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                                                                    EXHIBIT 10.1

                          VARCO STOCK OPTION AGREEMENT
                          ----------------------------

     STOCK OPTION AGREEMENT, dated as of March 22, 2000 (this "Agreement"), by
                                                               ---------
and between Tuboscope, a Delaware corporation (the "Grantee"), and Varco, a
                                                    -------
California corporation (the "Grantor").
                             -------

     WHEREAS, the Grantee and the Grantor are entering into an Agreement and
Plan of Merger, dated as of the date hereof (the "Merger Agreement"), which
                                                  ----------------
provides, among other things, for the merger (the "Merger") of Grantor with and
                                                   ------
into the Grantee;

     WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, the Grantee has requested that the Grantor grant to the Grantee an
option to purchase certain shares of the authorized and unissued Common Stock of
the Grantor, together with any associated rights under the Rights Agreement,
dated as of November 6, 1997 (the "Varco Rights Agreement"), between Grantor and
                                   -----------------------
Harris Trust Company of California, as amended (the "Common Stock") , upon the
                                                     ------------
terms and subject to the conditions hereof; and

     WHEREAS, in order to induce the Grantee to enter into the Merger Agreement,
the Grantor is willing to grant the Grantee the requested option.

     NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained herein and in the Merger Agreement, the parties hereto agree
as follows:

     1. The Option; Exercise; Adjustments; Payment of Spread; Termination.
        -----------------------------------------------------------------

        (a)  Contemporaneously herewith the Grantee and the Grantor are entering
into the Merger Agreement, and Grantor has amended the Varco Rights Agreement.
Subject to the other terms and conditions set forth herein, the Grantor hereby
grants to the Grantee an irrevocable option (the "Option") to purchase up to
                                                  ------
13,023,985 shares (representing approximately 19.9% of the outstanding shares of
Common Stock as of the date hereof) of Common Stock (the "Option Shares") at a
                                                          -------------
cash purchase price equal to $14.56 per Option Share (the "Purchase Price").
                                                           --------------
Subject to the conditions set forth in Section 2, the Option may be exercised by
the Grantee, in whole or in part, at any time, or from time to time, following
the occurrence of any event as a result of which the Grantee is unconditionally
entitled to receive the Varco Termination Fee (as defined in the Merger
Agreement) pursuant to Section 8.03(e) of the Merger Agreement and prior to the
termination of the Option in accordance with the terms of this Agreement.

        (b)  Without limiting any restriction on the Grantor contained in this
Agreement or the Merger Agreement, in the event of any change in the number of
issued and outstanding shares of Common Stock by reason of any stock dividend,
stock split, split-up, recapitalization, merger or other change in the corporate
or capital structure of the Grantor, the number and type of Option Shares
subject to the Option and the purchase price per Option Share shall be
appropriately adjusted to restore the Grantee to its rights hereunder, including
its right to purchase Option Shares representing 19.9% of the capital stock of
the Grantor entitled to vote generally for the election of the directors of the
Grantor which is issued and outstanding

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immediately prior to the exercise of the Option at an aggregate purchase price
equal to the Purchase Price multiplied by 13,023,985.

        (c)  In the event the Grantee wishes to exercise the Option, the Grantee
shall send a written notice to the Grantor (the "Exercise Notice") specifying
                                                 ---------------
the total number of Option Shares that the Grantee wishes to purchase and a date
(subject to the requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act")) not later than 10 business days and not
                          -------
earlier than the next business day following the date such notice is given for
the closing of such purchase.

