<PAGE>
 
                                                                    EXHIBIT 10.1



                            Varco International Inc.
                           Deferred Compensation Plan
<PAGE>
 
                            Varco International Inc.
                           Deferred Compensation Plan

                               TABLE OF CONTENTS
                               -----------------

                                                                Page
                                                                ----
ARTICLE I....................................................      1
1.1 -   Title................................................      1
1.2 -   Definitions..........................................      1

ARTICLE II...................................................      5
2.1 -   Participation........................................      5

ARTICLE III..................................................      6
3.1 -   Elections to Defer Compensation......................      6
3.2 -   Investment Elections.................................      7

ARTICLE IV...................................................      9
4.1 -   Deferral Account.....................................      9
4.2 -   Employer Contributions Account.......................     10

ARTICLE V....................................................     11
5.1 -   Deferral Account.....................................     11
5.2 -   Employer Contributions Account.......................     11

ARTICLE VI...................................................     12
6.1 -   Distribution of Deferred Compensation................     12
6.2 -   Forfeitures..........................................     13
6.3 -   Nonscheduled In-Service Withdrawals..................     13
6.4 -   Hardship Withdrawals.................................     14
6.5 -   Inability to Locate Participant......................     14
6.6 -   Pre-Retirement Death Benefit.........................     14
6.7 -   Trust................................................     15

ARTICLE VII..................................................     16

ADMINISTRATION...............................................     16
7.1 -   Committee............................................     16
7.2 -   Committee Action.....................................     16
7.3 -   Powers and Duties of the Committee...................     16
7.4 -   Construction and Interpretation......................     17
7.5 -   Information..........................................     17
7.6 -   Compensation, Expenses and Indemnity.................     17

                                       i
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7.7 -   Quarterly Statements.................................     18
7.8 -   Disputes.............................................     18

ARTICLE XIII.................................................     20
8.1 -   Unsecured General Creditor...........................     20
8.2 -   Restriction Against Assignment.......................     20
8.3 -   Withholding..........................................     20
8.4 -   Amendment, Modification, Suspension or Termination...     21
8.5 -   Governing Law........................................     21
8.6 -   Receipt or Release...................................     21
8.7 -   Payments on Behalf of Persons Under Incapacity.......     21
8.8 -   Headings, etc. Not Part of Agreement.................     21

                                      ii
<PAGE>
 
                            Varco International Inc.
                           Deferred Compensation Plan
                        (Effective as of April 1, 1999)

          Varco International, Inc. (the "Company") hereby establishes the Varco
International Inc. Deferred Compensation Plan (the "Plan"), effective as of
April 1, 1999, to provide a tax-deferred capital accumulation opportunity to a
select group of management and highly compensated employees through deferral of
salary and bonuses.

                                   ARTICLE I
                             TITLE AND DEFINITIONS

1.1 -  Title.
       ----- 

          This Plan shall be known as the Varco International Inc. Deferred
Compensation Plan.

1.2 -  Definitions.
       ----------- 

          Whenever the following words and phrases are used in this Plan, with
the first letter capitalized, they shall have the meanings specified below.

          "Account" or "Accounts" shall mean a Participant's Deferral Account
and/or Employer Contributions Account.

          "Beneficiary" or "Beneficiaries" shall mean the person or persons,
including a trustee, personal representative or other fiduciary, last designated
in writing by a Participant in accordance with procedures established by the
Committee to receive the benefits specified hereunder (other than those benefits
set forth in Section 6.6) in the event of the Participant's death.  No
beneficiary designation shall become effective until it is filed with the
Committee, and no beneficiary designation of someone other than the
Participant's spouse shall be effective unless such designation is consented to
by the Participant's spouse on a form provided by and in accordance with
procedures established by the Committee.  If there is no Beneficiary designation
in effect, or if there is no surviving designated Beneficiary, then the
Participant's surviving spouse shall be the Beneficiary.  If there is no
surviving spouse to receive any benefits payable in accordance with the
preceding sentence, the duly appointed and currently acting personal
representative of the participant's estate (which shall include either the
Participant's probate estate or living trust) shall be the Beneficiary.  In any
case where there is no such personal representative of the Participant's estate
duly appointed and acting in that capacity within 90 days after the
Participant's death (or such extended period as the Committee determines is
reasonably

                                       1
<PAGE>
 
necessary to allow such personal representative to be appointed, but not to
exceed 180 days after the Participant's death), then Beneficiary shall mean the
person or persons who can verify by affidavit or court order to the satisfaction
of the Committee that they are legally entitled to receive the benefits
specified hereunder. In the event any amount is payable under the Plan to a
minor, payment shall not be made to the minor, but instead be paid (a) to that
person's living parent(s) to act as custodian, (b) if that person's parents are
then divorced, and one parent is the sole custodial parent, to such custodial
parent, or (c) if no parent of that person is then living, to a custodian
selected by the Committee to hold the funds for the minor under the Uniform
Transfers or Gifts to Minors Act in effect in the jurisdiction in which the
minor resides. If no parent is living and the Committee decides not to select
another custodian to hold the funds for the minor, then payment shall be made to
the duly appointed and currently acting guardian of the estate for the minor or,
if no guardian of the estate for the minor is duly appointed and currently
acting within 60 days after the date the amount becomes payable, payment shall
be deposited with the court having jurisdiction over the estate of the minor.

