, $29,325 of his 1998 bonus and $25,200
of his 1999 bonus. 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) 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. 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
equal to 40% of the aggregate of a participant's highest five calendar
years of base salary (the "normal retirement benefit"), which vests 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.
All of the foregoing individuals were fully vested at December 31, 1999.
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 below 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.
4
<PAGE>
Option Grants in 1999
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------------
Number of Potential Realizable Value at
Securities % of Total Options Assumed Annual Rates
Underlying Options Granted of Stock Price Appreciation
Options to Employees Exercise Price Experation for Option Term (c)
------------------------------
Granted (a) in 1999 Per Share (b) Date 5% 10%
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
G. Boyadjieff 103,881 19.31% $8.375 February 7, 2009 $548,492 $1,383,695
R. Kertson 35,821 6.66% $8.375 February 7, 2009 189,135 477,136
R. Morgan 27,463 5.11% $8.375 February 7, 2009 145,005 365,807
M. Merit 27,463 5.11% $8.375 February 7, 2009 145,005 365,807
M. Sutherlin 27,463 5.11% $8.375 February 7, 2009 145,005 365,807
- ------------------------------------------------------------------------------------------------------------------------------
Assumed price appreciation (d)
-----------------------------------
5% 10%
-----------------------------------
<S> <C> <C>
Assumed price per share at 2/7/2009 $ 13.65 $ 21.69
Gain on one share valued at $8.375 at 2/8/1999 $ 5.28 $ 13.32
Gain on all shares (based on 65,424,115 shares outstanding at 3/1/99) $345,193,987 $871,203,871
Gain for all 1999 optionees (based on 537,936 options) $ 2,838,285 $ 7,163,290
Optionee gain as a percentage of total shareholder 0.82% 0.82%
gain
</TABLE>
(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 granted consist of incentive stock options ("ISOs") to
the extent permitted by Section 422 of the Internal Revenue Code and "non-
statutory options" with respect to the balance. For the persons named in
the table, the ISOs included in the total options granted were as follows:
Mr. Boyadjieff, 11,940; Mr. Kertson, 11,941; Mr. Morgan, 12,395; Mr. Merit
12,276 and Mr. Sutherlin 12,395. 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 1999 was 537,936.
(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.
5
<PAGE>
Aggregated Option Exercises in 1999 and 1999 Year-end Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options
Name Shares at December 31, 1999 at December 31, 1999(a)
----------------------------------------------------------------
Acquired Value
on Exercise Realized Vested Unvested Vested Unvested
------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
G. Boyadjieff 128,000 $1,269,029 443,088 223,230 $2,687,947 $283,573
R. Kertson 50,000 $ 217,346 36,208 81,746 $ 154,729 $ 95,290
R. Morgan 0 $ 0 40,995 70,282 $ 464,779 $ 78,353
R. Merit 0 $ 0 74,686 68,605 $ 375,299 $ 70,635
M. Sutherlin 0 $ 0 0 67,113 $ 234,299 $ 75,464
</TABLE>
(a) Represents the closing price for Varco Common Stock on December 31, 1999 of
$10.1875 less the exercise price for all vested and unvested options for which
the exercise price is less than such closing price.
Director Compensation
For their services rendered on the Board of Directors, directors other than
Messrs. Reinhold and Boyadjieff 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).
Walter B. Reinhold, as Chairman Emeritus of the Company, is compensated at
the rate of $200,000 per annum for services rendered in all capacities.
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 November 6, 1997, the Board of Directors amended certain provision of the
Directors' Plan to provide for the acceleration of the exercisability of options
in certain circumstances. Both the original Directors' Plan and the November 6,
1997 amendments were 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 newly-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 10,000 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 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. On August 12, 1999, pursuant
to the Directors' Plan, each of Messrs. Dotson, Horn, Knowlton, Pircher,
Teitsworth, White and Woods and Ms. Suggs was granted an option to purchase
10,000 shares of the Company's Common Stock at an exercise price of $12.875.
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 that
(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.
Termination of Employment and Change in Control Arrangements
The Company is a party to Executive Agreements, dated as of March 22, 2000,
with the following named executive officers: George Boyadjieff, Roger D. Morgan,
Mark A. Merit, and Michael W. Sutherlin. These agreements provide for standard
severance benefits and enhanced severance benefits in the event of a change in
control. The standard severance benefits are provided in the event that a
covered officer is terminated by the Company other than for cause, which is
limited to events such as conviction of a felony involving moral turpitude,
dishonesty or breach of trust, commission of theft, fraud, embezzlement or
misappropriation, serious dereliction of duty, and unauthorized disclosure of
confidential information.
The standard severance benefits are as follows:
. Messrs. Boyadjieff and Sutherlin are each entitled to receive two full
years of salary and a bonus equal to 60% of one year's salary.
. Messrs. Merit and Morgan are each entitled to receive one full year of
salary and a bonus equal to 40% of one year's salary pro-rated to the
date of termination.
The salary payments are payable on a regular payroll basis following
termination and the bonus payments are payable on the normal distributions
dates for Company bonuses. If one of the named officers is re-employed
during the severance period at a salary greater than or equal to his
termination salary, he would receive 50% of his salary for the remainder of
the severance period. If he is re-employed during the severance period at
less than his termination salary, he would receive in addition to 50% of
his salary, the difference in actual salary for the remainder of the
severance period.
If within 24 months following a change in control, one of the named
executives voluntary terminates his employment for good reason or the Company
terminates his employment for other than for cause, the executive would be
entitled to change in control severance benefits. "Change in control" is
defined as (i) the acquisition of any person or group of more than 40% of the
Company's outstanding voting securities, (ii) a merger in which (x) the voting
securities of the Company do not represent or are not converted into a majority
of the voting securities of the surviving corporation or (y) individuals who
were director of the Company immediately prior to the merger do not constitute a
majority of the directors of the surviving corporation; (iii) a sale of
substantially all of the Company's assets, (iv) a liquidation or dissolution of
the Company; or (v) individuals who as of March 22, 2000, constituted the Board
of Directors (the "Incumbent Board") cease for any reason other than death to
constitute a majority of the Board provided that an individual who becomes a
director subsequent to March 22, 2000 whose election was approved by the vote of
at least a majority of the directors then in office is deemed to be a member of
the Incumbent Board. "Good reason" includes failure to re-elect one of the
named executives to any corporate office or a reduction in the officer's
authority or responsibility, which the officer determines has detrimentally and
materially affected the terms of his employment, a material reduction in
compensation or benefits, and relocation to an office more than 50 miles away.
The change in control severance benefits are as follows:
. Messrs. Boyadjieff and Sutherlin are each entitled to receive three full
years of salary and a bonus equal to 60% of salary for the full three-
year period, both payable on a regular payroll basis.
. Messrs. Merit and Morgan are each entitled to receive one and one-half
years of salary and a bonus equal to 40% of one and one-half years'
salary, both payable on a regular payroll basis.
. Each named executive is entitled to full vesting of all benefits under
the Company's pension, profit sharing and similar plans.
. Each named executive is entitled to full vesting of all unvested options
outstanding under the Company's stock option plans except where the
change in control is a result of the merger of the Company and Tuboscope
Inc.
In addition to the foregoing, the agreement with Mr. Sutherlin provides for
a retention bonus in the amount of $600,000, payable to him if during the
24 months following a change in control he becomes entitled to terminate
his employment for good reason and does not do so for a period of at least
12 months. If after Mr. Sutherlin receives his retention bonus, he
terminates his employment for good reason within the two-year period
following the change in control, his retention bonus would be offset
against his severance pay and bonus.
The following additional benefits are provided to each named executive
whether he is receiving standard severance benefits or change in control
severance benefits:
. continued participation in the Company's medical and dental health
benefits and disability coverage or equivalent coverage during the
payout period, subject to reduction to the extent that the named
executive receives similar benefits from another employer;
. the gross-up of certain payments subject to excise taxes under the
Internal Revenue Code as "parachute payments," so that the individual
receives the same amount he would have received had there been no
applicable excise taxes;
. outplacement services of up to 15% of base salary; and
. continued use of a company automobile during the payout period.
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 1999, 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.
6
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 April 21, 2000. 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................................ 723,250(c) 1.1%
George S. Dotson................................. 30,000(d) *
Andre R. Horn.................................... 35,000(e) *
Richard A. Kertson............................... 100,977(f) *
Jack W. Knowlton................................. 72,800(g) *
Mark A. Merit.................................... 94,108(h)
Roger D. Morgan.................................. 106,101(i) *
Leo J. Pircher................................... 661,258(j)(k) 1.0%
Walter B. Reinhold............................... 1,267,945(k)(l) 1.9%
Carroll W. Suggs................................. 46,000(g) *
Michael W. Sutherlin............................. 147,184(m) *
Robert A. Teitsworth............................. 43,000(n) *
Eugene R. White.................................. 65,000(n) *
James D. Woods................................... 24,000(n) *
Franklin Resources Inc........................... 6,168,443(o) 9.4%
All Directors and Executive Officers as a Group.. 3,547,476(p) 5.3%
</TABLE>
__________
* Less than 1% of the shares of Common Stock outstanding on April 21, 2000.
(a) The address of each individual named in the table is c/o the Company, 743
North Eckhoff Street, Orange, California 92868. 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 483,193 shares issuable upon exercise of options.
7
<PAGE>
(d) Includes 25,000 shares issuable upon exercise of options. Does not include
1,000 shares held by Mr. Dotson's spouse with respect to which she has sole
voting and investment power and Mr. Dotson disclaims beneficial ownership.
(e) Includes 27,500 shares issuable upon exercise of options.
(f) Includes 49,755 shares issuable upon exercise of options.
(g) Includes 45,000 shares issuable upon exercise of options.
(h) Includes 77,063 shares issuable upon exercise of options.
(i) Includes 96,248 shares issuable upon exercise of options.
(j) Includes 459,058 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. Also includes 25,000 shares issuable
upon exercise of options.
(k) Includes 156,800 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 90,040 additional shares, all owned by Mr. Reinhold's spouse, with
respect to which Mr. Reinhold shares voting and investment power and
disclaims beneficial ownership. Does not include 182,273 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 52,669 shares issuable upon exercise of options.
(n) Includes 20,000 shares issuable upon exercise of options.
(o) Franklin Resources, Inc. ("FRI"), as the parent holding company for
investment advisory subsidiaries to closed-end investment companies or other
managed accounts, and Charles B. Johnson and Rupert H. Johnson, Jr.,
principal shareholders of FRI (the "Principal Shareholders"), are the
beneficial owners of 6,168,443 shares. Franklin Advisers, Inc. ("FAI"), an
investment advisory subsidiary of FRI, is the beneficial owner of 5,897,400
of such shares with respect to which it has sole voting and dispositive
power. Franklin Management, Inc., also an investment advisory subsidiary of
FRI, has sole dispositive power with respect to 271,043 shares. Franklin
Small Cap Growth Fund, a registered investment company, has an interest in
more than 5% of the Varco Common Stock. The address of the foregoing
beneficial owners is 777 Mariners Island Boulevard, San Mateo, CA 94404. The
foregoing information is taken from a Schedule 13G/A, dated February 2,
2000, filed by FRI with the SEC.
(p) Includes 1,207,346 shares issuable upon exercise of options by six executive
officers and five directors of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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
8
<PAGE>
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,
trustee 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, trustee 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 on 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, 1999 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 periodic adjustments, 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. Pursuant to the most recent
such adjustment, the monthly rental was increased to $31,504 effective November
1, 1998. Additional adjustments are provided for on May 1, 2001 and November 1,
2003. 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 1999
did not exceed 5% of such firm's 1999 gross revenues.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to report to
be signed on its behalf by the undersigned, thereunto duly authorized on the
27th day of April, 2000.
VARCO INTERNATIONAL, INC.
By: /s/ Wallace K. Chan
----------------------------------
Wallace K. Chan
Vice president Finance and
Chief Financial Officer
<PAGE>
Exhibit Index
Exhibits marked with an asterisk are filed herewith. Exhibits marked with
two asterisks were filed with the 1999 Form 10-K. The remainder of the exhibits
were previously filed with the Commission and are incorporated by reference.
Each management contract or compensation plan or arrangement filed as an exhibit
is identified by a "+".
3.1 Amended and Restated Articles of Incorporation of Varco, incorporated
by reference to Exhibit 3.1 to Varco's annual report on Form 10-K for
the year ended December 31, 1995.
3.2 Certificate of Amendment of Amended and Restated Articles of
Incorporation of Varco, as filed with the California Secretary of State
on June 5, 1998, incorporated by reference to Exhibit 3.2 to Varco's
annual report on Form 10-K for the year ended December 31, 1998.
3.3 Certificate of Determination of Rights, Preferences and Privileges of
Series A Participating Preferred Stock of Varco, as filed with the
California Secretary of State on November 6, 1997, incorporated by
reference to Exhibit 3.3 to Varco's annual report on Form 10-K for the
year ended December 31, 1998.
3.4 Certificate of Correction of Certificate of Determination of Rights,
Preferences and Privileges of Series A Participating Preferred Stock of
Varco, as filed with the California Secretary of State on November 14,
1997, incorporated by reference to Exhibit 3.4 to Varco's annual report
on Form 10-K for the year ended December 31, 1998.
3.5 Bylaws of Varco, incorporated by reference to Exhibit 3.7 to Amendment
No. 1 to Varco's Registration Statement on Form S-1, Registration No.
33-40191.
4.1 Credit Agreement, dated as of June 27, 1997, among Varco International,
Inc., the financial institutions listed therein as Lenders, and Union
Bank of California, N.A., as Agent, incorporated by reference to
Exhibit 4.8 to Varco's annual report on Form 10-K for the year ended
December 31, 1997.
4.2 First Amendment to Credit Agreement, dated as of July 15, 1997, to
Credit Agreement included as Exhibit 4.1 hereto, incorporated by
reference to Exhibit 4.9 to Varco's annual report on Form 10-K for the
year ended December 31, 1997.
4.3 Second Amendment to Credit Agreement dated as of August 13, 1997, to
Credit Agreement included as Exhibit 4.1 hereto, incorporated by
reference to Exhibit 4.10 to Varco's annual report on Form 10-K for the
year ended December 31, 1997.
4.4 Third Amendment to Credit Agreement dated as of November 7, 1997 to
Credit Agreement included as Exhibit 4.1 hereto, incorporated by
reference to Exhibit 4.11 to Varco's annual report on Form 10-K for the
year ended December 31, 1997.