        (d)  After the occurrence of any event as a result of which the Grantee
is unconditionally entitled to receive the Varco Termination Fee pursuant to
Section 8.03(e) of the Merger Agreement, the Grantee may (i) at any time the
Option is then exercisable pursuant to the terms of Section 1(a) hereof elect,
in lieu of exercising the Option to purchase Option Shares provided in Section
1(a) hereof, to send a written notice to the Grantor (the "Cash Exercise
                                                           -------------
Notice") specifying a date not later than 20 business days and not earlier than
------
10 business days following the date such notice is given on which date the
Grantor shall pay to the Grantee an amount in cash equal to the Spread (as
hereinafter defined) multiplied by all or such portion of the Option Shares
subject to the Option as Grantee shall specify, or (ii) at any time prior to 30
days after the first anniversary of the Merger Termination Date (as defined in
Section 1(e)), if the Grantee has exercised the Option and purchased the Option
Shares hereunder, Grantee may send a written notice to the Grantor (the "Put
                                                                         ---
Notice") specifying a date not later than 20 business days and not earlier than
------
10 business days following the date such notice is given on which date the
Grantee may sell to the Grantor Option Shares purchased hereunder and the
Grantor shall pay to the Grantee an amount in cash equal to the higher of (m)
the Alternative Purchase Price (as hereinafter defined) or (n) the average of
the closing sales prices of the shares of Common Stock on the New York Stock
Exchange (the "NYSE") for the five trading days ending five days prior to the
               ----
date the Put Notice is given, multiplied by the number of such Option Shares to
be sold by the Grantee to the Grantor on such date (such purchase and sale to be
closed in a manner substantially consistent with the procedures outlined in
Section 3 hereof). As used herein "Spread" shall mean the excess, if any, over
                                   ------
the Purchase Price of the higher of (x) if applicable, the highest price per
share of Common Stock (including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by any person in an Alternative Transaction (as
defined in Section 8.03(g) of the Merger Agreement) (the "Alternative Purchase
                                                          --------------------
Price") or (y) the average of the closing sales prices of the shares of Common
-----
Stock on the NYSE for the five trading days ending five days prior to the date
of the Cash Exercise Notice is given. If the Alternative Purchase Price includes
any property other than cash, the Alternative Purchase Price shall be the sum of
(A) the fixed cash amount, if any, included in the Alternative Purchase Price
plus (B) the fair market value of such other property determined in accordance
with the procedures set forth in Section 7(b) (but using the date of the Cash
Exercise Notice or the Put Notice, as the case may be, is given). Upon exercise
of the Grantee's right to receive cash pursuant to Section 1(d)(i) and the
payment of such cash to the Grantee, the obligations of the Grantor to deliver
Option Shares pursuant to Section 3 shall be terminated with respect to such
number of Option Shares for which the Grantee shall have elected to be paid the
Spread.

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         (e)  The right to exercise the Option shall terminate at the earliest
of (i) the Effective Time (as defined in the Merger Agreement), (ii) the
termination of the Merger Agreement pursuant to circumstances under which the
Grantee is not entitled to receive the Varco Termination Fee pursuant to Section
8.03(e) of the Merger Agreement, (iii) the date on which the Grantee realizes a
Total Profit equal to the Profit Limit (as such terms are defined in Section 10)
and (iv) 180 days after the date (the "Merger Termination Date") on which the
                                       -----------------------
Merger Agreement is terminated pursuant to circumstances under which the Grantee
is entitled to receive the Varco Termination Fee pursuant to Section 8.03(e) of
the Merger Agreement (the date referred to in clause (iv) being hereinafter
referred to as the "Option Expiration Date"); provided that if the Option cannot
                    ----------------------
be exercised or the Option Shares cannot be delivered to Grantee upon such
exercise because the conditions set forth in Section 2(a) or Section 2(b) hereof
have not yet been satisfied, the Option Expiration Date shall be extended until
30 days after such impediment to exercise has been removed.

     2.  Conditions to Delivery of Option Shares.  The Grantor's obligation to
         ---------------------------------------
deliver Option Shares upon exercise of the Option is subject to the following
conditions:

         (a)  No preliminary or permanent injunction or other order issued by
any federal or state court of competent jurisdiction in the United States
prohibiting the delivery of the Option Shares shall be in effect;

         (b)  Any applicable waiting periods under the HSR Act shall have
expired or been terminated; and

         (c)  The Grantee shall have become entitled to terminate the Merger
Agreement under circumstances that would entitle the Grantee to receive the
Varco Termination Fee pursuant to Section 8.03(e) of the Merger Agreement.

     3.  The Closing.
         -----------

         (a)  Any closing hereunder shall take place on the date specified by
the Grantee in its Exercise Notice at 9:00 A.M., local time, at the offices of
Pircher, Nichols & Meeks, 1999 Avenue of the Stars, Los Angeles, California, or,
if the conditions set forth in Section 2(a) or 2(b) have not then been
satisfied, on the second business day following the satisfaction of such
conditions, or at such other time and place as the parties hereto may agree (the
"Closing Date"). On the Closing Date, the Grantor will deliver to the Grantee a
 ------------
certificate or certificates representing the Option Shares in the denominations
designated by the Grantee in its Exercise Notice and the Grantee will purchase
such Option Shares from the Grantor at the price per Option Share equal to the
Purchase Price. Unless otherwise specified in this Agreement, any payment made
by the Grantee to the Grantor, or by the Grantor to the Grantee, pursuant to
this Agreement shall be made by certified or official bank check or by wire
transfer of immediately available funds to a bank designated by the party
receiving such funds.