          "Board of Directors" shall mean the board of directors of the Company.

          "Bonus" shall mean any cash incentive compensation payable to a
Participant in addition to the Participant's Salary after reduction for any
salary deferral contributions to a plan described in Section 125 or Section
401(k) of the Code.

          "Code" shall mean the Internal Revenue Code of 1986, as amended.

          "Committee" shall mean the Committee appointed by the Board of
Directors to administer the Plan in accordance with Article VII.

          "Company" shall mean Varco International, Inc., any successor
corporation and each corporation which is a member of a controlled group of
corporations (within the meaning of Section 414(b) of the Code) of which Varco
International, Inc. is a member.

          "Compensation" shall mean the Salary and Bonus that the Participant is
entitled to for services rendered to the Company.

          "Deferral Account" shall mean the bookkeeping account maintained by
the Committee for each Participant that is credited with amounts equal to (a)
the portion of the Participant's Salary that he or she elects to defer, (b) the
portion of the Participant's Bonus that he or she elects to defer, and (c)
earnings or losses pursuant to Section 4.1.

          "Disability" shall mean an incapacity which has rendered the
Participant eligible to commence receiving benefits under the Company's long-
term disability plan.

                                       2
<PAGE>
 
          "Distribution Subaccounts" shall mean subaccounts of a Participant's
Deferral Account and Employer Contributions Account established to separately
account for deferred Compensation and Employer Contribution Amounts (and
earnings thereon) which are subject to different in-service distribution
elections.

          "Earnings Rate" shall mean, for each Fund, an amount equal to the net
rate of gain or loss on the assets of such Fund during each month.

          "Effective Date" shall mean April 1, 1999.

          "Eligible Employee" shall mean an employee of the Company who is: (a)
designated by the Committee to participate in the Plan; and (b) a division or
corporate vice president or above.

          "Employer Contributions Account" shall mean the bookkeeping account
maintained by the Committee for each Participant that is credited with an amount
equal to the Employer Contribution Amount (if any) and earnings or losses
pursuant to Section 4.2.

          "Employer Contribution Amount" shall mean an amount to equal to a
percentage of the amount of Compensation deferred by a Participant or such other
amount, which percentage or other amount, if any, shall be determined by the
Company, in its sole discretion, and which percentage or amount need not be the
same for each Participant.

          "Fund" or "Funds" shall mean one or more of the investment funds or
portfolios selected by the Committee pursuant to Section 3.2(b).

          "Initial Election Period" for an Eligible Employee shall mean the
later of:  (a) the thirty-day period ending March 26, 1999; or (b) the thirty-
day period following the Eligible Employee's designation by the Committee as an
Eligible Employee.

          "Participant" shall mean any Eligible Employee who elects to defer
Compensation in accordance with Section 3.1 and files a completed insurance
application form in accordance with Section 2.1.

          "Payment Eligibility Date" shall mean the first day of the month
following the end of the calendar quarter in which a Participant ceases to be
employed by the Company, incurs a Disability or dies.

          "Plan" shall mean the Varco International Inc. Deferred Compensation
Plan set forth herein, now in effect, or as amended from time to time.

                                       3
<PAGE>
 
          "Plan Year" shall mean the 12 consecutive month period beginning on
January 1 and ending December 31, except that the initial Plan Year shall be the
period beginning on April 1, 1999 and ending December 31, 1999.

          "Salary" shall mean the Participant's base salary after reduction for
any salary deferral contributions to a plan described in Section 125 or Section
401(k) of the Code.

                                       4
<PAGE>
 
                                   ARTICLE II
                                 PARTICIPATION

2.1 -  Participation.
       ------------- 

          (a) Generally.  An Eligible Employee shall become a Participant in the
              ----------                                                        
Plan by (1) electing to defer Compensation in accordance with Section 3.1; (2)
if required by the Committee, filing a life insurance application form along
with his or her deferral election form; and (3) satisfying any medical
underwriting requirement established by the Committee.

          (b) Participants in the Varco Executive Savings Plan.  Notwithstanding
              -------------------------------------------------                 
the foregoing, an Eligible Employee who is currently participating in the Varco
Executive Savings Plan may not become a Participant without completing the
"Agreement for Transfer of Policy and Termination of Split-Dollar Life Insurance
Agreement" in the form set forth in Exhibit A attached hereto.