4.5 Fourth Amendment to Credit Agreement dated as of February 18, 1998 to
Credit Agreement included as Exhibit 4.1 hereto, incorporated by
reference to Exhibit 4.12 to Varco's annual report on Form 10-K for the
year ended December 31, 1997.
4.6 Fifth Amendment to Credit Agreement dated as of November 3, 1998 to
Credit Agreement included as Exhibit 4.1 hereto, incorporated by
reference to Exhibit 4.13 to Varco's annual report on Form 10-K for the
year ended December 31, 1998.
4.7 Rights Agreement, dated as of November 6, 1997, between Varco
International, Inc. and Harris Trust Company of California as Rights
Agent, which includes: as Exhibit A thereto, the Form of Certificate of
Determination of Rights, Preferences, and Privileges of Series A
Participating Preferred Stock of Varco International, Inc.; as Exhibit
B thereto, the Form of Rights Certificate; and, as Exhibit C thereto,
the Summary of Rights, incorporated by reference to Exhibit 1 to the
Corporation's Form 8-A Registration Statement filed November 13, 1997.
10.1+ The Varco 1980 Stock Option Plan, as amended, incorporated by reference
to Exhibit 4.5 to Post-Effective Amendment No. 4 to Varco's
Registration Statement on Form S-8, Registration No. 2-66830.
10.2+ Amendment to Varco 1980 Stock Option Plan included as Exhibit 10.1
hereto, incorporated by reference to Exhibit 10.2 to Varco's quarterly
report on Form 10-Q for the quarter ended September 30, 1984.
10.3+ Amendment to Varco 1980 Stock Option Plan included as Exhibit 10.1
hereto, incorporated by reference to Exhibit 10.3 to Varco's annual
report on Form 10-K for the year ended December 31, 1996.
10.4+ The Varco 1982 Non-Employee Director Stock Option Plan, incorporated by
reference to Exhibit 19.3 to Varco's quarterly report on Form 10-Q for
the quarter ended June 30, 1982.
10.5+ Varco International, Inc. Supplemental Executive Retirement Plan,
incorporated by reference to Exhibit 10.6 to Varco's annual report on
Form 10-K for the year ended December 31, 1992.
10.6+ Amendment to Varco International, Inc. Supplemental Executive
Retirement Plan included as Exhibit 10.5 hereto, incorporated by
reference to Exhibit 10.6 to Varco's annual report on Form 10-K for the
year ended December 31, 1996.
10.7+ Second Amendment to the Varco International, Inc. Supplemental
Executive Retirement Plan, included as Exhibit 10.5 hereto,
incorporated by reference to Exhibit 10.7 to Varco's annual report on
Form 10-K for the year ended December 31, 1997.
10.8+ Varco International, Inc. Stock Bonus Plan, incorporated by reference
to Exhibit 10.8 to Varco's annual report on Form 10-K for the year
ended December 31, 1985.
10.9+ Amendments to Varco International, Inc. Stock Bonus Plan included as
Exhibit 10.8 hereto, incorporated by reference to Exhibit 10.7 to
Varco's annual report on Form 10-K for the year ended December 31,
1995.
10.10+ Amendment to Varco International, Inc. Stock Bonus Plan included as
Exhibit 10.8 hereto. incorporated by reference to Exhibit 10.9 to
Varco's annual report on Form 10-K for the year ended December 31,
1996.
10.11 Lease dated March 7, 1975, as amended, incorporated by reference to
Exhibit 10.7 to Varco's annual report on Form 10-K for the year ended
December 31, 1981, and agreement with respect thereto dated as of
January 1, 1982, incorporated by reference to Exhibit 10.8 to Varco's
annual report on Form 10-K for the year ended December 31, 1982.
10.12 Agreement dated as of January 1, 1984, with respect to Lease included
as Exhibit 10.11 hereto, incorporated by reference to Exhibit 10.13 to
Varco's annual report on Form 10-K for the year ended December 31,
1984.
10.13 Agreement dated as of February 8, 1985, with respect to Lease included
as Exhibit 10.11 hereto, incorporated by reference to Exhibit 10.14 to
Varco's annual report on Form 10-K for the year ended December 31,
1984.
10.14 Agreement dated as of April 12, 1985 to Lease included as Exhibit 10.11
hereto, incorporated by reference to Exhibit 10.2 to Varco's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1985.
11
<PAGE>
10.15 Amendment dated as of January 11, 1996 to Lease included as Exhibit
10.11 hereto, incorporated by reference to Exhibit 10.12 to Varco's
annual report on Form 10-K for the year ended December 31, 1995.
10.16 Standard Industrial Lease-Net dated September 29, 1988 for the
premises at 743 N. Eckhoff, Orange, California, incorporated by
reference to Exhibit 10.14 to Varco's annual report on Form 10-K for
the year ended December 31, 1988.
10.17 First amendment dated as of January 11, 1996 to Lease included as
Exhibit 10.16 hereto, incorporated by reference to Exhibit 10.15 to
Varco's annual report on Form 10-K for the year ended December 31,
1995.
10.18+ The Varco International, Inc. 1990 Stock Option Plan, as amended,
incorporated by reference to Exhibit 4.2 to Varco's Registration
Statement on Form S-8, Registration No. 333-21681.
**10.19+ Amendments to the Varco International, Inc. 1990 Stock Option Plan
included as Exhibit 10.18 hereto.
**10.20+ Form of amendment to stock option agreements under the Varco
International, Inc. 1990 Stock Option Plan, included as Exhibit 10.18
hereto.
10.21+ Varco 1980 Employee Stock Purchase Plan, as amended, incorporated by
reference to Exhibit 28 to Varco's Registration Statement on Form S-8,
Registration No. 33-36841.
10.22+ Amendment to the Varco 1980 Employee Stock Purchase Plan included as
Exhibit 10.21 hereto, incorporated by reference to Exhibit 10.19 to
Varco's annual report on Form 10-K for the year ended December 31,
1995.
10.23+ Amendment to the Varco 1980 Employee Stock Purchase Plan included as
Exhibit 10.21 hereto, incorporated by reference to Exhibit 10.21 to
Varco's annual report on Form 10-K for the year ended December 31,
1996.
**10.24+ Varco International Inc. Management Incentive Bonus Plan.
10.25+ Varco International Inc. 1994 Directors' Stock Option Plan,
incorporated by reference to Exhibit 10.24 to Varco's annual report on
Form 10-K for the year ended December 31, 1995.
10.26+ Amendment to Varco International Inc. 1994 Directors' Stock Option
Plan incorporated by reference to Exhibit 10.26 to Varco's annual
report on Form 10-K for the year ended December 31, 1997.
**10.27+ The Varco International, Inc. Director Deferred Compensation.
**10.28+ The Varco International, Inc. Deferred Compensation Plan.
*10.29+ Executive Agreement dated as of March 22, 2000 between Varco
International, Inc. and George Boyadjieff.
*10.30+ Executive Agreement dated as of March 22, 2000 between Varco
International, Inc. and Michael W. Sutherlin.
*10.31+ Executive Agreement dated as of March 22, 2000 between Varco
International, Inc. and Wallace K. Chan.
*10.32+ Form of Executive Agreement dated as of March 22, 2000 between Varco
International, Inc. and Donald L. Stichler, Robert J. Gondek, Mark A.
Merit, Roger D. Morgan, Dietmar Neidhardt and James G. Renfro.
**11 Statement re computation of per share earnings.
**12 Statement re computation of ratios.
12
<PAGE>
**13 1999 Annual Report to Shareholders, to the extent expressly
incorporated by reference in this Report on Form 10-K. Such Annual
Report, except for those portions so incorporated by reference, is
furnished only for information and is not to be deemed filed
herewith.
**21 Subsidiaries of Varco.
**23 Consent of Independent Auditors.
**27 Financial Data Schedule December 31, 1999
____________
* Filed herewith
** Filed with 1999 Annual Report on Form 10-K.
+ Management contract, compensation plan or arrangement.
As to any security holder of the Registrant requesting a copy of this Form 10-K,
the Registrant will furnish copies of any exhibits listed above as filed with
this Form 10-K upon payment to it of its reasonable expenses in furnishing such
exhibits.
13
<PAGE>
Exhibit 10.29
EXECUTIVE AGREEMENT
This Executive Agreement (this "Agreement") is made and entered into as of
the 22nd day of March, 2000 (the "Effective Date") between Varco International,
Inc., a California corporation (the "Company") and George Boyadjieff (the
"Executive").
WHEREAS, the Executive is employed as an Executive Officer of the Company; and
WHEREAS, the Company believes it to be in the best interests of its stockholders
to attract, retain and motivate key executive officers and ensure continuity of
management; and
WHEREAS, it is in the best interest of the Company and its stockholders if the
key executive officers can approach material business development decisions
objectively and without concern for their personal situation;
WHEREAS, the Company recognizes that the possibility of a Change of Control of
the Company may result in the departure of key executives to the detriment of
the Company and its stockholders;
In consideration of Executive's continued employment as an executive
officer with the Company and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and
Executive agree as follows:
1. Term of Agreement
A. This Agreement shall commence on the Effective Date and shall continue
in effect, unless terminated earlier as otherwise set forth herein
through December 31, 2002; provided, however, that unless so
terminated earlier, the term of this Agreement shall automatically be
extended for one or more additional terms of three (3) years;
provided, however, this Agreement may be terminated at any time after
the expiration of the original term upon the Company providing three
(3) years written notice to the Executive.
B. The term of this Agreement shall terminate upon the expiration of the
"Severance Payout Period" or "Change in Control Payout Period", as
applicable, and all rights or benefits thereunder have been satisfied.
2. Certain Definitions
A. "Cause". "Cause" shall mean:
-------
(i) Executive's conviction of a felony involving moral turpitude,
dishonesty or a breach of trust as regards the Company;
<PAGE>
(ii) Executive's commission of any act of theft, fraud, embezzlement
or misappropriation against the Company that is materially
injurious to it regardless of whether a criminal conviction is
obtained;
(iii) Executive's willful and continued failure to devote
substantially all of his business time to the Company's
business affairs (excluding failures due to illness,
incapacity, vacations, incidental civic activities and
incidental personal time) which failure is not remedied within
a reasonable time after written demand is delivered by the
Company, which demand specifically identifies the manner in
which the Company, believes that Executive has failed to devote
substantially all of his business time to the Company's
business affairs; or
(iv) Executive's unauthorized disclosure of confidential information
of the Company that is materially injurious to the Company.
For purposes of this definition, no act, or failure to act, on
Executive's part shall be deemed "willful" unless done, or omitted to be
done, by Executive not in good faith and without reasonable belief that
Executive's action or omission was in the best interest of the Company.
B. "Change in Control" means (i) any person or persons acting in concert
-------------------
becoming the beneficial owner, directly or indirectly, of securities
of the Company representing forty (40%) percent or more of the total
voting power of all of its then outstanding voting securities, (ii) a
merger or consolidation of the Company in which (x) the voting
securities of the Company immediately prior to the merger or
consolidation do not represent, or are not converted into, securities
that represent, a majority of the voting power of all voting
securities of the surviving entity immediately after the merger or
consolidation or (y) individuals who were directors of the Company
immediately prior to the effectiveness of such merger or consolidation
do not constitute a majority of the Board of Directors of the
surviving entity immediately after the merger or consolidation, (iii)
a sale of substantially all of the assets of the Company (other than a
sale to one or more subsidiaries of the Company), (iv) a liquidation
or dissolution of the Company, or (v) individuals who, as of the
Effective Date, constitute the Board of Directors (the "Incumbent
Board") cease (for any reason other than death) to constitute at least
a majority of such Board; provided that any individual who becomes a
director of the Company subsequent to the Effective Date, whose
election, or nomination for election by the Company's stockholders,
was approved by the vote of at least a majority of the directors then
in office shall be deemed a member of the Incumbent Board.
C. "Date of Termination" shall mean the date specified in the Notice of
---------------------
Termination relating to termination of Executive's employment with
Company; provided that such date shall not be less than 20 days nor
more than 45 days following: (i) involuntary termination, not for
cause, pursuant to Section 4 hereof, or (ii) the
2
<PAGE>
date within the Protective Period that Executive voluntarily
terminates his employment for good reason as governed by Section 5
hereof.
D. "Executive" shall mean the named Executive Officer who is a party to
-----------
this Agreement and in the event of the Executive's death after a
"qualifying" termination pursuant to Section 4 hereof or a Change of
Control pursuant to Section 5 hereof, then the term "Executive" shall
include his estate.
E. "Good Reason" shall mean:
-------------
(i) failure to re-elect or appoint the Executive to any corporate
office or directorship held at the time of the Change of Control
or a material reduction in Executive's authority, duties or
responsibilities (including status, offices, titles and
reporting requirements) or if Executive is assigned duties or
responsibilities inconsistent in any material respect from those
of Executive at the time of the relevant Change in Control all
on the basis of which Executive makes a good faith determination
that the terms of his employment have been detrimentally and
materially affected.
(ii) a material reduction of Executive's compensation or benefits,
including annual base salary, annual bonus, intermediate or
long-term cash or equity incentive opportunities or plans from
those in effect prior to the Change in Control;
(iii) the Company fails to obtain a written agreement satisfactory to
Executive from any successor or assigns of the Company to assume
and perform this Agreement as provided in Section 9 hereof;
(iv) the Company requires Executive to be based at any office located
more than fifty (50) miles from the Company's current offices
without Executive's consent.
F. "Notice of Termination" shall mean a written notice delivered to the
-----------------------
other party indicating the specific termination provision in this
Agreement relied upon for termination of Executive's employment and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
G. "Option Plans" shall mean the Company's stock option plans, incentive
--------------
plans, equity participation plans, or other similar plans, and any
stock option agreements or other agreements used in connection
therewith.
H. "Termination Base Salary" shall mean Executive's base salary at the
-------------------------
rate in effect at the time the Notice of Termination is given or, for
purposes of a Change of Control, if a greater amount, Executive's base
salary at the rate in effect immediately prior to the Change of
Control.
3
<PAGE>
I. "Tuboscope Change in Control" means a Change in Control as a result of
-----------------------------
merger or combination of the Company and Tuboscope Inc.
3. Termination for Cause. The Company may terminate Executive for Cause at any
time, including following a Change of Control, upon written notice to
Executive.