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         (b)  Certificates for the Option Shares delivered on the Closing Date
will have typed or printed thereon a restrictive legend which will read
substantially as follows:

         "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY BE REOFFERED OR
         SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION
         IS AVAILABLE.  SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL
         RESTRICTIONS ON TRANSFER AS SET FORTH IN THE VARCO STOCK OPTION
         AGREEMENT DATED AS OF MARCH 22, 2000, A COPY OF WHICH MAY BE OBTAINED
         FROM THE SECRETARY OF VARCO AT ITS PRINCIPAL EXECUTIVE OFFICES."

It is understood and agreed that (i) the reference to restrictions arising under
the Securities Act of 1933, as amended (the "Securities Act"), in the above
                                             --------------
legend will be removed by delivery of substitute certificate(s) without such
reference if such Option Shares have been registered pursuant to the Securities
Act, such Option Shares have been sold in reliance on and in accordance with
Rule 144 under the Securities Act or Grantee has delivered to Grantor a copy of
a letter from the staff of the Securities and Exchange Commission, or an opinion
of counsel in form and substance reasonably satisfactory to Grantor and its
counsel, to the effect that such legend is not required for purposes of the
Securities Act and (ii) the reference to restrictions pursuant to this Agreement
in the above legend will be removed by delivery of substitute certificate(s)
without such reference if the Option Shares evidenced by certificate(s)
containing such reference have been sold or transferred in compliance with the
provisions of this Agreement under circumstances that do not require the
retention of such reference.

     4.  Representations and Warranties of the Grantor.  The Grantor represents
         ---------------------------------------------
and warrants to the Grantee that:  (a) the Grantor is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and has the requisite corporate power and authority to enter into and
perform this Agreement; (b) the execution and delivery of this Agreement by the
Grantor and the consummation by it of the transactions contemplated hereby have
been duly authorized by the Board of Directors of the Grantor and this Agreement
has been duly executed and delivered by a duly authorized officer of the Grantor
and constitutes a valid and binding obligation of the Grantor, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights, to general equity principles and to
the California General Corporation Law; (c) the Grantor has taken all necessary
corporate action to authorize and reserve the Option Shares issuable upon
exercise of the Option and the Option Shares, when issued and delivered by the
Grantor upon the exercise of the Option in accordance with the terms of this
Agreement, will be duly authorized, validly issued, fully paid and non-
assessable and free of any lien, security interest or other adverse claim and
free of any preemptive rights; (d) except as otherwise required by the HSR Act
and, except for routine filings under the Securities Exchange Act of 1934, as
amended, and the listing of the Option Shares in accordance with Section 6, the
execution and delivery of this Agreement by the Grantor and the

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consummation by it of the transactions contemplated hereby do not require the
consent, waiver, approval or authorization of or any filing with any person or
public authority and will not violate, require a consent or waiver under, result
in a breach of or the acceleration of any obligation under, or constitute a
default under, any provision of any charter or by-law, indenture, mortgage,
lien, lease, agreement, contract, instrument, order, law, rule, regulation,
stock market rule, judgment, ordinance, decree or restriction by which the
Grantor or any of its subsidiaries or any of their respective properties or
assets is bound; (e) no "fair price," "moratorium," "control share acquisition"
or other form of antitakeover statute or regulation is or shall be applicable to
the acquisition of Option Shares pursuant to this Agreement; and (f) the Varco
Rights Agreement has been amended so that the Grantee is exempt from the
definition of "Acquiring Person" contained in the Varco Rights Agreement, and no
"Shares Acquisition Date" or "Distribution Date" or "Triggering Event" (as such
terms are defined in the Varco Rights Agreement) will occur as a result of the
execution of this Agreement by the Grantor or the exercise of the Option by the
Grantee.

     5.  Representations and Warranties of the Grantee.  The Grantee represents
         ---------------------------------------------
and warrants to the Grantor that:  (a) the execution and delivery of this
Agreement by the Grantee and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Grantee and this Agreement has been duly executed and
delivered by a duly authorized officer of the Grantee and constitutes a valid
and binding obligation of the Grantee; and (b) the Grantee is acquiring the
Option and, if and when it exercises the Option, will be acquiring the Option
Shares issuable upon the exercise thereof for its own account and not with a
view to distribution or resale in any manner which would be in violation of the
Securities Act.