                                       5
<PAGE>
 
                                  ARTICLE III
                               DEFERRAL ELECTIONS

3.1 -  Elections to Defer Compensation.
       ------------------------------- 

          (a) Initial Election Period.  Subject to Section 2.1, each Eligible
              -----------------------                                        
Employee may elect to defer Compensation by filing with the Committee an
election that conforms to the requirements of this Section 3.1, on a form
provided by the Committee, no later than the last day of his or her Initial
Election Period.

          (b) General Rule.  Subject to the minimum deferral provisions of
              ------------                                                
Section 3.1(c) below, the amount of Compensation which an Eligible Employee may
elect to defer is as follows:

               (1) Any percentage of Salary up to 100%; and/or

               (2) Any percentage or dollar amount of Bonus up to 100%;

provided, however, that no election shall be effective to reduce the
Compensation paid to an Eligible Employee for a calendar year to an amount which
is less than the sum of:  (a) the amount that the Company is required to
withhold from such Eligible Employee's Compensation for such calendar year for
purposes of federal, state and local (if any) income tax and employment tax
(including Federal Insurance Contributions Act (FICA) tax withholding); and (b)
the amount that the Company is required to withhold from such Eligible
Employee's Compensation for such calendar year for contributions to any employee
benefit plan (other than this Plan).

          (c) Minimum Deferrals.  For each Plan Year during which an Eligible
              -----------------                                              
Employee is a Participant, the minimum amount that may be elected under Section
3.1(b) is $5,000.  This $5,000 minimum deferral for any Plan Year may be met by
a combination of deferrals of Salary and/or Bonus for the Plan Year.  If the
Compensation which the Participant has elected to defer for a Plan Year includes
a percentage of the Bonus payable in such Plan Year and the actual amount of
such Bonus to be deferred, when combined with the percentage of Salary elected
to be deferred for the Plan Year, is less than $5,000 for the Plan Year, then no
portion of such Bonus shall be deferred under this Plan, no further Salary shall
be deferred for such Plan Year and any Salary previously deferred for such Plan
Year shall be refunded to the Participant without interest.

          (d) Effect of Initial Election.  An election to defer Compensation
              --------------------------                                    
during the Initial Election Period shall be effective with respect to (1) Salary
earned during the first pay

                                       6
<PAGE>
 
period beginning after the Initial Election Period and each subsequent pay
period beginning in the same Plan Year and (2) to the Bonus paid with respect to
services performed in the Plan Year for which the election is made.

          (e) Elections other than Elections during the Initial Election Period.
              -----------------------------------------------------------------
Subject to the requirement for filing a completed life insurance form pursuant
to Section 2.1, any Eligible Employee may participate for any Plan Year by
filing an election, on a form provided by the Committee, to defer Compensation
as described in paragraph (b) above.  An election to defer Compensation for a
Plan Year (other than the Plan Year beginning April 1, 1999) must be filed on or
before November 30 of the preceding Plan Year and will be effective for Salary
and Bonus earned during pay periods beginning on or after the following January
1.  Each such election shall designate the time at which such deferred
Compensation (and allocable earnings) shall be distributed to the Participant in
accordance with Article VI of this Plan.

          (f) In-service Distributions.  At the time of making an election to
              ------------------------                                       
defer Compensation for a Plan Year pursuant to this Section 3.1, a Participant
may elect to receive an in-service distribution of the amount deferred under
such election, together with any Employer Contribution Amounts for the same Plan
Year and earnings credited with respect to such amounts pursuant to Article IV,
in a lump sum in any year beginning after the second anniversary of the last day
of the Plan Year in which the amount deferred was earned.  A Participant may
subsequently elect to defer the year of such an in-service distribution to any
subsequent year by filing a written election with the Committee, on a form
provided by the Committee, at least one year prior to the first day of the
previously elected in-service distribution year.  The election to defer the year
of an in-service distribution may be made no more than twice.

          (g) Irrevocability.  Any election filed pursuant to this Section 3.1
              --------------                                                  
shall be irrevocable except to the extent provided in subsection (f) hereof and
Section 6.3.

3.2 -  Investment Elections.
       -------------------- 

          (a) At the time of making the deferral elections described in Section
3.1, the Participant shall designate, on a form provided by the Committee, which
of the types of investment funds or portfolios selected by the Committee the
Participant's Accounts will be deemed to be invested in for purposes of
determining the amount of earnings to be credited to each Account.

          (b) In making the designation pursuant to this Section 3.2, the
Participant must specify, in whole numbers, the percentage of his Deferral
Account and Employer Contributions Account which shall be deemed to be invested
in one or more of the types of investment funds or


                                       7
<PAGE>
 
portfolios. Effective as of the end of any month, a Participant may change the
designation made under this Section 3.2 by filing an election, on a form
provided by the Committee. If a Participant fails to elect a type of investment
fund or portfolio under this Section 3.2, he or she shall be deemed to have
elected the Money Market option.