4. Standard Severance Plan. If Executive is terminated involuntarily (i.e.,
without the consent of Executive) by the Company for any reason other than
for Cause (and such termination is not pursuant to a Change of Control) the
Executive shall receive the following compensation and benefits from the
Company:
A. The Company shall pay to Executive when otherwise due Executive's
Termination Base Salary through the Date of Termination.
B. Effective as of the Date of Termination, the Company shall continue to
pay to Executive (the "Severance Pay") the Termination Base Salary,
payable on a regular payroll basis, for a period of twenty-four (24)
months following the Date of Termination (such period to be herein
referred to as the "Severance Payout Period"), subject to reduction as
follows:
(i) If Executive is re-employed during the Severance Payout Period,
Executive shall receive throughout the remainder of the
Severance Payout Period following the effective date of such re-
employment, 50% of the Severance Pay otherwise due and payable
to Executive after such date of re-employment;
(ii) In addition, if Executive is re-employed during the Severance
Payout Period at an annual base salary that is less than the
Termination Base Salary, in addition to the payment required by
clause (i) above, Executive shall receive on a monthly basis
throughout the remainder of the Severance Payout Period
following the effective date of such re-employment the
difference between (x) the salary actually received by Executive
on a monthly basis from such re-employment and (y) the
Termination Base Salary expressed as a monthly payment.
C. The Company shall pay to Executive as a bonus an amount equal to sixty
percent (60%) of Executive's Termination Base Salary in lieu of
participation in the Company's Management Incentive Bonus Plan or a
similar or successor plan for the year in which the Date of
Termination occurs. Such bonus shall be due and payable on the normal
distribution date for bonuses for participants in such plan.
5. Change in Control Severance Plan. In the event that within the "Protective
Period" (24 months following the effective date of a Change of Control)
either (a) Executive voluntarily terminates employment for Good Reason or
(b) the Company terminates Executive's employment other than for Cause, the
Executive shall receive the following compensation and benefits from the
Company:
4
<PAGE>
A. The Company shall pay to Executive when otherwise due Executive's
Termination Base Salary through the Date of Termination.
B. Effective as of the Date of Termination, the Company shall continue to
pay to Executive the Termination Base Salary, payable on a regular
payroll basis, for a period of thirty-six (36) months following the
Date Termination (such period to be herein referred to as the "Change
in Control Payout Period").
C. Effective as of the Date of Termination, the Company shall pay to
Executive an amount equal to three (3) times (i.e., the 36 months set
forth in B above) sixty percent (60%) of Executive's Termination Base
Salary in lieu of participation in the Company's Management Incentive
Bonus Plan or a similar or successor plan. Payment shall be made in
installments consistent with payment of the Executive's Termination
Base Salary on a regular payroll basis.
D. Executive shall become and be fully vested in Executive's accrued
benefits under all qualified pension, nonqualified pension, profit
sharing, 401(k), deferred compensation and supplemental plans
maintained by the Company for Executive's benefit, except to the
extent that the acceleration of vesting of such benefits would violate
any applicable law or require the Company to accelerate the vesting of
the accrued benefits of all participants in such plan or plans, in
which case the Company shall pay Executive a lump sum payment, within
30 days following the Date of Termination, in an amount equal to the
present value of such unvested accrued benefits. In addition, if such
a lump sum payment is payable, the Company shall make an additional
gross-up payment to Executive in an amount such that the net amount of
the lump sum payment and such additional gross-up payment retained by
Executive, after the calculation and deduction of all federal, state
and local income tax and employment tax (including any interest or
penalties imposed with respect to such taxes) on such lump sum payment
and additional gross-up payment, and taking into account any lost or
reduced tax deductions on account of such gross-up payment, shall be
equal to such lump sum payment.
6. Additional Benefits.
A. For the term of the Severance Payout Period or Change in Control
Payout Period, as applicable, the Company shall continue to provide
Executive and Executive's eligible family members, based on the cost
sharing arrangement between Executive and the Company on the Date of
Termination, with medical and dental health benefits and disability
coverage and benefits at least equal to those which would have been
provided to Executive if Executive's employment had not been
terminated or, if more favorable to Executive, as in effect generally
at any time during such Severance Payout Period or Change in Control
period, as applicable. Notwithstanding the foregoing, if Executive
becomes re-employed and is eligible to receive medical, dental and
disability benefits under another employer's plans, the Company's
obligations under this Section 6A shall be reduced to the extent
comparable benefits are actually received by Executive during the
Severance
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Payout Period or Change in Control Payout Period, as applicable, and
any such benefits actually received by Executive shall be promptly
reported by Executive to the Company. In the event Executive is
ineligible under the terms of the Company's benefit plans or programs
to continue to be so covered, the Company shall provide Executive with
substantially equivalent coverage through other sources or will
provide Executive with a lump sum payment in such amount that, after
all taxes on that amount, shall be equal to the cost to Executive of
providing Executive such benefit coverage. The lump sum shall be
determined on a present value basis using the interest rate provided
in Section 1274(b)(2)(B) of the Internal Revenue Code of 1986, as
amended (the "Code") on the Date of Termination. In addition, if such
a lump sum payment is payable, the Company shall make an additional
gross-up payment to Executive in an amount such that the net amount of
the lump sums payment and such additional gross-up payment retained by
Executive, after the calculation and deduction of all federal, state
and local income tax and employment tax (including any interest or
penalties imposed with respect to such taxes) on such lump sum payment
and additional gross-up payment, and taking into account any lost or
reduced tax deductions on account of such gross-up payment, shall be
equal to such lump sum payment.
B. Outplacement Benefits. Throughout the term of the Severance Payout
---------------------
Period or Change in Control Payout Period, as applicable, Executive
shall be entitled to receive outplacement services, payable by the
Company, with an aggregate cost not to exceed 15% of Executive's
Termination Base Salary, with an executive outplacement service firm
reasonably acceptable to the Company and Executive.
C. Automobile Benefits. Throughout the Severance Payout Period or Change
-------------------
in Control Payout Period, as applicable, the Company shall continue to
provide Executive with a company car comparable to the company car
provided to Executive at the Date of Termination.
7. Accelerated Vesting of Options Upon a Change of Control.
Notwithstanding any provisions to the contrary of any of the Option Plans
or Option Agreements, upon a Change in Control (other than a Tuboscope
Change in Control) all outstanding unvested stock options, if any, granted
to Executive under any of the Option Plans (or options substituted therefor
covering the stock of a successor corporation) shall be and become fully
vested and exercisable as to all shares of stock covered thereby effective
as of the date of the Change in Control.
8. Mitigation.
Executive shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise
nor, except as provided in Section 4B and Section 6A, shall the amount of
any payment or benefit provided for in this Agreement be reduced by any
compensation earned or benefit received by Executive as the result of
employment by another employer or self-employment, by retirement
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benefits, by offset against any amount claimed to be owed by Executive to
the Company or otherwise.
9. Successor Agreement.
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to assume expressly and agree
to perform this Agreement in the same manner and to the same extent that
the Companies would be required to perform if no succession had taken
place. Failure of the successor to so assume shall constitute a breach of
this Agreement and entitle Executive to the benefits hereunder as if
triggered by a termination not for Cause.
10. Indemnity.
In any situation where under applicable law the Company has the power to
indemnify, advance expenses to and defend Executive in respect of any
judgements, fines, settlements, loss, cost or expense (including attorneys
fees) of any nature related to or arising out of Executive's activities as
an agent, employee, officer or director of the Company or in any other
capacity on behalf of or at the request of the Company, then the Company
shall promptly on written request, indemnify Executive, advance expenses
(including attorney's fees) to Executive and defend Executive to the
fullest extent permitted by applicable law, including but not limited to
making such findings and determinations and taking any and all such actions
as the Company may, under applicable law, be permitted to have the
discretion to take so as to effectuate such indemnification, advancement or
defense. Such agreement by the Company shall not be deemed to impair any
other obligation of the Company respecting Executive's indemnification or
defense otherwise arising out of this or any other agreement or promise of
the Company under any statute.
11. Notice.
For the purpose of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and delivered by United
States certified or registered mail (return receipt requested, postage
prepaid) or by courier guaranteeing overnight delivery or by hand delivery
(with signed receipt required), addressed to the respective addresses set
forth below, and such notice or communication shall be deemed to have been
duly given two days after deposit in the mail, one day after deposit with
such overnight carrier or upon delivery with hand delivery. The addresses
set forth below may be changed by a writing in accordance herewith.
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The Company: Executive:
Varco International, Inc. George Boyadjieff
743 North Eckhoff Street 18772 Colony Circle
Orange, California 92868 Villa Park, California 92861
Attn: Chief Executive Officer
12. Dispute Resolution.
If any dispute arises out of this Agreement, the "complaining party" shall
give the "other party" written notice of such dispute. The other party
shall have ten (10) business days to resolve the dispute to the complaining
party's satisfaction. If the dispute is not resolved by the end of such
period, the complaining party may by written notice (the "Notice") demand
arbitration of the dispute as set out below, and each party hereto
expressly agrees to submit to, and be bound by, such arbitration.
(a) Each party will, within ten (10) business days of the Notice, nominate
an arbitrator. Each nominated arbitrator must be someone experienced
in dispute resolution and of good character without moral turpitude
and not within the employ or direct or indirect influence of the
nominating party. The two nominated arbitrators will, within ten (10)
business days of nomination, agree upon a third arbitrator. If two
(2) appointed arbitrators cannot agree on a third arbitrator within
such period, the parties may seek such an appointment through any
permitted court proceeding or by the American Arbitration Association
("AAA"). The three arbitrators will set the rules and timing of the
arbitration, but will generally follow the rules of the AAA and this
Agreement where same are applicable and shall provide for written fact
findings.
(b) The arbitration hearing will in no event take place more than ninety
(90) days after the appointment of the third arbitrator.
(c) The arbitration will take place in Orange, California unless otherwise
unanimously agreed to by the parties.
(d) The results of the arbitration and the decision of the arbitrators
will be final and binding on the parties and each party agrees and
acknowledges that these results shall be enforceable in a court of
law.
13. Governing Law.
This Agreement will be governed by and construed in accordance with the
internal substantive laws, and not the choice of law rules, of the State of
California.
14. Excise Taxes and Gross-Up Payments.
A. The benefits of this Section 14 shall only apply if the aggregate
payments and distributions to Executive or for Executive's benefit
(whether paid or payable or distributed or distributable) pursuant to
the terms of this Agreement (the
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<PAGE>
"Payment") exceeds 2.99 multiplied by the Executive's "base amount"
(as defined under Section 280G(b)(3) of the Code) by 12.5% or greater.
Only if the Payment to Executive satisfies or exceeds such threshold,
then Executive (i) shall be entitled to the benefits and payments set
forth in this Section 14, and (ii) shall be referred to in this
Section 14 as "Tax Eligible Executive".
B. If it shall be determined that Executive is a Tax Eligible Executive
and any or all of the Payment would be subject to the excise tax
imposed by Section 4999 of the Code (the "Excise Tax"), then Tax
Eligible Executive shall be entitled to receive from the Company an
additional payment (the "Gross-Up Payment") in an amount such that the
net amount of the Payment and the Gross-Up Payment retained by Tax
Eligible Executive after the calculation and deduction of all Excise
Taxes (including any interest or penalties imposed with respect to
such taxes) on the Payment and all federal, state and local income
tax, employment tax and Excise Tax (including any interest or
penalties imposed with respect to such taxes) on the Gross-Up Payment
provided for in this Section 14, and taking into account any lost or
reduced tax deductions on account of the Gross-Up Payment, shall be
equal to the Payment.
C. All determinations required to be made under this Section 14,
including whether Executive is a Tax Eligible Executive and whether
and when the Gross-Up Payment is required and the amount of such
Gross-Up Payment, and the assumptions to be utilized in arriving at
such determinations (consistent with the provisions of the Section
14), shall be made by the Company's independent certified public
accountants (the "Accountants"). The Accountants shall provide Tax
Eligible Executive and the Company with detailed supporting
calculations with respect to such Gross-Up Payment within fifteen (15)
business days of the receipt of notice from Executive or the Company
that Executive has received or will receive a Payment. In the event
that the Accountants are also serving as accountant or auditor for the
individual, entity or group effecting the Change in Control, Tax
Eligible Executive shall appoint another nationally recognized public
accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accountants
hereunder). All fees and expenses of the Accountants shall be borne
solely by the Company. All determinations by the Accountants shall be
binding upon the Company and Tax Eligible Executive.
D. For the purposes of determining whether any of the Payments will be
subject to the Excise Tax and the amount of such Excise Tax, such
Payments will be treated as "parachute payments" within the meaning of
Section 280G of the Code, and all "parachute payments" in excess of
the "base amount" (as defined under Section 280G(b)(3) of the Code)
shall be treated as subject to the Excise Tax, unless and except to
the extent that in the opinion of the Accountants such payment (in
whole or in part) either do not constitute "parachute payments" or
represent reasonable compensation for services actually rendered
(within the meaning of Section 280G(b)(4) of the Code) in excess of
the "base amount" or such "parachute payments" are otherwise not
subject to such Excise Tax. For purposes of
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<PAGE>
determining the amount of the Gross-Up Payment, Tax Eligible Executive
shall be deemed to pay federal income taxes at the highest applicable
marginal rate of federal income taxation for the calendar year in
which the Gross-Up Payment is to be made and to pay any applicable
state and local income taxes at the highest applicable marginal rate
of taxation for the calendar year in which the Gross-Up Payment is to
be made, net of the maximum reduction in federal income taxes that
could be obtained from the deduction of such state or local taxes if
paid in such year (determined without regard to limitations on
deductions based upon the amount of Tax Eligible Executive's adjusted
gross income); and to have otherwise allowable deductions for federal,
state and local income tax purposes at least equal to those disallowed
because of the inclusion of the Gross-Up Payment in Tax Eligible
Executive's adjusted gross income.
E. To the extent practicable, any Gross-Up Payment with respect to any
Payment shall be paid by the Company at the time Tax Eligible
Executive is entitled to receive the Payment and in no event will any
Gross-Up Payment be paid later than thirty (30) days after the receipt
by Tax Eligible Executive of the Accountant's determination. As a
result of uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accountants hereunder,
it is possible that the Gross-Up Payment made will have been an amount
less than the Company should have paid pursuant to this Section 14
(the "Underpayment"). In the event that the Company exhausts its
remedies pursuant to Section 14 and Tax Eligible Executive is required
to make a payment of any Excise Tax, the Underpayment shall be
promptly paid by the Company to or for Tax Eligible Executive's
benefit.
F. Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable after Executive is informed in
writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid.
Tax Eligible Executive shall not pay such claim prior to the
expiration of the thirty (30) day period following the date on which
Tax Eligible Executive gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes, interest
and/or penalties with respect to such claim is due). If the Company
notifies Tax Eligible Executive in writing prior to the expiration of
such thirty (30) day period that it desires to contest such claim, Tax
Eligible Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company;
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<PAGE>
(iii) cooperate with the Company in good faith in order to
effectively contest such claim; and
(iv) permit the Company to participate in any proceedings relating
to such claims; provided, however, that the Company shall bear
and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such
contest and shall indemnify Tax Eligible Executive for, advance
expenses to Tax Eligible Executive for, defend Tax Eligible
Executive against and hold Tax Eligible Executive harmless
from, on an after-tax basis, any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed
as a result of such representation and payment of all related
costs and expenses. Without limiting the foregoing provisions
of this Section 14, the Company shall control all proceedings
taken in connection with such contest and, at its sole option,
may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority
in respect of such claim and may, at its sole option, either
direct Tax Eligible Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner,
and Tax Eligible Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the
Company directs Tax Eligible Executive to pay such claim and
sue for a refund, the Company shall advance the amount of such
payment to Tax Eligible Executive, on an interest-free basis,
and shall indemnify Tax Eligible Executive for, advance
expenses to Tax Eligible Executive for, defend Tax Eligible
Executive against and hold Tax Eligible Executive harmless
from, on an after-tax basis, any Excise Tax or income tax
(including interest or income penalties with respect thereto)
imposed with respect to such advance or with respect to any
imputed income with respect to such advance (including as a
result of any forgiveness by the Company of such advance);
provided, further, that any extension of the statute of
limitations relating to the payment of taxes for the taxable
year of Tax Eligible Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Tax Eligible
Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service
or any other taxing authority.
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IN WITNESS WHEREOF, the Company and the Executive have executed this
Amendment to be effective the date first above written.
EXECUTIVE THE COMPANY
VARCO INTERNATIONAL, INC.
/s/ GEORGE BOYADJIEFF By /s/ WALLACE K. CHAN
George Boyadjieff Wallace K. Chan
Vice President-Finance and
Chief Financial Officer
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Exhibit 10.30
EXECUTIVE AGREEMENT
This Executive Agreement (this "Agreement") is made and entered into as of
the 22nd day of March, 2000 (the "Effective Date") between Varco International,
Inc., a California corporation (the "Company") and Michael W. Sutherlin (the
"Executive").
WHEREAS, the Executive is employed as an Executive Officer of the Company; and
WHEREAS, the Company believes it to be in the best interests of its stockholders
to attract, retain and motivate key executive officers and ensure continuity of
management; and
WHEREAS, it is in the best interest of the Company and its stockholders if the
key executive officers can approach material business development decisions
objectively and without concern for their personal situation;
WHEREAS, the Company recognizes that the possibility of a Change of Control of
the Company may result in the departure of key executives to the detriment of
the Company and its stockholders;
In consideration of Executive's continued employment as an executive
officer with the Company and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and
Executive agree as follows:
1. Term of Agreement
A. This Agreement shall commence on the Effective Date and shall continue
in effect, unless terminated earlier as otherwise set forth herein
through December 31, 2002; provided, however, that unless so
terminated earlier, the term of this Agreement shall automatically be
extended for one or more additional terms of three (3) years;
provided, however, this Agreement may be terminated at any time after
the expiration of the original term upon the Company providing three
(3) years written notice to the Executive.
B. The term of this Agreement shall terminate upon the expiration of the
"Severance Payout Period" or "Change in Control Payout Period", as
applicable, and all rights or benefits thereunder have been satisfied.
2. Certain Definitions
A. "Cause". "Cause" shall mean:
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(i) Executive's conviction of a felony involving moral turpitude,
dishonesty or a breach of trust as regards the Company;
<PAGE>
(ii) Executive's commission of any act of theft, fraud, embezzlement
or misappropriation against the Company that is materially
injurious to it regardless of whether a criminal conviction is
obtained;
(iii) Executive's willful and continued failure to devote
substantially all of his business time to the Company's
business affairs (excluding failures due to illness,
incapacity, vacations, incidental civic activities and
incidental personal time) which failure is not remedied within
a reasonable time after written demand is delivered by the
Company, which demand specifically identifies the manner in
which the Company, believes that Executive has failed to devote
substantially all of his business time to the Company's
business affairs; or
(iv) Executive's unauthorized disclosure of confidential information
of the Company that is materially injurious to the Company.
For purposes of this definition, no act, or failure to act, on
Executive's part shall be deemed "willful" unless done, or omitted to be
done, by Executive not in good faith and without reasonable belief that
Executive's action or omission was in the best interest of the Company.
B. "Change in Control" means (i) any person or persons acting in concert
-------------------
becoming the beneficial owner, directly or indirectly, of securities
of the Company representing forty (40%) percent or more of the total
voting power of all of its then outstanding voting securities, (ii) a
merger or consolidation of the Company in which (x) the voting
securities of the Company immediately prior to the merger or
consolidation do not represent, or are not converted into, securities
that represent, a majority of the voting power of all voting
securities of the surviving entity immediately after the merger or
consolidation or (y) individuals who were directors of the Company
immediately prior to the effectiveness of such merger or consolidation
do not constitute a majority of the Board of Directors of the
surviving entity immediately after the merger or consolidation, (iii)
a sale of substantially all of the assets of the Company (other than a
sale to one or more subsidiaries of the Company), (iv) a liquidation
or dissolution of the Company, or (v) individuals who, as of the
Effective Date, constitute the Board of Directors (the "Incumbent
Board") cease (for any reason other than death) to constitute at least
a majority of such Board; provided that any individual who becomes a
director of the Company subsequent to the Effective Date, whose
election, or nomination for election by the Company's stockholders,
was approved by the vote of at least a majority of the directors then
in office shall be deemed a member of the Incumbent Board.
C. "Date of Termination" shall mean the date specified in the Notice of
-------------------
Termination relating to termination of Executive's employment with
Company; provided that such date shall not be less than 20 days nor
more than 45 days following: (i) involuntary termination, not for
cause, pursuant to Section 4 hereof, or (ii) the
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date within the Protective Period that Executive voluntarily
terminates his employment for good reason as governed by Section 5
hereof.
D. "Executive" shall mean the named Executive Officer who is a party to
-----------
this Agreement and in the event of the Executive's death after a "qualifying"
termination pursuant to Section 4 hereof or a Change of Control pursuant to
Section 5 hereof, then the term "Executive" shall include his estate.
E. "Good Reason" shall mean:
-------------
(i) failure to re-elect or appoint the Executive to any corporate
office or directorship held at the time of the Change of
Control or a material reduction in Executive's authority,
duties or responsibilities (including status, offices, titles
and reporting requirements) or if Executive is assigned duties
or responsibilities inconsistent in any material respect from
those of Executive at the time of the relevant Change in
Control all on the basis of which Executive makes a good faith
determination that the terms of his employment have been
detrimentally and materially affected.
(ii) a material reduction of Executive's compensation or benefits,
including annual base salary, annual bonus, intermediate or
long-term cash or equity incentive opportunities or plans from
those in effect prior to the Change in Control;
(iii) the Company fails to obtain a written agreement satisfactory to
Executive from any successor or assigns of the Company to
assume and perform this Agreement as provided in Section 9
hereof;
(iv) the Company requires Executive to be based at any office
located more than fifty (50) miles from the Company's current
offices without Executive's consent.
F. "Notice of Termination" shall mean a written notice delivered to the
-----------------------
other party indicating the specific termination provision in this
Agreement relied upon for termination of Executive's employment and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
G. "Option Plans" shall mean the Company's stock option plans, incentive
--------------
plans, equity participation plans, or other similar plans, and any
stock option agreements or other agreements used in connection
therewith.
H. "Termination Base Salary" shall mean Executive's base salary at the
-------------------------
rate in effect at the time the Notice of Termination is given or, for
purposes of a Change of Control, if a greater amount, Executive's base
salary at the rate in effect immediately prior to the Change of
Control.
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I. "Tuboscope Change in Control" means a Change in Control as a result of
-----------------------------
merger or combination of the Company and Tuboscope Inc.
3. Termination for Cause. The Company may terminate Executive for Cause at any
time, including following a Change of Control, upon written notice to
Executive.
4. Standard Severance Plan. If Executive is terminated involuntarily (i.e.,
without the consent of Executive) by the Company for any reason other than
for Cause (and such termination is not pursuant to a Change of Control) the
Executive shall receive the following compensation and benefits from the
Company:
A. The Company shall pay to Executive when otherwise due Executive's
Termination Base Salary through the Date of Termination.
B. Effective as of the Date of Termination, the Company shall continue to
pay to Executive (the "Severance Pay") the Termination Base Salary,
payable on a regular payroll basis, for a period of twenty-four (24)
months following the Date of Termination (such period to be herein
referred to as the "Severance Payout Period"), subject to reduction as
follows:
(i) If Executive is re-employed during the Severance Payout Period,
Executive shall receive throughout the remainder of the
Severance Payout Period following the effective date of such
re-employment, 50% of the Severance Pay otherwise due and
payable to Executive after such date of re-employment;
(ii) In addition, if Executive is re-employed during the Severance
Payout Period at an annual base salary that is less than the
Termination Base Salary, in addition to the payment required by
clause (i) above, Executive shall receive on a monthly basis
throughout the remainder of the Severance Payout Period
following the effective date of such re-employment the
difference between (x) the salary actually received by
Executive on a monthly basis from such re-employment and (y)
the Termination Base Salary expressed as a monthly payment.
C. The Company shall pay to Executive as a bonus an amount equal to sixty
percent (60%) of Executive's Termination Base Salary in lieu of
participation in the Company's Management Incentive Bonus Plan or a
similar or successor plan for the year in which the Date of
Termination occurs. Such bonus shall be due and payable on the normal
distribution date for bonuses for participants in such plan.
5. Change in Control Severance Plan. In the event that within the "Protective
Period" (24 months following the effective date of a Change of Control)
either (a) Executive voluntarily terminates employment for Good Reason or
(b) the Company terminates Executive's employment other than for Cause, the
Executive shall receive the following compensation and benefits from the
Company:
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A. The Company shall pay to Executive when otherwise due Executive's
Termination Base Salary through the Date of Termination.
B. Effective as of the Date of Termination, the Company shall continue to
pay to Executive the Termination Base Salary, payable on a regular
payroll basis, for a period of thirty-six (36) months following the
Date Termination (such period to be herein referred to as the "Change
in Control Payout Period").
C. Effective as of the Date of Termination, the Company shall pay to
Executive an amount equal to three (3) times (i.e., the 36 months set
forth in B above) sixty percent (60%) of Executive's Termination Base
Salary in lieu of participation in the Company's Management Incentive
Bonus Plan or a similar or successor plan. Payment shall be made in
installments consistent with payment of the Executive's Termination
Base Salary on a regular payroll basis.
D. Executive shall become and be fully vested in Executive's accrued
benefits under all qualified pension, nonqualified pension, profit
sharing, 401(k), deferred compensation and supplemental plans
maintained by the Company for Executive's benefit, except to the
extent that the acceleration of vesting of such benefits would violate
any applicable law or require the Company to accelerate the vesting of
the accrued benefits of all participants in such plan or plans, in
which case the Company shall pay Executive a lump sum payment, within
30 days following the Date of Termination, in an amount equal to the
present value of such unvested accrued benefits. In addition, if such
a lump sum payment is payable, the Company shall make an additional
gross-up payment to Executive in an amount such that the net amount of
the lump sum payment and such additional gross-up payment retained by
Executive, after the calculation and deduction of all federal, state
and local income tax and employment tax (including any interest or
penalties imposed with respect to such taxes) on such lump sum payment
and additional gross-up payment, and taking into account any lost or
reduced tax deductions on account of such gross-up payment, shall be
equal to such lump sum payment.
6. Additional Benefits.
A. For the term of the Severance Payout Period or Change in Control
Payout Period, as applicable, the Company shall continue to provide
Executive and Executive's eligible family members, based on the cost
sharing arrangement between Executive and the Company on the Date of
Termination, with medical and dental health benefits and disability
coverage and benefits at least equal to those which would have been
provided to Executive if Executive's employment had not been
terminated or, if more favorable to Executive, as in effect generally
at any time during such Severance Payout Period or Change in Control
period, as applicable. Notwithstanding the foregoing, if Executive
becomes re-employed and is eligible to receive medical, dental and
disability benefits under another employer's plans, the Company's
obligations under this Section 6A shall be reduced to the extent
comparable benefits are actually received by Executive during the
Severance
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Payout Period or Change in Control Payout Period, as applicable, and
any such benefits actually received by Executive shall be promptly
reported by Executive to the Company. In the event Executive is
ineligible under the terms of the Company's benefit plans or programs
to continue to be so covered, the Company shall provide Executive with
substantially equivalent coverage through other sources or will
provide Executive with a lump sum payment in such amount that, after
all taxes on that amount, shall be equal to the cost to Executive of
providing Executive such benefit coverage. The lump sum shall be
determined on a present value basis using the interest rate provided
in Section 1274(b)(2)(B) of the Internal Revenue Code of 1986, as
amended (the "Code") on the Date of Termination. In addition, if such
a lump sum payment is payable, the Company shall make an additional
gross-up payment to Executive in an amount such that the net amount of
the lump sums payment and such additional gross-up payment retained by
Executive, after the calculation and deduction of all federal, state
and local income tax and employment tax (including any interest or
penalties imposed with respect to such taxes) on such lump sum payment
and additional gross-up payment, and taking into account any lost or
reduced tax deductions on account of such gross-up payment, shall be
equal to such lump sum payment.
B. Outplacement Benefits. Throughout the term of the Severance Payout
---------------------
Period or Change in Control Payout Period, as applicable, Executive
shall be entitled to receive outplacement services, payable by the
Company, with an aggregate cost not to exceed 15% of Executive's
Termination Base Salary, with an executive outplacement service firm
reasonably acceptable to the Company and Executive.
C. Automobile Benefits. Throughout the Severance Payout Period or Change
-------------------
in Control Payout Period, as applicable, the Company shall continue to
provide Executive with a company car comparable to the company car
provided to Executive at the Date of Termination.