     6.  Listing of Option Shares; HSR Act Filings; Governmental Consents.  The
         ----------------------------------------------------------------
Grantor shall use its best efforts to cause the Option Shares to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date; provided, however, that if the Grantor is unable to effect such
              --------  -------
listing on the NYSE by the Closing Date, the Grantor will nevertheless be
obligated to deliver the Option Shares upon the Closing Date.  The Grantor shall
as promptly as practicable, make all necessary filings with respect to this
Agreement and the Option required under the HSR Act and use its best efforts to
obtain all necessary approvals thereunder as promptly as practicable.  Each of
the parties hereto will use its best efforts to obtain consents of all third
parties and governmental authorities, if any, necessary to the consummation of
the transactions contemplated herein.

     7.  Right of First Refusal.  If the Grantee exercises the Option in whole
         ----------------------
or in part and at any time thereafter and prior to the earlier of (a) the
occurrence of a Change in Control Event (as defined herein) or (b) 30 days after
the first anniversary of the Merger Termination Date, seeks to sell all or any
part of the Option Shares purchased (i) in a transaction registered under the
Securities Act (other than in a registered public offering in which the
underwriters are instructed to achieve a broad public distribution) or (ii) in a
transaction not required to be registered under the Securities Act (other than
in a transfer by operation of law upon consummation of a merger), it shall give
the Grantor (or a designee of the Grantor) the opportunity, in the following
manner, to purchase such Option Shares:

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                 (a)     The Grantee shall give notice to the Grantor in writing
of its intent to sell Option Shares (a "Disposition Notice"), specifying the
                                        ------------------
number of Option Shares to be sold, the price and, if applicable, the identity
of the proposed transferee and the material terms of any agreement relating
thereto.  For purposes of this Section 7, if the Disposition Notice is given
with respect to the sale of the Option Shares pursuant to a tender or exchange
officer, it shall be assumed that all Option Shares tendered will be accepted
for payment.  The Disposition Notice may be given at any time, including prior
to the giving of any Exercise Notice.

                 (b)     The Grantor or its designee shall have the right,
exercisable by written notice given to the Grantee within five business days
after receipt of a Disposition Notice (or, if applicable, in the case of a
proposed sale pursuant to a tender or exchange offer for shares of Common Stock,
by written notice given to the Grantee at least two business days prior to the
then announced expiration date of such tender or exchange offer (the "Expiration
                                                                      ----------
Date") if such Disposition Notice was given at least four business days prior to
----
such Expiration Date), to purchase all, but not less than all, of the Option
Shares specified in the Disposition Notice at the price set forth in the
Disposition Notice.  If the purchase price specified in the Disposition Notice
includes any property other than cash, the purchase price to be paid by the
Grantor shall be an amount of cash equal to the sum of (i) the cash included in
the purchase price plus (ii) the fair market value of such other property at the
date of the Disposition Notice.  If such other property consists of securities
with an existing public trading market, the average closing price (or the
average closing bid and asked price if closing prices are unavailable) for such
securities on their principal public trading market for the five trading days
ending five days prior to the date of the Disposition Notice shall be deemed to
equal the fair market value of such property.  If such other property consists
of something other than cash or securities with an existing public trading
market and, at the time of the closing referred to in paragraph (c) below,
agreement on the value of such other property has not been reached, the higher
of (i) the cash included in the purchase price and (ii) the average closing
price of the Common Stock on the NYSE for the five trading days ending five days
prior to the date of the Disposition Notice shall be used as the per share
purchase price; provided, however, that promptly after the closing, the Grantee
                --------  -------
and the Grantor or its designee, as the case may be, shall settle any additional
amounts to be paid or returned as a result of the determination of fair market
value of such other property made by a nationally recognized investment banking
firm selected by the Grantor and approved by the Grantee within 30 days of the
closing. Such determination shall be final and binding on all parties hereto.
If, at the time of the purchase of any Option Shares by the Grantor (or its
designee) pursuant to this Section 7, a tender or exchange offer is outstanding,
then the Grantor (or its designee) shall agree at the time of such purchase to
promptly pay to Grantee from time to time such additional amounts, if any, so
that the consideration received by Grantee with respect to each Option Share
shall be equal to the highest price paid for a share of Common Stock pursuant to
such tender or exchange, or pursuant to any other tender or exchange offer
outstanding at any time such tender or exchange offer is outstanding.