          (c) Although the Participant may designate the type of investment
                                                         ----              
funds or portfolios, the Committee shall select from time to time, in its sole
discretion, commercially available investment funds or portfolios to be the
Funds.  The Earnings Rate of each such commercially available investment fund or
portfolio shall be used to determine the amount of earnings or losses to be
credited to Participants' Accounts under Article IV.

                                       8
<PAGE>
 
                                   ARTICLE IV
                                    ACCOUNTS

4.1 -  Deferral Account.
       ---------------- 

          The Committee shall establish and maintain a Deferral Account for each
Participant under the Plan.  For each Participant who makes one or more in-
service distribution elections pursuant to Section 3.1(f), the Deferral Account
shall be divided into two or more Distribution Subaccounts as necessary to
separately account for deferrals which are payable at different times.  A
Participant's Deferral Account shall be divided (or each Distribution Subaccount
of a Participant's Deferral Account shall be further divided) into separate
subaccounts ("investment subaccounts"), each of which corresponds to an
investment fund or portfolio elected by the Participant pursuant to Section
3.2(a).  A Participant's Deferral Account shall be credited as follows:

          (a) As of the last day of each month, the Committee shall credit the
          investment subaccounts of the Deferral Account (or the appropriate
          Distribution Subaccount of the Participant's Deferral Account) with an
          amount equal to Salary deferred by the Participant during each pay
          period ending in that month in accordance with the Participant's
          election under Section 3.2(a); that is, the portion of the
          Participant's deferred Salary that the Participant has elected to be
          deemed to be invested in a certain type of investment fund or
          portfolio shall be credited to the investment subaccount corresponding
          to that investment fund or portfolio;

          (b) As of the last day of the month in which the Bonus or partial
          Bonus would have been paid, the Committee shall credit the investment
          subaccounts of the Deferral Account (or the appropriate Distribution
          Subaccount of the Participant's Deferral Account) with an amount equal
          to the portion of the Bonus deferred by the Participant in accordance
          with Participant's election under Section 3.2(a); that is, the portion
          of the Participant's deferred Bonus that the Participant has elected
          to be deemed to be invested in a particular type of investment fund or
          portfolio shall be credited to the investment subaccount corresponding
          to that investment fund or portfolio; and

          (c) As of the last day of each month, each investment subaccount of a
          Participant's Deferral Account (or Distribution Subaccount of the
          Participant's Deferral Account) shall be credited with earnings or
          losses in an amount equal to that determined by multiplying the
          balance credited to such investment subaccount

                                       9
<PAGE>
 
          as of the last day of the preceding month by the Earnings Rate for the
          corresponding Fund selected by the Committee pursuant to Section
          3.2(b).

4.2 -  Employer Contributions Account.
       ------------------------------ 

          The Committee shall establish and maintain an Employer Contributions
Account for each Participant under the Plan.  For each Participant who makes one
or more in-service distribution elections pursuant to Section 3.1(f), the
Participant's Employer Contributions Account shall be divided into two or more
Distribution Subaccounts as necessary to separately account for Employer
Contribution Amounts which are payable at different times.  A Participant's
Employer Contributions Account shall be divided (or each Distribution Subaccount
of a Participant's Employer Contributions Account shall be further divided) into
separate investment subaccounts corresponding to the investment fund or
portfolio elected by the Participant pursuant to Section 3.2(a).  A
Participant's Employer Contributions Account shall be credited as follows:

          (a) As of the last day of any month or Plan Year for which the
          Company, in its sole discretion, decides to credit a Participant with
          an Employer Contribution Amount, the Committee shall credit the
          investment subaccounts of the Employer Contributions Account (or the
          appropriate Distribution Subaccount of the Participant's Employer
          Contributions Account) with an amount equal to the Employer
          Contribution Amount applicable to that Participant in accordance with
          the Participant's election under Section 3.2(a); that is, the portion
          of the Participant's Employer Contribution Amount which the
          Participant elected to be deemed to be invested in a certain type of
          investment fund or portfolio shall be credited to the corresponding
          investment subaccount; and

          (b) As of the last day of each month, each investment subaccount of
          the Employer Contributions Account (or the appropriate Distribution
          Subaccount of the Participant's Employer Contributions Account) shall
          be credited with earnings or losses in an amount equal to that
          determined by multiplying the balance credited to such investment
          subaccount as of the last day of the preceding month by the Earnings
          Rate for the corresponding Fund selected by the Committee pursuant to
          Section 3.2(b).

                                      10
<PAGE>
 
                                   ARTICLE V
                                    VESTING

5.1 -  Deferral Account.
       ---------------- 

          A Participant's Deferral Account shall be 100% vested at all times.