D. Retention Bonus. In the event that during the Protective Period
---------------
following a Change in Control, the Executive becomes entitled to
voluntarily terminate his employment for Good Reason and
notwithstanding the foregoing the Executive remains in the employment
of the Company for a period of at least twelve months commencing on
the date he became entitled to so terminate (the "Retention Period"),
the Company shall pay to the Executive a retention bonus in the amount
of Six Hundred Thousand Dollars ($600,000) (the "Retention Amount")
within ten (10) days after the end of the Retention Period. In the
event that following the Retention Period and prior to the end of the
Protective Period the Executive terminates his employment for Good
Reason, 50% of the Retention Amount shall be offset against the
amounts otherwise payable under Section 5B and 50% shall be offset
against the amounts otherwise payable under Section 5C, each in the
inverse order of maturity of such amounts. Except for the foregoing
offsets, the payment of the Retention Amount shall not prejudice any
rights of the Executive under this Agreement in the event that the
Executive voluntarily terminates his employment for Good Reason
following the Retention Period.
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<PAGE>
7. Accelerated Vesting of Options Upon a Change of Control.
Notwithstanding any provisions to the contrary of any of the Option Plans
or Option Agreements, upon a Change in Control (other than a Tuboscope
Change in Control) all outstanding unvested stock options, if any, granted
to Executive under any of the Option Plans (or options substituted therefor
covering the stock of a successor corporation) shall be and become fully
vested and exercisable as to all shares of stock covered thereby effective
as of the date of the Change in Control.
8. Mitigation.
Executive shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise
nor, except as provided in Section 4B and Section 6A, shall the amount of
any payment or benefit provided for in this Agreement be reduced by any
compensation earned or benefit received by Executive as the result of
employment by another employer or self-employment, by retirement benefits,
by offset against any amount claimed to be owed by Executive to the Company
or otherwise.
9. Successor Agreement.
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to assume expressly and agree
to perform this Agreement in the same manner and to the same extent that
the Companies would be required to perform if no succession had taken
place. Failure of the successor to so assume shall constitute a breach of
this Agreement and entitle Executive to the benefits hereunder as if
triggered by a termination not for Cause.
10. Indemnity.
In any situation where under applicable law the Company has the power to
indemnify, advance expenses to and defend Executive in respect of any
judgements, fines, settlements, loss, cost or expense (including attorneys
fees) of any nature related to or arising out of Executive's activities as
an agent, employee, officer or director of the Company or in any other
capacity on behalf of or at the request of the Company, then the Company
shall promptly on written request, indemnify Executive, advance expenses
(including attorney's fees) to Executive and defend Executive to the
fullest extent permitted by applicable law, including but not limited to
making such findings and determinations and taking any and all such actions
as the Company may, under applicable law, be permitted to have the
discretion to take so as to effectuate such indemnification, advancement or
defense. Such agreement by the Company shall not be deemed to impair any
other obligation of the Company respecting Executive's indemnification or
defense otherwise arising out of this or any other agreement or promise of
the Company under any statute.
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<PAGE>
11. Notice.
For the purpose of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and delivered by United
States certified or registered mail (return receipt requested, postage
prepaid) or by courier guaranteeing overnight delivery or by hand delivery
(with signed receipt required), addressed to the respective addresses set
forth below, and such notice or communication shall be deemed to have been
duly given two days after deposit in the mail, one day after deposit with
such overnight carrier or upon delivery with hand delivery. The addresses
set forth below may be changed by a writing in accordance herewith.
The Company: Executive:
Varco International, Inc. Michael W. Sutherlin
743 North Eckhoff Street 2907 Pebble Drive
Orange, California 92868 Corona Del Mar, California 92625
Attn: Chief Executive Officer
12. Dispute Resolution.
If any dispute arises out of this Agreement, the "complaining party" shall
give the "other party" written notice of such dispute. The other party
shall have ten (10) business days to resolve the dispute to the complaining
party's satisfaction. If the dispute is not resolved by the end of such
period, the complaining party may by written notice (the "Notice") demand
arbitration of the dispute as set out below, and each party hereto
expressly agrees to submit to, and be bound by, such arbitration.
(a) Each party will, within ten (10) business days of the Notice, nominate
an arbitrator. Each nominated arbitrator must be someone experienced
in dispute resolution and of good character without moral turpitude
and not within the employ or direct or indirect influence of the
nominating party. The two nominated arbitrators will, within ten (10)
business days of nomination, agree upon a third arbitrator. If two
(2) appointed arbitrators cannot agree on a third arbitrator within
such period, the parties may seek such an appointment through any
permitted court proceeding or by the American Arbitration Association
("AAA"). The three arbitrators will set the rules and timing of the
arbitration, but will generally follow the rules of the AAA and this
Agreement where same are applicable and shall provide for written fact
findings.
(b) The arbitration hearing will in no event take place more than ninety
(90) days after the appointment of the third arbitrator.
(c) The arbitration will take place in Orange, California unless otherwise
unanimously agreed to by the parties.
(d) The results of the arbitration and the decision of the arbitrators
will be final and binding on the parties and each party agrees and
acknowledges that these results shall be enforceable in a court of
law.
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<PAGE>
13. Governing Law.
This Agreement will be governed by and construed in accordance with the
internal substantive laws, and not the choice of law rules, of the State of
California.
14. Excise Taxes and Gross-Up Payments.
A. The benefits of this Section 14 shall only apply if the aggregate
payments and distributions to Executive or for Executive's benefit
(whether paid or payable or distributed or distributable) pursuant to
the terms of this Agreement (the "Payment") exceeds 2.99 multiplied by
the Executive's "base amount" (as defined under Section 280G(b)(3) of
the Code) by 12.5% or greater. Only if the Payment to Executive
satisfies or exceeds such threshold, then Executive (i) shall be
entitled to the benefits and payments set forth in this Section 14,
and (ii) shall be referred to in this Section 14 as "Tax Eligible
Executive".
B. If it shall be determined that Executive is a Tax Eligible Executive
and any or all of the Payment would be subject to the excise tax
imposed by Section 4999 of the Code (the "Excise Tax"), then Tax
Eligible Executive shall be entitled to receive from the Company an
additional payment (the "Gross-Up Payment") in an amount such that the
net amount of the Payment and the Gross-Up Payment retained by Tax
Eligible Executive after the calculation and deduction of all Excise
Taxes (including any interest or penalties imposed with respect to
such taxes) on the Payment and all federal, state and local income
tax, employment tax and Excise Tax (including any interest or
penalties imposed with respect to such taxes) on the Gross-Up Payment
provided for in this Section 14, and taking into account any lost or
reduced tax deductions on account of the Gross-Up Payment, shall be
equal to the Payment.
C. All determinations required to be made under this Section 14,
including whether Executive is a Tax Eligible Executive and whether
and when the Gross-Up Payment is required and the amount of such
Gross-Up Payment, and the assumptions to be utilized in arriving at
such determinations (consistent with the provisions of the Section
14), shall be made by the Company's independent certified public
accountants (the "Accountants"). The Accountants shall provide Tax
Eligible Executive and the Company with detailed supporting
calculations with respect to such Gross-Up Payment within fifteen (15)
business days of the receipt of notice from Executive or the Company
that Executive has received or will receive a Payment. In the event
that the Accountants are also serving as accountant or auditor for the
individual, entity or group effecting the Change in Control, Tax
Eligible Executive shall appoint another nationally recognized public
accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accountants
hereunder). All fees and expenses of the Accountants shall be borne
solely by the Company. All determinations by the Accountants shall be
binding upon the Company and Tax Eligible Executive.
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<PAGE>
D. For the purposes of determining whether any of the Payments will be
subject to the Excise Tax and the amount of such Excise Tax, such
Payments will be treated as "parachute payments" within the meaning of
Section 280G of the Code, and all "parachute payments" in excess of
the "base amount" (as defined under Section 280G(b)(3) of the Code)
shall be treated as subject to the Excise Tax, unless and except to
the extent that in the opinion of the Accountants such payment (in
whole or in part) either do not constitute "parachute payments" or
represent reasonable compensation for services actually rendered
(within the meaning of Section 280G(b)(4) of the Code) in excess of
the "base amount" or such "parachute payments" are otherwise not
subject to such Excise Tax. For purposes of determining the amount of
the Gross-Up Payment, Tax Eligible Executive shall be deemed to pay
federal income taxes at the highest applicable marginal rate of
federal income taxation for the calendar year in which the Gross-Up
Payment is to be made and to pay any applicable state and local income
taxes at the highest applicable marginal rate of taxation for the
calendar year in which the Gross-Up Payment is to be made, net of the
maximum reduction in federal income taxes that could be obtained from
the deduction of such state or local taxes if paid in such year
(determined without regard to limitations on deductions based upon the
amount of Tax Eligible Executive's adjusted gross income); and to have
otherwise allowable deductions for federal, state and local income tax
purposes at least equal to those disallowed because of the inclusion
of the Gross-Up Payment in Tax Eligible Executive's adjusted gross
income.
E. To the extent practicable, any Gross-Up Payment with respect to any
Payment shall be paid by the Company at the time Tax Eligible
Executive is entitled to receive the Payment and in no event will any
Gross-Up Payment be paid later than thirty (30) days after the receipt
by Tax Eligible Executive of the Accountant's determination. As a
result of uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accountants hereunder,
it is possible that the Gross-Up Payment made will have been an amount
less than the Company should have paid pursuant to this Section 14
(the "Underpayment"). In the event that the Company exhausts its
remedies pursuant to Section 14 and Tax Eligible Executive is required
to make a payment of any Excise Tax, the Underpayment shall be
promptly paid by the Company to or for Tax Eligible Executive's
benefit.
F. Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable after Executive is informed in
writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid.
Tax Eligible Executive shall not pay such claim prior to the
expiration of the thirty (30) day period following the date on which
Tax Eligible Executive gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes, interest
and/or penalties with respect to such claim is due). If the Company
notifies Tax Eligible Executive in writing prior to the
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<PAGE>
expiration of such thirty (30) day period that it desires to contest
such claim, Tax Eligible Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order to
effectively contest such claim; and
(iv) permit the Company to participate in any proceedings relating
to such claims; provided, however, that the Company shall bear
and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such
contest and shall indemnify Tax Eligible Executive for, advance
expenses to Tax Eligible Executive for, defend Tax Eligible
Executive against and hold Tax Eligible Executive harmless
from, on an after-tax basis, any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed
as a result of such representation and payment of all related
costs and expenses. Without limiting the foregoing provisions
of this Section 14, the Company shall control all proceedings
taken in connection with such contest and, at its sole option,
may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority
in respect of such claim and may, at its sole option, either
direct Tax Eligible Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner,
and Tax Eligible Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the
Company directs Tax Eligible Executive to pay such claim and
sue for a refund, the Company shall advance the amount of such
payment to Tax Eligible Executive, on an interest-free basis,
and shall indemnify Tax Eligible Executive for, advance
expenses to Tax Eligible Executive for, defend Tax Eligible
Executive against and hold Tax Eligible Executive harmless
from, on an after-tax basis, any Excise Tax or income tax
(including interest or income penalties with respect thereto)
imposed with respect to such advance or with respect to any
imputed income with respect to such advance (including as a
result of any forgiveness by the Company of such advance);
provided, further, that any extension of the statute of
limitations relating to the payment of taxes for the taxable
year of Tax Eligible Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to
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<PAGE>
which a Gross-Up Payment would be payable hereunder and Tax
Eligible Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Amendment to be effective the date first above written.
EXECUTIVE THE COMPANY
VARCO INTERNATIONAL, INC.
/s/ MICHAEL W. SUTHERLIN By /s/ GEORGE BOYADJIEFF
Michael W. Sutherlin George Boyadjieff
Chairman and Chief Executive Officer
12
<PAGE>
Exhibit 10.31
EXECUTIVE AGREEMENT
This Executive Agreement (this "Agreement") is made and entered into as of
the 22nd day of March, 2000 (the "Effective Date") between Varco International,
Inc., a California corporation (the "Company") and Wallace K. Chan (the
"Executive").
WHEREAS, the Executive is employed as an Executive Officer of the Company; and
WHEREAS, the Company believes it to be in the best interests of its stockholders
to attract, retain and motivate key executive officers and ensure continuity of
management; and
WHEREAS, it is in the best interest of the Company and its stockholders if the
key executive officers can approach material business development decisions
objectively and without concern for their personal situation;
WHEREAS, the Company recognizes that the possibility of a Change of Control of
the Company may result in the departure of key executives to the detriment of
the Company and its stockholders;
In consideration of Executive's continued employment as an executive
officer with the Company and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and
Executive agree as follows:
1. Term of Agreement
A. This Agreement shall commence on the Effective Date and shall continue
in effect, unless terminated earlier as otherwise set forth herein
through December 31, 2002; provided, however, that unless so
terminated earlier, the term of this Agreement shall automatically be
extended for one or more additional terms of three (3) years;
provided, however, this Agreement may be terminated at any time after
the expiration of the original term upon the Company providing three
(3) years written notice to the Executive.
B. The term of this Agreement shall terminate upon the expiration of the
"Severance Payout Period" or "Change in Control Payout Period", as
applicable, and all rights or benefits thereunder have been satisfied.
2. Certain Definitions
A. "Cause". "Cause" shall mean:
-----
(i) Executive's conviction of a felony involving moral turpitude,
dishonesty or a breach of trust as regards the Company;
<PAGE>
(ii) Executive's commission of any act of theft, fraud, embezzlement
or misappropriation against the Company that is materially
injurious to it regardless of whether a criminal conviction is
obtained;
(iii) Executive's willful and continued failure to devote
substantially all of his business time to the Company's business
affairs (excluding failures due to illness, incapacity,
vacations, incidental civic activities and incidental personal
time) which failure is not remedied within a reasonable time
after written demand is delivered by the Company, which demand
specifically identifies the manner in which the Company,
believes that Executive has failed to devote substantially all
of his business time to the Company's business affairs; or
(iv) Executive's unauthorized disclosure of confidential information
of the Company that is materially injurious to the Company.
For purposes of this definition, no act, or failure to act, on
Executive's part shall be deemed "willful" unless done, or omitted to be
done, by Executive not in good faith and without reasonable belief that
Executive's action or omission was in the best interest of the Company.
B. "Change in Control" means (i) any person or persons acting in concert
-----------------
becoming the beneficial owner, directly or indirectly, of securities
of the Company representing forty (40%) percent or more of the total
voting power of all of its then outstanding voting securities, (ii) a
merger or consolidation of the Company in which (x) the voting
securities of the Company immediately prior to the merger or
consolidation do not represent, or are not converted into, securities
that represent, a majority of the voting power of all voting
securities of the surviving entity immediately after the merger or
consolidation or (y) individuals who were directors of the Company
immediately prior to the effectiveness of such merger or consolidation
do not constitute a majority of the Board of Directors of the
surviving entity immediately after the merger or consolidation, (iii)
a sale of substantially all of the assets of the Company (other than a
sale to one or more subsidiaries of the Company), (iv) a liquidation
or dissolution of the Company, or (v) individuals who, as of the
Effective Date, constitute the Board of Directors (the "Incumbent
Board") cease (for any reason other than death) to constitute at least
a majority of such Board; provided that any individual who becomes a
director of the Company subsequent to the Effective Date, whose
election, or nomination for election by the Company's stockholders,
was approved by the vote of at least a majority of the directors then
in office shall be deemed a member of the Incumbent Board.
C. "Date of Termination" shall mean the date specified in the Notice of
-------------------
Termination relating to termination of Executive's employment with
Company; provided that such date shall not be less than 20 days nor
more than 45 days following: (i) involuntary termination, not for
cause, pursuant to Section 4 hereof, or (ii) the
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<PAGE>
date within the Protective Period that Executive voluntarily
terminates his employment for good reason as governed by Section 5
hereof.
D. "Executive" shall mean the named Executive Officer who is a party to
---------
this Agreement and in the event of the Executive's death after a
"qualifying" termination pursuant to Section 4 hereof or a Change of
Control pursuant to Section 5 hereof, then the term "Executive" shall
include his estate.
E. "Good Reason" shall mean:
-----------
(i) failure to re-elect or appoint the Executive to any corporate
office or directorship held at the time of the Change of Control
or a material reduction in Executive's authority, duties or
responsibilities (including status, offices, titles and
reporting requirements) or if Executive is assigned duties or
responsibilities inconsistent in any material respect from those
of Executive at the time of the relevant Change in Control all
on the basis of which Executive makes a good faith determination
that the terms of his employment have been detrimentally and
materially affected.
(ii) a material reduction of Executive's compensation or benefits,
including annual base salary, annual bonus, intermediate or
long-term cash or equity incentive opportunities or plans from
those in effect prior to the Change in Control;
(iii) the Company fails to obtain a written agreement satisfactory to
Executive from any successor or assigns of the Company to assume
and perform this Agreement as provided in Section 9 hereof;
(iv) the Company requires Executive to be based at any office located
more than fifty (50) miles from the Company's current offices
without Executive's consent.
F. "Notice of Termination" shall mean a written notice delivered to the
---------------------
other party indicating the specific termination provision in this
Agreement relied upon for termination of Executive's employment and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
G. "Option Plans" shall mean the Company's stock option plans, incentive
--------------
plans, equity participation plans, or other similar plans, and any
stock option agreements or other agreements used in connection
therewith.
H. "Termination Base Salary" shall mean Executive's base salary at the
-------------------------
rate in effect at the time the Notice of Termination is given or, for
purposes of a Change of Control, if a greater amount, Executive's base
salary at the rate in effect immediately prior to the Change of
Control.
3
<PAGE>
I. "Tuboscope Change in Control" means a Change in Control as a result of
---------------------------
merger or combination of the Company and Tuboscope Inc.
3. Termination for Cause. The Company may terminate Executive for Cause at any
time, including following a Change of Control, upon written notice to
Executive.
4. Standard Severance Plan. If Executive is terminated involuntarily (i.e.,
without the consent of Executive) by the Company for any reason other than
for Cause (and such termination is not pursuant to a Change of Control) the
Executive shall receive the following compensation and benefits from the
Company:
A. The Company shall pay to Executive when otherwise due Executive's
Termination Base Salary through the Date of Termination.
B. Effective as of the Date of Termination, the Company shall continue to
pay to Executive (the "Severance Pay") the Termination Base Salary,
payable on a regular payroll basis, for a period of eighteen (18)
months following the Date of Termination (such period to be herein
referred to as the "Severance Payout Period"), subject to reduction as
follows:
(i) If Executive is re-employed during the Severance Payout Period,
Executive shall receive throughout the remainder of the Severance
Payout Period following the effective date of such re-employment,
50% of the Severance Pay otherwise due and payable to Executive
after such date of re-employment;
(ii) In addition, if Executive is re-employed during the Severance
Payout Period at an annual base salary that is less than the
Termination Base Salary, in addition to the payment required by
clause (i) above, Executive shall receive on a monthly basis
throughout the remainder of the Severance Payout Period following
the effective date of such re-employment the difference between
(x) the salary actually received by Executive on a monthly basis
from such re-employment and (y) the Termination Base Salary
expressed as a monthly payment.
C. The Company shall pay to Executive as a bonus an amount equal to fifty
percent (50%) of Executive's Termination Base Salary in lieu of
participation in the Company's Management Incentive Bonus Plan or a
similar or successor plan for the year in which the Date of
Termination occurs. Such bonus shall be due and payable on the normal
distribution date for bonuses for participants in such plan.
5. Change in Control Severance Plan. In the event that within the "Protective
Period" (24 months following the effective date of a Change of Control)
either (a) Executive voluntarily terminates employment for Good Reason or
(b) the Company terminates Executive's employment other than for Cause, the
Executive shall receive the following compensation and benefits from the
Company:
4
<PAGE>
A. The Company shall pay to Executive when otherwise due Executive's
Termination Base Salary through the Date of Termination.
B. Effective as of the Date of Termination, the Company shall continue to
pay to Executive the Termination Base Salary, payable on a regular
payroll basis, for a period of twenty-four (24) months following the
Date Termination (such period to be herein referred to as the "Change
in Control Payout Period").
C. Effective as of the Date of Termination, the Company shall pay to
Executive an amount equal to two (2) times (i.e., the 24 months set
forth in B above) fifty percent (50%) of Executive's Termination Base
Salary in lieu of participation in the Company's Management Incentive
Bonus Plan or a similar or successor plan. Payment shall be made in
installments consistent with payment of the Executive's Termination
Base Salary on a regular payroll basis.
D. Executive shall become and be fully vested in Executive's accrued
benefits under all qualified pension, nonqualified pension, profit
sharing, 401(k), deferred compensation and supplemental plans
maintained by the Company for Executive's benefit, except to the
extent that the acceleration of vesting of such benefits would violate
any applicable law or require the Company to accelerate the vesting of
the accrued benefits of all participants in such plan or plans, in
which case the Company shall pay Executive a lump sum payment, within
30 days following the Date of Termination, in an amount equal to the
present value of such unvested accrued benefits. In addition, if such
a lump sum payment is payable, the Company shall make an additional
gross-up payment to Executive in an amount such that the net amount of
the lump sum payment and such additional gross-up payment retained by
Executive, after the calculation and deduction of all federal, state
and local income tax and employment tax (including any interest or
penalties imposed with respect to such taxes) on such lump sum payment
and additional gross-up payment, and taking into account any lost or
reduced tax deductions on account of such gross-up payment, shall be
equal to such lump sum payment.
6. Additional Benefits.
A. For the term of the Severance Payout Period or Change in Control
Payout Period, as applicable, the Company shall continue to provide
Executive and Executive's eligible family members, based on the cost
sharing arrangement between Executive and the Company on the Date of
Termination, with medical and dental health benefits and disability
coverage and benefits at least equal to those which would have been
provided to Executive if Executive's employment had not been
terminated or, if more favorable to Executive, as in effect generally
at any time during such Severance Payout Period or Change in Control
period, as applicable. Notwithstanding the foregoing, if Executive
becomes re-employed and is eligible to receive medical, dental and
disability benefits under another employer's plans, the Company's
obligations under this Section 6A shall be reduced to the extent
comparable benefits are actually received by Executive during the
Severance
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<PAGE>
Payout Period or Change in Control Payout Period, as applicable, and
any such benefits actually received by Executive shall be promptly
reported by Executive to the Company. In the event Executive is
ineligible under the terms of the Company's benefit plans or programs
to continue to be so covered, the Company shall provide Executive with
substantially equivalent coverage through other sources or will
provide Executive with a lump sum payment in such amount that, after
all taxes on that amount, shall be equal to the cost to Executive of
providing Executive such benefit coverage. The lump sum shall be
determined on a present value basis using the interest rate provided
in Section 1274(b)(2)(B) of the Internal Revenue Code of 1986, as
amended (the "Code") on the Date of Termination. In addition, if such
a lump sum payment is payable, the Company shall make an additional
gross-up payment to Executive in an amount such that the net amount of
the lump sums payment and such additional gross-up payment retained by
Executive, after the calculation and deduction of all federal, state
and local income tax and employment tax (including any interest or
penalties imposed with respect to such taxes) on such lump sum payment
and additional gross-up payment, and taking into account any lost or
reduced tax deductions on account of such gross-up payment, shall be
equal to such lump sum payment.
B. Outplacement Benefits. Throughout the term of the Severance Payout
---------------------
Period or Change in Control Payout Period, as applicable, Executive
shall be entitled to receive outplacement services, payable by the
Company, with an aggregate cost not to exceed 15% of Executive's
Termination Base Salary, with an executive outplacement service firm
reasonably acceptable to the Company and Executive.
C. Automobile Benefits. Throughout the Severance Payout Period or
-------------------
Change in Control Payout Period, as applicable, the Company shall
continue to provide Executive with a company car comparable to the
company car provided to Executive at the Date of Termination.
7. Accelerated Vesting of Options Upon a Change of Control.
Notwithstanding any provisions to the contrary of any of the Option Plans
or Option Agreements, upon a Change in Control (other than a Tuboscope
Change in Control) all outstanding unvested stock options, if any, granted
to Executive under any of the Option Plans (or options substituted therefor
covering the stock of a successor corporation) shall be and become fully
vested and exercisable as to all shares of stock covered thereby effective
as of the date of the Change in Control.
8. Mitigation.
Executive shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise
nor, except as provided in Section 4B and Section 6A, shall the amount of
any payment or benefit provided for in this Agreement be reduced by any
compensation earned or benefit received by Executive as the result of
employment by another employer or self-employment, by retirement
6
<PAGE>
benefits, by offset against any amount claimed to be owed by Executive to
the Company or otherwise.
9. Successor Agreement.
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to assume expressly and agree
to perform this Agreement in the same manner and to the same extent that
the Companies would be required to perform if no succession had taken
place. Failure of the successor to so assume shall constitute a breach of
this Agreement and entitle Executive to the benefits hereunder as if
triggered by a termination not for Cause.
10. Indemnity.
In any situation where under applicable law the Company has the power to
indemnify, advance expenses to and defend Executive in respect of any
judgements, fines, settlements, loss, cost or expense (including attorneys
fees) of any nature related to or arising out of Executive's activities as
an agent, employee, officer or director of the Company or in any other
capacity on behalf of or at the request of the Company, then the Company
shall promptly on written request, indemnify Executive, advance expenses
(including attorney's fees) to Executive and defend Executive to the
fullest extent permitted by applicable law, including but not limited to
making such findings and determinations and taking any and all such actions
as the Company may, under applicable law, be permitted to have the
discretion to take so as to effectuate such indemnification, advancement or
defense. Such agreement by the Company shall not be deemed to impair any
other obligation of the Company respecting Executive's indemnification or
defense otherwise arising out of this or any other agreement or promise of
the Company under any statute.
11. Notice.
For the purpose of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and delivered by United
States certified or registered mail (return receipt requested, postage
prepaid) or by courier guaranteeing overnight delivery or by hand delivery
(with signed receipt required), addressed to the respective addresses set
forth below, and such notice or communication shall be deemed to have been
duly given two days after deposit in the mail, one day after deposit with
such overnight carrier or upon delivery with hand delivery. The addresses
set forth below may be changed by a writing in accordance herewith.
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The Company: Executive:
Varco International, Inc. Wallace K. Chan
743 North Eckhoff Street 26251 Cannes Circle
Orange, California 92868 Mission Viejo, California 92692
Attn: Chief Executive Officer
12. Dispute Resolution.
If any dispute arises out of this Agreement, the "complaining party" shall
give the "other party" written notice of such dispute. The other party
shall have ten (10) business days to resolve the dispute to the complaining
party's satisfaction. If the dispute is not resolved by the end of such
period, the complaining party may by written notice (the "Notice") demand
arbitration of the dispute as set out below, and each party hereto
expressly agrees to submit to, and be bound by, such arbitration.
(a) Each party will, within ten (10) business days of the Notice, nominate
an arbitrator. Each nominated arbitrator must be someone experienced
in dispute resolution and of good character without moral turpitude
and not within the employ or direct or indirect influence of the
nominating party. The two nominated arbitrators will, within ten (10)
business days of nomination, agree upon a third arbitrator. If two
(2) appointed arbitrators cannot agree on a third arbitrator within
such period, the parties may seek such an appointment through any
permitted court proceeding or by the American Arbitration Association
("AAA"). The three arbitrators will set the rules and timing of the
arbitration, but will generally follow the rules of the AAA and this
Agreement where same are applicable and shall provide for written fact
findings.
(b) The arbitration hearing will in no event take place more than ninety
(90) days after the appointment of the third arbitrator.
(c) The arbitration will take place in Orange, California unless otherwise
unanimously agreed to by the parties.
(d) The results of the arbitration and the decision of the arbitrators
will be final and binding on the parties and each party agrees and
acknowledges that these results shall be enforceable in a court of
law.
13. Governing Law.
This Agreement will be governed by and construed in accordance with the
internal substantive laws, and not the choice of law rules, of the State of
California.
14. Excise Taxes and Gross-Up Payments.
A. The benefits of this Section 14 shall only apply if the aggregate
payments and distributions to Executive or for Executive's benefit
(whether paid or payable or distributed or distributable) pursuant to
the terms of this Agreement (the
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<PAGE>
"Payment") exceeds 2.99 multiplied by the Executive's "base amount"
(as defined under Section 280G(b)(3) of the Code) by 12.5% or greater.
Only if the Payment to Executive satisfies or exceeds such threshold,
then Executive (i) shall be entitled to the benefits and payments set
forth in this Section 14, and (ii) shall be referred to in this
Section 14 as "Tax Eligible Executive".