5.2 -  Employer Contributions Account.
       ------------------------------ 

          (a) A Participant's Employer Contributions Account shall vest at a
rate determined by the Company for each Participant.  Each Participant's vesting
schedule shall be set forth in a separate letter agreement between the
Participant and the Company.

          (b) Notwithstanding anything contained herein to the contrary, the
Committee may, in its sole discretion, provide for 100% vesting of a
Participant's Employer Contributions Account at any time.


                                      11
<PAGE>
 
                                   ARTICLE VI
                                 DISTRIBUTIONS

6.1 -  Distribution of Deferred Compensation.
       ------------------------------------- 

          (a) Distribution of the vested amount credited to a Distribution
Subaccount of the Participant's Deferral Account and Employer Contribution
Account which was established with respect to an in-service distribution
election shall be made in a lump sum payment during January of the year elected
by the Participant pursuant to Section 3.1(f), provided that the Participant is
employed by the Company on January 1 of such year.  In the event the
Participant's employment with the Company is terminated for any reason prior to
January 1 of the year elected by the Participant pursuant to Section 3.1(f), the
Participant's in-service distribution election(s) with respect to benefits not
yet distributed shall no longer be effective and all of the vested amounts
credited to his or her Deferral Account and Employer Contributions Account shall
be distributed together as set forth in the following subsections of this
Section 6.1.

          (b) In the event a Participant terminates employment for a reason
other than death, the amount credited to his or her Deferral Account and the
vested portion of the amount, if any, credited to his or her Employer
Contributions Account shall be distributed in a lump sum payment payable as soon
as practicable following his or her Payment Eligibility Date.  Notwithstanding
the foregoing, a Participant may elect to receive distribution in 20, 40, or 60
substantially equal quarterly installments beginning as soon as practicable
following the Participant's Payment Eligibility Date, provided that his or her
election is filed with the Committee at least one year prior to his or her
termination of employment on a form to be provided by the Committee.

          Notwithstanding anything contained herein to the contrary, in the
event that the sum of the amount credited to a Participant's Deferral Account
and the vested portion of the amount, if any, credited to his or her Employer
Contributions Account is $25,000 or less, such amount shall be paid in a cash
lump sum payment as soon as practicable following his or her Payment Eligibility
Date.

          (c) In the event a Participant terminates employment because of death,
the amount credited to his or her Deferral Account and the vested and unvested
portion of the amount, if any, credited to his or her Employer Contributions
Account shall be paid to his or her Beneficiary in the form of a cash lump sum
payment as soon as practicable following the Participant's Payment Eligibility
Date.

                                      12
<PAGE>
 
          (d) The Participant's Accounts shall continue to be credited monthly
with earnings pursuant to Sections 4.1 and 4.2 of the Plan until all amounts
credited to his or her Accounts under the Plan have been distributed.

          (e) In the event that a former Participant dies while receiving
installment payments under this Plan, any remaining installments shall be paid
to the Participant's Beneficiary as such installments would have otherwise been
due to the Participant.

6.2 -  Forfeitures.
       ------------

          When a Participant (or, in the case of his or her death, the
Participant's Beneficiary) receives a distribution of benefits under this Plan
(regardless of whether such payment is a lump sum payment or the first
installment payment), the portion of his or her Employer Contributions Account,
if any, which is not vested shall be forfeited, and the Company shall have no
obligation to the Participant (or Beneficiary) with respect to such forfeited
amount.

6.3 -  Nonscheduled In-Service Withdrawals.
       ----------------------------------- 

          At any time prior to his or her termination of employment from the
Company, a Participant may elect to withdraw an amount not in excess of 90% of
the amount credited to his or her Deferral Account and 90% of the vested portion
of the amount, if any, credited to his or her Employer Contributions Account,
subject to a withdrawal penalty described below.  The Participant may make such
an election by filing a written notice with the Committee on a form provided by
the Committee.  Within 90 days following the Committee's receipt of such notice,
an amount equal to the sum of the amount that the Participant has elected to
withdraw from the Participant's Deferral Account and the amount that the
Participant has elected to withdraw from his or her Employer Contributions
Account shall be paid to the Participant in a cash lump sum payment.  Upon the
payment of such withdrawal, (a) an amount equal to 11.11% of the amount
withdrawn from the Participant's Deferral Account and 11.11% of the amount
withdrawn from the Participant's Employer Contributions Account shall be
forfeited, (b) the Participant shall cease to participate in the Plan for the
remainder of the Plan Year in which the withdrawal occurs and shall be
ineligible to participate during the Plan Year immediately following the Plan
Year in which the withdrawal occurs, and (c) any deferral elections made by the
Participant for such periods shall be terminated.  A Participant may not make
more than two withdrawals under this Section 6.3.