B. If it shall be determined that Executive is a Tax Eligible Executive
and any or all of the Payment would be subject to the excise tax
imposed by Section 4999 of the Code (the "Excise Tax"), then Tax
Eligible Executive shall be entitled to receive from the Company an
additional payment (the "Gross-Up Payment") in an amount such that the
net amount of the Payment and the Gross-Up Payment retained by Tax
Eligible Executive after the calculation and deduction of all Excise
Taxes (including any interest or penalties imposed with respect to
such taxes) on the Payment and all federal, state and local income
tax, employment tax and Excise Tax (including any interest or
penalties imposed with respect to such taxes) on the Gross-Up Payment
provided for in this Section 14, and taking into account any lost or
reduced tax deductions on account of the Gross-Up Payment, shall be
equal to the Payment.
C. All determinations required to be made under this Section 14,
including whether Executive is a Tax Eligible Executive and whether
and when the Gross-Up Payment is required and the amount of such
Gross-Up Payment, and the assumptions to be utilized in arriving at
such determinations (consistent with the provisions of the Section
14), shall be made by the Company's independent certified public
accountants (the "Accountants"). The Accountants shall provide Tax
Eligible Executive and the Company with detailed supporting
calculations with respect to such Gross-Up Payment within fifteen (15)
business days of the receipt of notice from Executive or the Company
that Executive has received or will receive a Payment. In the event
that the Accountants are also serving as accountant or auditor for the
individual, entity or group effecting the Change in Control, Tax
Eligible Executive shall appoint another nationally recognized public
accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accountants
hereunder). All fees and expenses of the Accountants shall be borne
solely by the Company. All determinations by the Accountants shall be
binding upon the Company and Tax Eligible Executive.
D. For the purposes of determining whether any of the Payments will be
subject to the Excise Tax and the amount of such Excise Tax, such
Payments will be treated as "parachute payments" within the meaning of
Section 280G of the Code, and all "parachute payments" in excess of
the "base amount" (as defined under Section 280G(b)(3) of the Code)
shall be treated as subject to the Excise Tax, unless and except to
the extent that in the opinion of the Accountants such payment (in
whole or in part) either do not constitute "parachute payments" or
represent reasonable compensation for services actually rendered
(within the meaning of Section 280G(b)(4) of the Code) in excess of
the "base amount" or such "parachute payments" are otherwise not
subject to such Excise Tax. For purposes of
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<PAGE>
determining the amount of the Gross-Up Payment, Tax Eligible Executive
shall be deemed to pay federal income taxes at the highest applicable
marginal rate of federal income taxation for the calendar year in
which the Gross-Up Payment is to be made and to pay any applicable
state and local income taxes at the highest applicable marginal rate
of taxation for the calendar year in which the Gross-Up Payment is to
be made, net of the maximum reduction in federal income taxes that
could be obtained from the deduction of such state or local taxes if
paid in such year (determined without regard to limitations on
deductions based upon the amount of Tax Eligible Executive's adjusted
gross income); and to have otherwise allowable deductions for federal,
state and local income tax purposes at least equal to those disallowed
because of the inclusion of the Gross-Up Payment in Tax Eligible
Executive's adjusted gross income.
E. To the extent practicable, any Gross-Up Payment with respect to any
Payment shall be paid by the Company at the time Tax Eligible
Executive is entitled to receive the Payment and in no event will any
Gross-Up Payment be paid later than thirty (30) days after the receipt
by Tax Eligible Executive of the Accountant's determination. As a
result of uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accountants hereunder,
it is possible that the Gross-Up Payment made will have been an amount
less than the Company should have paid pursuant to this Section 14
(the "Underpayment"). In the event that the Company exhausts its
remedies pursuant to Section 14 and Tax Eligible Executive is required
to make a payment of any Excise Tax, the Underpayment shall be
promptly paid by the Company to or for Tax Eligible Executive's
benefit.
F. Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable after Executive is informed in
writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid.
Tax Eligible Executive shall not pay such claim prior to the
expiration of the thirty (30) day period following the date on which
Tax Eligible Executive gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes, interest
and/or penalties with respect to such claim is due). If the Company
notifies Tax Eligible Executive in writing prior to the expiration of
such thirty (30) day period that it desires to contest such claim, Tax
Eligible Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company;
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<PAGE>
(iii) cooperate with the Company in good faith in order to effectively
contest such claim; and
(iv) permit the Company to participate in any proceedings relating to
such claims; provided, however, that the Company shall bear and
pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest
and shall indemnify Tax Eligible Executive for, advance expenses
to Tax Eligible Executive for, defend Tax Eligible Executive
against and hold Tax Eligible Executive harmless from, on an
after-tax basis, any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result
of such representation and payment of all related costs and
expenses. Without limiting the foregoing provisions of this
Section 14, the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue
or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct Tax
Eligible Executive to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and Tax Eligible
Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs
Tax Eligible Executive to pay such claim and sue for a refund,
the Company shall advance the amount of such payment to Tax
Eligible Executive, on an interest-free basis, and shall
indemnify Tax Eligible Executive for, advance expenses to Tax
Eligible Executive for, defend Tax Eligible Executive against
and hold Tax Eligible Executive harmless from, on an after-tax
basis, any Excise Tax or income tax (including interest or
income penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect
to such advance (including as a result of any forgiveness by the
Company of such advance); provided, further, that any extension
of the statute of limitations relating to the payment of taxes
for the taxable year of Tax Eligible Executive with respect to
which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with respect
to which a Gross-Up Payment would be payable hereunder and Tax
Eligible Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
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<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed this
Amendment to be effective the date first above written.
EXECUTIVE THE COMPANY
VARCO INTERNATIONAL, INC.
/s/ WALLACE K. CHAN By /s/ GEORGE BOYADJIEFF
Wallace K. Chan George Boyadjieff
Chairman and Chief Executive Officer
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<PAGE>
EXHIBIT 10.32
[Form for Stichler, Morgan, Merit,
Gondek, Neidhardt and Renfro]
EXECUTIVE AGREEMENT
This Executive Agreement (this "Agreement") is made and entered into as of
the 22nd day of March, 2000 (the "Effective Date") between Varco International,
Inc., a California corporation (the "Company") and [NAME] (the "Executive").
WHEREAS, the Executive is employed as an Executive Officer of the Company; and
WHEREAS, the Company believes it to be in the best interests of its stockholders
to attract, retain and motivate key executive officers and ensure continuity of
management; and
WHEREAS, it is in the best interest of the Company and its stockholders if the
key executive officers can approach material business development decisions
objectively and without concern for their personal situation;
WHEREAS, the Company recognizes that the possibility of a Change of Control of
the Company may result in the departure of key executives to the detriment of
the Company and its stockholders;
In consideration of Executive's continued employment as an executive
officer with the Company and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and
Executive agree as follows:
1. Term of Agreement
A. This Agreement shall commence on the Effective Date and shall continue
in effect, unless terminated earlier as otherwise set forth herein
through December 31, 2002; provided, however, that unless so
terminated earlier, the term of this Agreement shall automatically be
extended for one or more additional terms of three (3) years;
provided, however, this Agreement may be terminated at any time after
the expiration of the original term upon the Company providing three
(3) years written notice to the Executive.
B. The term of this Agreement shall terminate upon the expiration of the
"Severance Payout Period" or "Change in Control Payout Period", as
applicable, and all rights or benefits thereunder have been satisfied.
<PAGE>
2. Certain Definitions
A. "Cause". "Cause" shall mean:
-----
(i) Executive's conviction of a felony involving moral turpitude,
dishonesty or a breach of trust as regards the Company;
(ii) Executive's commission of any act of theft, fraud, embezzlement
or misappropriation against the Company that is materially
injurious to it regardless of whether a criminal conviction is
obtained;
(iii) Executive's willful and continued failure to devote
substantially all of his business time to the Company's business
affairs (excluding failures due to illness, incapacity,
vacations, incidental civic activities and incidental personal
time) which failure is not remedied within a reasonable time
after written demand is delivered by the Company, which demand
specifically identifies the manner in which the Company,
believes that Executive has failed to devote substantially all
of his business time to the Company's business affairs; or
(iv) Executive's unauthorized disclosure of confidential information
of the Company that is materially injurious to the Company.
For purposes of this definition, no act, or failure to act, on
Executive's part shall be deemed "willful" unless done, or omitted to be
done, by Executive not in good faith and without reasonable belief that
Executive's action or omission was in the best interest of the Company.
B. "Change in Control" means (i) any person or persons acting in concert
-----------------
becoming the beneficial owner, directly or indirectly, of securities
of the Company representing forty (40%) percent or more of the total
voting power of all of its then outstanding voting securities, (ii) a
merger or consolidation of the Company in which (x) the voting
securities of the Company immediately prior to the merger or
consolidation do not represent, or are not converted into, securities
that represent, a majority of the voting power of all voting
securities of the surviving entity immediately after the merger or
consolidation or (y) individuals who were directors of the Company
immediately prior to the effectiveness of such merger or consolidation
do not constitute a majority of the Board of Directors of the
surviving entity immediately after the merger or consolidation, (iii)
a sale of substantially all of the assets of the Company (other than a
sale to one or more subsidiaries of the Company), (iv) a liquidation
or dissolution of the Company, or (v) individuals who, as of the
Effective Date, constitute the Board of Directors (the "Incumbent
Board") cease (for any reason other than death) to constitute at least
a majority of such Board; provided that any individual who becomes a
director of the Company subsequent to the Effective Date, whose
election, or nomination for election by the Company's stockholders,
was approved by the vote
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<PAGE>
of at least a majority of the directors then in office shall be deemed
a member of the Incumbent Board.
C. "Date of Termination" shall mean the date specified in the Notice of
-------------------
Termination relating to termination of Executive's employment with
Company; provided that such date shall not be less than 20 days nor
more than 45 days following: (i) involuntary termination, not for
cause, pursuant to Section 4 hereof, or (ii) the date within the
Protective Period that Executive voluntarily terminates his employment
for good reason as governed by Section 5 hereof.
D. "Executive" shall mean the named Executive Officer who is a party to
---------
this Agreement and in the event of the Executive's death after a
"qualifying" termination pursuant to Section 4 hereof or a Change of
Control pursuant to Section 5 hereof, then the term "Executive" shall
include his estate.
E. "Good Reason" shall mean:
-----------
(i) failure to re-elect or appoint the Executive to any corporate
office or directorship held at the time of the Change of
Control or a material reduction in Executive's authority,
duties or responsibilities (including status, offices, titles
and reporting requirements) or if Executive is assigned duties
or responsibilities inconsistent in any material respect from
those of Executive at the time of the relevant Change in
Control all on the basis of which Executive makes a good faith
determination that the terms of his employment have been
detrimentally and materially affected.
(ii) a material reduction of Executive's compensation or benefits,
including annual base salary, annual bonus, intermediate or
long-term cash or equity incentive opportunities or plans from
those in effect prior to the Change in Control;
(iii) the Company fails to obtain a written agreement satisfactory to
Executive from any successor or assigns of the Company to
assume and perform this Agreement as provided in Section 9
hereof;
(iv) the Company requires Executive to be based at any office
located more than fifty (50) miles from the Company's current
offices without Executive's consent.
F. "Notice of Termination" shall mean a written notice delivered to the
---------------------
other party indicating the specific termination provision in this
Agreement relied upon for termination of Executive's employment and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
G. "Option Plans" shall mean the Company's stock option plans, incentive
------------
plans, equity participation plans, or other similar plans, and any
stock option agreements or other agreements used in connection
therewith.
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<PAGE>
H. "Termination Base Salary" shall mean Executive's base salary at the
-----------------------
rate in effect at the time the Notice of Termination is given or, for
purposes of a Change of Control, if a greater amount, Executive's base
salary at the rate in effect immediately prior to the Change of
Control.
I. "Tuboscope Change in Control" means a Change in Control as a result of
---------------------------
merger or combination of the Company and Tuboscope Inc.
3. Termination for Cause. The Company may terminate Executive for Cause at any
time, including following a Change of Control, upon written notice to
Executive.
4. Standard Severance Plan. If Executive is terminated involuntarily (i.e.,
without the consent of Executive) by the Company for any reason other than
for Cause (and such termination is not pursuant to a Change of Control) the
Executive shall receive the following compensation and benefits from the
Company:
A. The Company shall pay to Executive when otherwise due Executive's
Termination Base Salary through the Date of Termination.
B. Effective as of the Date of Termination, the Company shall continue to
pay to Executive (the "Severance Pay") the Termination Base Salary,
payable on a regular payroll basis, for a period of twelve (12) months
following the Date of Termination (such period to be herein referred
to as the "Severance Payout Period"), subject to reduction as follows:
(i) If Executive is re-employed during the Severance Payout Period,
Executive shall receive throughout the remainder of the
Severance Payout Period following the effective date of such
re-employment, 50% of the Severance Pay otherwise due and
payable to Executive after such date of re-employment;
(ii) In addition, if Executive is re-employed during the Severance
Payout Period at an annual base salary that is less than the
Termination Base Salary, in addition to the payment required by
clause (i) above, Executive shall receive on a monthly basis
throughout the remainder of the Severance Payout Period
following the effective date of such re-employment the
difference between (x) the salary actually received by
Executive on a monthly basis from such re-employment and (y)
the Termination Base Salary expressed as a monthly payment.
C. The Company shall pay to Executive as a bonus an amount equal to forty
percent (40%) of Executive's Termination Base Salary in lieu of
participation in the Company's Management Incentive Bonus Plan or a
similar or successor plan for the year in which the Date of
Termination occurs, pro-rated through and including the Date of
Termination (on the basis of a 365 day year). Such bonus shall be due
and payable on the normal distribution date for bonuses for
participants in such plan.
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<PAGE>
5. Change in Control Severance Plan. In the event that within the "Protective
Period" (24 months following the effective date of a Change of Control)
either (a) Executive voluntarily terminates employment for Good Reason or
(b) the Company terminates Executive's employment other than for Cause, the
Executive shall receive the following compensation and benefits from the
Company:
A. The Company shall pay to Executive when otherwise due Executive's
Termination Base Salary through the Date of Termination.
B. Effective as of the Date of Termination, the Company shall continue to
pay to Executive the Termination Base Salary, payable on a regular
payroll basis, for a period of eighteen (18) months following the Date
Termination (such period to be herein referred to as the "Change in
Control Payout Period").
C. Effective as of the Date of Termination, the Company shall pay to
Executive an amount equal to one and one-half (1 1/2) times (i.e., the
18 months set forth in B above) forty percent (40%) of Executive's
Termination Base Salary in lieu of participation in the Company's
Management Incentive Bonus Plan or a similar or successor plan.
Payment shall be made in installments consistent with payment of the
Executive's Termination Base Salary on a regular payroll basis.
D. Executive shall become and be fully vested in Executive's accrued
benefits under all qualified pension, nonqualified pension, profit
sharing, 401(k), deferred compensation and supplemental plans
maintained by the Company for Executive's benefit, except to the
extent that the acceleration of vesting of such benefits would violate
any applicable law or require the Company to accelerate the vesting of
the accrued benefits of all participants in such plan or plans, in
which case the Company shall pay Executive a lump sum payment, within
30 days following the Date of Termination, in an amount equal to the
present value of such unvested accrued benefits. In addition, if such
a lump sum payment is payable, the Company shall make an additional
gross-up payment to Executive in an amount such that the net amount of
the lump sum payment and such additional gross-up payment retained by
Executive, after the calculation and deduction of all federal, state
and local income tax and employment tax (including any interest or
penalties imposed with respect to such taxes) on such lump sum payment
and additional gross-up payment, and taking into account any lost or
reduced tax deductions on account of such gross-up payment, shall be
equal to such lump sum payment.
6. Additional Benefits.
A. For the term of the Severance Payout Period or Change in Control
Payout Period, as applicable, the Company shall continue to provide
Executive and Executive's eligible family members, based on the cost
sharing arrangement between Executive and the Company on the Date of
Termination, with medical and dental health benefits and disability
coverage and benefits at least equal to those which would have been
provided to Executive if Executive's employment had not been
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<PAGE>
terminated or, if more favorable to Executive, as in effect generally
at any time during such Severance Payout Period or Change in Control
period, as applicable. Notwithstanding the foregoing, if Executive
becomes re-employed and is eligible to receive medical, dental and
disability benefits under another employer's plans, the Company's
obligations under this Section 6A shall be reduced to the extent
comparable benefits are actually received by Executive during the
Severance Payout Period or Change in Control Payout Period, as
applicable, and any such benefits actually received by Executive shall
be promptly reported by Executive to the Company. In the event
Executive is ineligible under the terms of the Company's benefit plans
or programs to continue to be so covered, the Company shall provide
Executive with substantially equivalent coverage through other sources
or will provide Executive with a lump sum payment in such amount that,
after all taxes on that amount, shall be equal to the cost to
Executive of providing Executive such benefit coverage. The lump sum
shall be determined on a present value basis using the interest rate
provided in Section 1274(b)(2)(B) of the Internal Revenue Code of
1986, as amended (the "Code") on the Date of Termination. In addition,
if such a lump sum payment is payable, the Company shall make an
additional gross-up payment to Executive in an amount such that the
net amount of the lump sums payment and such additional gross-up
payment retained by Executive, after the calculation and deduction of
all federal, state and local income tax and employment tax (including
any interest or penalties imposed with respect to such taxes) on such
lump sum payment and additional gross-up payment, and taking into
account any lost or reduced tax deductions on account of such gross-up
payment, shall be equal to such lump sum payment.
B. Outplacement Benefits. Throughout the term of the Severance Payout
---------------------
Period or Change in Control Payout Period, as applicable, Executive
shall be entitled to receive outplacement services, payable by the
Company, with an aggregate cost not to exceed 15% of Executive's
Termination Base Salary, with an executive outplacement service firm
reasonably acceptable to the Company and Executive.
C. Automobile Benefits. Throughout the Severance Payout Period or Change
-------------------
in Control Payout Period, as applicable, the Company shall continue to
provide Executive with a company car comparable to the company car
provided to Executive at the Date of Termination.
7. Accelerated Vesting of Options Upon a Change of Control.
Notwithstanding any provisions to the contrary of any of the Option Plans
or Option Agreements, upon a Change in Control (other than a Tuboscope
Change in Control) all outstanding unvested stock options, if any, granted
to Executive under any of the Option Plans (or options substituted therefor
covering the stock of a successor corporation) shall be and become fully
vested and exercisable as to all shares of stock covered thereby effective
as of the date of the Change in Control.
8. Mitigation.
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<PAGE>
Executive shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise
nor, except as provided in Section 4B and Section 6A, shall the amount of
any payment or benefit provided for in this Agreement be reduced by any
compensation earned or benefit received by Executive as the result of
employment by another employer or self-employment, by retirement benefits,
by offset against any amount claimed to be owed by Executive to the Company
or otherwise.
9. Successor Agreement.
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to assume expressly and agree
to perform this Agreement in the same manner and to the same extent that
the Companies would be required to perform if no succession had taken
place. Failure of the successor to so assume shall constitute a breach of
this Agreement and entitle Executive to the benefits hereunder as if
triggered by a termination not for Cause.
10. Indemnity.
In any situation where under applicable law the Company has the power to
indemnify, advance expenses to and defend Executive in respect of any
judgements, fines, settlements, loss, cost or expense (including attorneys
fees) of any nature related to or arising out of Executive's activities as
an agent, employee, officer or director of the Company or in any other
capacity on behalf of or at the request of the Company, then the Company
shall promptly on written request, indemnify Executive, advance expenses
(including attorney's fees) to Executive and defend Executive to the
fullest extent permitted by applicable law, including but not limited to
making such findings and determinations and taking any and all such actions
as the Company may, under applicable law, be permitted to have the
discretion to take so as to effectuate such indemnification, advancement or
defense. Such agreement by the Company shall not be deemed to impair any
other obligation of the Company respecting Executive's indemnification or
defense otherwise arising out of this or any other agreement or promise of
the Company under any statute.
11. Notice.
For the purpose of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and delivered by United
States certified or registered mail (return receipt requested, postage
prepaid) or by courier guaranteeing overnight delivery or by hand delivery
(with signed receipt required), addressed to the respective addresses set
forth below, and such notice or communication shall be deemed to have been
duly given two days after deposit in the mail, one day after deposit with
such overnight carrier or upon delivery with hand delivery. The addresses
set forth below may be changed by a writing in accordance herewith.
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<PAGE>
The Company: Executive:
Varco International, Inc. [NAME]
743 North Eckhoff Street [_________________]
Orange, California 92868 [_________________]
Attn: Chief Executive Officer
12. Dispute Resolution.
If any dispute arises out of this Agreement, the "complaining party" shall
give the "other party" written notice of such dispute. The other party
shall have ten (10) business days to resolve the dispute to the complaining
party's satisfaction. If the dispute is not resolved by the end of such
period, the complaining party may by written notice (the "Notice") demand
arbitration of the dispute as set out below, and each party hereto
expressly agrees to submit to, and be bound by, such arbitration.
(a) Each party will, within ten (10) business days of the Notice, nominate
an arbitrator. Each nominated arbitrator must be someone experienced
in dispute resolution and of good character without moral turpitude
and not within the employ or direct or indirect influence of the
nominating party. The two nominated arbitrators will, within ten (10)
business days of nomination, agree upon a third arbitrator. If two
(2) appointed arbitrators cannot agree on a third arbitrator within
such period, the parties may seek such an appointment through any
permitted court proceeding or by the American Arbitration Association
("AAA"). The three arbitrators will set the rules and timing of the
arbitration, but will generally follow the rules of the AAA and this
Agreement where same are applicable and shall provide for written fact
findings.
(b) The arbitration hearing will in no event take place more than ninety
(90) days after the appointment of the third arbitrator.
(c) The arbitration will take place in Orange, California unless otherwise
unanimously agreed to by the parties.
(d) The results of the arbitration and the decision of the arbitrators
will be final and binding on the parties and each party agrees and
acknowledges that these results shall be enforceable in a court of
law.
13. Governing Law.
This Agreement will be governed by and construed in accordance with the
internal substantive laws, and not the choice of law rules, of the State of
California.
14. Excise Taxes and Gross-Up Payments.
A. The benefits of this Section 14 shall only apply if the aggregate
payments and distributions to Executive or for Executive's benefit
(whether paid or payable or distributed or distributable) pursuant to
the terms of this Agreement (the
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"Payment") exceeds 2.99 multiplied by the Executive's "base amount"
(as defined under Section 280G(b)(3) of the Code) by 12.5% or greater.
Only if the Payment to Executive satisfies or exceeds such threshold,
then Executive (i) shall be entitled to the benefits and payments set
forth in this Section 14, and (ii) shall be referred to in this
Section 14 as "Tax Eligible Executive".
B. If it shall be determined that Executive is a Tax Eligible Executive
and any or all of the Payment would be subject to the excise tax
imposed by Section 4999 of the Code (the "Excise Tax"), then Tax
Eligible Executive shall be entitled to receive from the Company an
additional payment (the "Gross-Up Payment") in an amount such that the
net amount of the Payment and the Gross-Up Payment retained by Tax
Eligible Executive after the calculation and deduction of all Excise
Taxes (including any interest or penalties imposed with respect to
such taxes) on the Payment and all federal, state and local income
tax, employment tax and Excise Tax (including any interest or
penalties imposed with respect to such taxes) on the Gross-Up Payment
provided for in this Section 14, and taking into account any lost or
reduced tax deductions on account of the Gross-Up Payment, shall be
equal to the Payment.
C. All determinations required to be made under this Section 14,
including whether Executive is a Tax Eligible Executive and whether
and when the Gross-Up Payment is required and the amount of such
Gross-Up Payment, and the assumptions to be utilized in arriving at
such determinations (consistent with the provisions of the Section
14), shall be made by the Company's independent certified public
accountants (the "Accountants"). The Accountants shall provide Tax
Eligible Executive and the Company with detailed supporting
calculations with respect to such Gross-Up Payment within fifteen (15)
business days of the receipt of notice from Executive or the Company
that Executive has received or will receive a Payment. In the event
that the Accountants are also serving as accountant or auditor for the
individual, entity or group effecting the Change in Control, Tax
Eligible Executive shall appoint another nationally recognized public
accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accountants
hereunder). All fees and expenses of the Accountants shall be borne
solely by the Company. All determinations by the Accountants shall be
binding upon the Company and Tax Eligible Executive.
D. For the purposes of determining whether any of the Payments will be
subject to the Excise Tax and the amount of such Excise Tax, such
Payments will be treated as "parachute payments" within the meaning of
Section 280G of the Code, and all "parachute payments" in excess of
the "base amount" (as defined under Section 280G(b)(3) of the Code)
shall be treated as subject to the Excise Tax, unless and except to
the extent that in the opinion of the Accountants such payment (in
whole or in part) either do not constitute "parachute payments" or
represent reasonable compensation for services actually rendered
(within the meaning of Section 280G(b)(4) of the Code) in excess of
the "base amount" or such "parachute payments" are otherwise not
subject to such Excise Tax. For purposes of
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determining the amount of the Gross-Up Payment, Tax Eligible Executive
shall be deemed to pay federal income taxes at the highest applicable
marginal rate of federal income taxation for the calendar year in
which the Gross-Up Payment is to be made and to pay any applicable
state and local income taxes at the highest applicable marginal rate
of taxation for the calendar year in which the Gross-Up Payment is to
be made, net of the maximum reduction in federal income taxes that
could be obtained from the deduction of such state or local taxes if
paid in such year (determined without regard to limitations on
deductions based upon the amount of Tax Eligible Executive's adjusted
gross income); and to have otherwise allowable deductions for federal,
state and local income tax purposes at least equal to those disallowed
because of the inclusion of the Gross-Up Payment in Tax Eligible
Executive's adjusted gross income.
E. To the extent practicable, any Gross-Up Payment with respect to any
Payment shall be paid by the Company at the time Tax Eligible
Executive is entitled to receive the Payment and in no event will any
Gross-Up Payment be paid later than thirty (30) days after the receipt
by Tax Eligible Executive of the Accountant's determination. As a
result of uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accountants hereunder,
it is possible that the Gross-Up Payment made will have been an amount
less than the Company should have paid pursuant to this Section 14
(the "Underpayment"). In the event that the Company exhausts its
remedies pursuant to Section 14 and Tax Eligible Executive is required
to make a payment of any Excise Tax, the Underpayment shall be
promptly paid by the Company to or for Tax Eligible Executive's
benefit.
F. Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable after Executive is informed in
writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid.
Tax Eligible Executive shall not pay such claim prior to the
expiration of the thirty (30) day period following the date on which
Tax Eligible Executive gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes, interest
and/or penalties with respect to such claim is due). If the Company
notifies Tax Eligible Executive in writing prior to the expiration of
such thirty (30) day period that it desires to contest such claim, Tax
Eligible Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company;
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(iii) cooperate with the Company in good faith in order to
effectively contest such claim; and
(iv) permit the Company to participate in any proceedings relating
to such claims; provided, however, that the Company shall bear
and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such
contest and shall indemnify Tax Eligible Executive for, advance
expenses to Tax Eligible Executive for, defend Tax Eligible
Executive against and hold Tax Eligible Executive harmless
from, on an after-tax basis, any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed
as a result of such representation and payment of all related
costs and expenses. Without limiting the foregoing provisions
of this Section 14, the Company shall control all proceedings
taken in connection with such contest and, at its sole option,
may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority
in respect of such claim and may, at its sole option, either
direct Tax Eligible Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner,
and Tax Eligible Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the
Company directs Tax Eligible Executive to pay such claim and
sue for a refund, the Company shall advance the amount of such
payment to Tax Eligible Executive, on an interest-free basis,
and shall indemnify Tax Eligible Executive for, advance
expenses to Tax Eligible Executive for, defend Tax Eligible
Executive against and hold Tax Eligible Executive harmless
from, on an after-tax basis, any Excise Tax or income tax
(including interest or income penalties with respect thereto)
imposed with respect to such advance or with respect to any
imputed income with respect to such advance (including as a
result of any forgiveness by the Company of such advance);
provided, further, that any extension of the statute of
limitations relating to the payment of taxes for the taxable
year of Tax Eligible Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Tax Eligible
Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service
or any other taxing authority.
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IN WITNESS WHEREOF, the Company and the Executive have executed this
Amendment to be effective the date first above written.
EXECUTIVE THE COMPANY
VARCO INTERNATIONAL, INC.
_____________________________ By ___________________________________
[NAME] George Boyadjieff
Chairman and Chief Executive Officer
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