                                      13
<PAGE>
 
6.4 -  Hardship Withdrawals.
       -------------------- 

          At any time prior to his or her termination of employment from the
Company, a Participant may request a distribution for hardship without penalty.
Such distribution for hardship shall be subject to approval by the Committee and
may be made only to the extent necessary to satisfy the hardship.  A
distribution for hardship shall be granted only for one of the following
reasons:

          (a) A Participant's or dependent's illness or accident;

          (b) Casualty loss with respect to a Participant's property; or

          (c) Other circumstances arising out of events beyond the control of
the Participant, which the Committee finds are similar to the events described
in Section 6.4(a) or (b).

6.5 -  Inability to Locate Participant.
       ------------------------------- 

          In the event that the Committee is unable to locate a Participant or
Beneficiary within two years following the Participant's Payment Eligibility
Date, the amounts allocated to the Participant's Deferral Account and Employer
Contributions Account shall be forfeited.  If, after such forfeiture, the
Participant or Beneficiary later claims such benefits, such benefits shall be
reinstated without interest or earnings, provided that Section 6.2 shall still
apply.

6.6 -  Pre-Retirement Death Benefit.
       ---------------------------- 

          (a) If a Participant dies while employed by the Company, in addition
to the payment or payments to the Participant's Beneficiary under Section
6.1(c), a death benefit shall be paid to the Participant's beneficiary under a
life insurance policy purchased by or transferred to the trustee of the Trust
described in Section 6.7 to insure the life of the Participant (the "Policy").
The death benefit payable to the Participant's beneficiary shall be $300,000.

          (b) The Participant shall have the right to designate and change such
beneficiary (which need not be his or her Beneficiary under this Plan) at any
time on a form provided by and filed with the insurance company.  If no such
form is on file with the insurance company, the death benefit described in the
preceding paragraph shall be paid to the Beneficiary.

          (c) The death benefit payable pursuant to paragraph (a) shall not be
paid if an insurance company has not issued a Policy on the life of the
Participant at the time of his death and shall be subject to all conditions and
exceptions set forth in the Policy and split dollar life

                                      14
<PAGE>
 
insurance agreement in effect between the Participant and the Trustee of the
Trust, described in Section 6.7 below.

          (d) Notwithstanding any provision of this Plan or any other document
to the contrary, the pre-retirement death benefit provided under Section 6.6(a)
shall be payable solely from the proceeds of the Policy, if any.  In addition,
no Policy shall be allocated to any Account.

          (e) Notwithstanding the foregoing, if a Participant dies while
employed by the Company, but has a zero balance in his or her Deferral Account
and no vested interest in his or her Employer Contributions Account due to
distributions under Sections 6.1(a), 6.3, or 6.4, he or she will not be eligible
for the death benefit described in Section 6.6(a).

6.7 -  Trust.
       ----- 

          (a) The Company shall cause the payment of benefits under this Plan
(excluding the amounts described in Section 6.6) to be made in whole or in part
by the Trustee of the Varco International Inc. Deferred Compensation Plan Trust
(the "Trust") in accordance with the provisions of this Section 6.7.  The
Company shall contribute to the Trust for each Participant an amount equal to
the amount deferred by the Participant for the Plan Year and the Employer
Contribution Amount for the Participant for the Plan Year, if any; the
contributions shall be made no later than the Company's tax return due date for
that Plan Year.  Notwithstanding the foregoing, the Company shall contribute at
least an amount equal to the "cost of insurance" (as defined in each Policy) for
the death benefits described in Section 6.6 for each  Participant, provided that
such obligation shall not apply with respect to a Policy if the Participant is
no longer employed by the Company.

          (b) The Committee shall direct the Trustee to pay the Participant or
his or her Beneficiary at the time and in the amount described in Article VI
(excluding amounts described in Section 6.6).  In the event the amounts held
under the Trust are not sufficient to provide the full amount (excluding amounts
described in Section 6.6) payable to the participant or his or her Beneficiary,
the Company shall pay the remainder of such amount at the time(s) set forth in
Article VI.

                                      15
<PAGE>
 
                                  ARTICLE VII
                                ADMINISTRATION

7.1 -  Committee.
       --------- 

          A committee shall be appointed by, and serve at the pleasure of, the
Board of Directors.  The number of members comprising the Committee shall be
determined by the Board of Directors which may from time to time vary the number
of members, provided, however, that the Director of Human Resources for the
Company and the Chief Financial Officer of the Company shall be members of the
Committee.  A member of the Committee may resign by delivering a written notice
of resignation to the Board of Directors.  The Board of Directors may remove any
member by delivering a letter signed by each director notifying such member of
his or her removal.  Vacancies in the membership of the Committee shall be
filled promptly by the Board of Directors.

7.2 -  Committee Action.
       ---------------- 

          The Committee shall act at meetings by affirmative vote of a majority
of the members of the Committee.  Any action permitted to be taken at a meeting
may be taken without a meeting if, prior to such action, a written consent to
the action is signed by all members of the Committee and such written consent is
filed with the minutes of the proceedings of the Committee.  A member of the
Committee shall not vote or act upon any matter which relates solely to himself
or herself as a Participant.  The Chairman or any other member or members of the
Committee designated by the Chairman may execute any certificate or other
written direction on behalf of the Committee.

7.3 -  Powers and Duties of the Committee.
       ---------------------------------- 

          (a) The Committee, on behalf of the Participants and their
Beneficiaries, shall enforce the Plan in accordance with its terms, shall be
charged with the general administration of the Plan, and shall have all powers
necessary to accomplish its purposes, including, but not by way of limitation,
the following:

               (1) To select the funds or portfolios to be the Funds in
               accordance with Section 3.2(b) hereof;

               (2) To construe and interpret the terms and provisions of this
               Plan;

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<PAGE>
 
               (3) To compute and certify to the amount and kind of benefits
               payable to Participants and their Beneficiaries;

               (4) To maintain all records that may be necessary for the
               administration of the Plan;

               (5) To provide for the disclosure of all information and the
               filing or provision of all reports and statements to
               Participants, Beneficiaries or governmental agencies as shall be
               required by law;

               (6) To make and publish such rules for the regulation of the Plan
               and procedures for the administration of the Plan as are not
               inconsistent with the terms hereof; and

               (7) To appoint a plan administrator or any other agent, and to
               delegate to them such powers and duties in connection with the
               administration of the Plan as the Committee may from time to time
               prescribe.

7.4 -  Construction and Interpretation.
       ------------------------------- 

          The Committee shall have full discretion to construe and interpret the
terms and provisions of this Plan, which interpretation or construction shall be
final and binding on all parties, including but not limited to the Company and
any Participant or Beneficiary.  The Committee shall administer such terms and
provisions in a uniform and nondiscriminatory manner and in full accordance with
any and all laws applicable to the Plan.

7.5 -  Information.
       ----------- 

          To enable the Committee to perform its functions, the Company shall
supply full and timely information to the Committee on all matters relating to
the Compensation of all Participants, their death or other cause of termination,
and such other pertinent facts as the Committee may require.

7.6 -  Compensation, Expenses and Indemnity.
       ------------------------------------ 

          (a) The members of the Committee shall serve without compensation for
their services hereunder.

                                      17
<PAGE>
 
          (b) The Committee is authorized at the expense of the Company to
employ such legal counsel as it may deem advisable to assist in the performance
of its duties hereunder.  Expenses and fees in connection with the
administration of the Plan shall be paid by the Company.

          (c) To the extent permitted by applicable state law, the Company shall
indemnify and save harmless the Committee and each member thereof, the Board of
Directors and each member thereof, and delegates of the Committee who are
employees of the Company against any and all expenses, liabilities and claims,
including legal fees to defend against such liabilities and claims arising out
of their discharge in good faith of responsibilities under or incident to the
Plan, other than expenses and liabilities arising out of willful misconduct.
This indemnity shall not preclude such further indemnities as may be available
under insurance purchased by the Company or provided by the Company under any
bylaw, agreement or otherwise, as such indemnities are permitted under state
law.

7.7 -  Quarterly Statements.
       -------------------- 

          Under procedures established by the Committee, a Participant shall
receive a statement with respect to such Participant's Accounts as of the last
day of each calendar quarter.

7.8 -  Disputes.
       -------- 

          (a)  Claim.

          A person who believes that he or she is being denied a benefit to
which he or she is entitled under this Plan (hereinafter referred to as
"Claimant") may file a written request for such benefit with the Committee,
setting forth his or her claim.  The request must be addressed to the Committee
at the Company's principal place of business.

          (b)  Claim Decision.

          Upon receipt of a claim, the Committee shall advise the Claimant that
a reply will be forthcoming within ninety (90) days and shall, in fact, deliver
such reply within such period.  The Committee may, however, extend the reply
period for an additional ninety (90) days for special circumstances.

          If the claim is denied in whole or in part, the Committee shall inform
the Claimant in writing, using language calculated to be understood by the
Claimant, setting forth:  (1) the specified reason or reasons for such denial;
(2) the specific reference to pertinent provisions of this Plan on which such
denial is based; (3) a description of any additional material or information

                                      18
<PAGE>
 
necessary for the Claimant to perfect his or her claim and an explanation why
such material or such information is necessary; (4) appropriate information as
to the steps to be taken if the Claimant wishes to submit the claim for review;
and (5) the time limits for requesting a review under subsection (c).

          (c)  Request for Review.

          Within sixty (60) days after the receipt by the Claimant of the
written opinion described above, the Claimant may request in writing that the
Committee review the determination.  Such request must be addressed to the
Committee, at the Company's principal place of business.  The Claimant or his or
her duly authorized representative may, but need not, review the pertinent
documents and submit issues and comments in writing for consideration by the
Committee.  If the Claimant does not request a review within such sixty (60) day
period, he or she shall be barred and estopped from challenging the original
determination.

          (d)  Review of Decision.

          Within sixty (60) days after the Committee's receipt of a request for
review, after considering all materials presented by the Claimant, the Committee
will inform the Claimant in writing, in a manner calculated to be understood by
the Claimant, of its decision setting forth the specific reasons for the
decision and containing specific references to the pertinent provisions of this
Plan on which the decision is based.  If special circumstances require that the
sixty (60) day time period be extended, the Committee will so notify the
Claimant and will render the decision as soon as possible, but no later than one
hundred twenty (120) days after receipt of the request for review.

                                      19
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                                  ARTICLE XIII
                                 MISCELLANEOUS

8.1 -  Unsecured General Creditor.
       -------------------------- 

          Participants and their Beneficiaries, heirs, successors, and assigns
shall have no legal or equitable rights, claims, or interest in any specific
property or assets of the Company.  No assets of the Company shall be held under
any trust, or held in any way as collateral security for the fulfilling of the
obligations of the Company under this Plan.  Any and all of the Company's assets
shall be, and remain, the general unpledged, unrestricted assets of the Company.
The Company's obligation under the Plan shall be merely that of an unfunded and
unsecured promise of the Company to pay money in the future, and the rights of
the Participants and Beneficiaries shall be no greater than those of unsecured
general creditors.  It is the intention of the Company that this Plan (and the
Trust described in Section 6.7) be unfunded for purposes of the Code and for
purposes of Title I of ERISA.

8.2 -  Restriction Against Assignment.
       ------------------------------ 

          The Company shall pay all amounts payable hereunder only to the person
or persons designated by the Plan and not to any other person or corporation.
No part of a  Participant's Accounts shall be liable for the debts, contracts,
or engagements of any Participant, his or her Beneficiary, or successors in
interest, nor shall a Participant's Accounts be subject to execution by levy,
attachment, or garnishment or by any other legal or equitable proceeding, nor
shall any such person have any right to alienate, anticipate, sell, transfer,
commute, pledge, encumber, or assign any benefits or payments hereunder in any
manner whatsoever.  If any Participant, Beneficiary or successor in interest is
adjudicated bankrupt or purports to anticipate, alienate, sell, transfer,
assign, pledge, encumber or charge any distribution or payment from the Plan,
voluntarily or involuntarily, the Committee, in its discretion, may cancel such
distribution or payment (or any part thereof) to or for the benefit of such
Participant, Beneficiary or successor in interest in such manner as the
Committee shall direct.

8.3 -  Withholding.
       ----------- 

          There shall be deducted from each payment made under the Plan or any
other compensation payable to the Participant (or Beneficiary) all taxes which
are required to be withheld by the Company in respect to such payment or this
Plan.  The Company shall have the right to reduce any payment (or other
compensation) by the amount of cash sufficient to provide the amount of said
taxes.

                                      20
<PAGE>
 
8.4 -  Amendment, Modification, Suspension or Termination.
       -------------------------------------------------- 

          The Board of Directors may amend, modify, suspend or terminate the
Plan in whole or in part, except that no amendment, modification, suspension or
termination shall have any retroactive effect to reduce any amounts allocated to
a Participant's Accounts.  (Neither the Policies themselves nor the death
benefit described in Section 6.6 shall be treated as allocated to Accounts.)

8.5 -  Governing Law.
       ------------- 

          This Plan shall be construed, governed and administered in accordance
with the laws of the State of California.

8.6 -  Receipt or Release.
       ------------------ 

          Any payment to a Participant or the Participant's Beneficiary in
accordance with the provisions of the Plan shall, to the extent thereof, be in
full satisfaction of all claims against the Committee, and the Company.  The
Committee may require such Participant or Beneficiary, as a condition precedent
to such payment, to execute a receipt and release to such effect.

8.7 -  Payments on Behalf of Persons Under Incapacity.
       ---------------------------------------------- 

          In the event that any amount becomes payable under the Plan to a
person who, in the sole judgement of the Committee, is considered by reason of
physical or mental condition to be unable to give a valid receipt therefor the
Committee may direct that such payment be made to any person found by the
Committee, in its sole judgement, to have assumed the care of such person. Any
payment made pursuant to such determination shall constitute a full release and
discharge of the Committee and the Company.

8.8 -  Headings, etc. Not Part of Agreement.
       ------------------------------------ 

          Headings and subheadings in this Plan are inserted for convenience of
reference only and are not to be considered in the construction of the
provisions hereof.

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          IN WITNESS WHEREOF, the Company, has executed this document this
  30th  day of March, 1999.
--------

 

                              Varco International, Inc.



                              By:          Donald L. Stichler
                                 -------------------------------------



                              Its:     Vice President, Controller--
                                  ------------------------------------
                                         Treasurer and Secretary

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