                 (c)     If the Grantor exercises its right of first refusal
hereunder, the closing of the purchase of the Option Shares with respect to
which such right has been exercised shall take place within five business days
after the notice of such exercise (or, if applicable, in the case of a tender or
exchange offer, no later than one business day prior to the expiration date of
the offer if

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written notice was given within the time set forth in the parenthetical in the
first sentence of paragraph (b) above); provided, however, that at any time
                                        --------  -------
prior to the closing of the purchase of Option Shares hereunder, the Grantee may
determine not to sell the Option Shares and revoke the Disposition Notice and,
by so doing, cancel the Grantor's right of first refusal with respect to the
disposition in question. The Grantor (or its designee) shall pay for the Option
Shares by wire transfer of immediately available funds to a bank designated by
the Grantee.

              (d)     If the Grantor does not exercise its right of first
refusal hereunder within the time specified for such exercise, the Grantee shall
be free for 90 days following the expiration of such time for exercise to sell
the Option Shares (or enter into an agreement to sell the Option Shares)
specified in the Disposition Notice, at the price specified in the Disposition
Notice or any price in excess thereof and otherwise on substantially the same
terms set forth in the Disposition Notice; provided that if such sale is not
consummated within such 90-day period (or the agreement to sell entered into in
such 90-day period is not thereafter performed in accordance with its terms),
then the provisions of this Section 7 will again apply to the sale of such
Option Shares.

              (e)     For purposes of the Agreement, a "Change in Control
                                                        -----------------
Event" shall be deemed to have occurred if (i) any person has acquired
-----
beneficial ownership of more than 50% (excluding the Option Shares) of the
outstanding shares of Common Stock or (ii) the Grantor shall have entered into
an agreement, including without limitation an agreement in principle, providing
for a merger or other business combination involving the Grantor or the
acquisition of 30% or more of the assets of the Grantor and its subsidiaries,
taken as a whole.


        8.    Repurchase of Option Shares.  If a Change in Control Event has
              ---------------------------
notbeginning on such anniversary date, the Grantor shall have the right to
purchase (the "Repurchase Right") all, but not less than all, of the Option
               ----------------
Shares at the greater of (i) the Purchase Price, or (ii) the average closing
price of the Common Stock on the NYSE for the five trading days ending five days
prior to the date the Grantor gives written notice of its intention to exercise
the Repurchase Right.  If the Grantor does not exercise the Repurchase Right
within 30 days following the first anniversary of the Merger Termination Date,
the Repurchase Right shall terminate.  In the event the Grantor wishes to
exercise the Repurchase Right, the Grantor shall send a written notice to the
Grantee specifying a date (not later than 10 business days and not earlier than
two business days following the date such notice is given) for the closing of
such purchase.

        9.    Registration Rights.
              -------------------

              (a)     In the event that the Grantee shall desire to sell any of
the Option Shares within two years after the purchase of such Option Shares
pursuant to the exercise of the Option, and such sale requires, in the opinion
of counsel to the Grantee, which opinion shall be reasonably satisfactory to the
Grantor and its counsel, registration of such Option Shares under the Securities
Act, the Grantor will cooperate with the Grantee and any underwriters
registering such Option Shares for resale, including, without limitation,
promptly filing and using its best efforts to cause to be declared effective a
registration statement which complies with the

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requirements of applicable federal and state securities laws and entering into
an underwriting agreement with such underwriters upon such terms and conditions
as are customarily contained in underwriting agreements with respect to
secondary distributions; provided that the Grantor shall not be required to have
declared effective more than two registration statements hereunder and shall be
entitled to delay the filing or effectiveness of any registration statement for
up to 120 days in the aggregate if the offering would, in the judgment of the
Board of Directors of the Grantor, require premature disclosure of any material
corporate development or otherwise interfere with or adversely affect any
pending or proposed offering of securities of the Grantor or any other material
transaction involving the Grantor.

                 (b)     If the Common Stock is registered pursuant to the
provisions of this Section 9, the Grantor agrees (i) to furnish copies of the
registration statement and the prospectus relating to the Option Shares covered
thereby in such numbers as the Grantee may from time to time reasonably request
and (ii) if any event shall occur as a result of which it becomes necessary to
amend or supplement any registration statement or prospectus, to prepare and
file under the applicable securities laws such amendments and supplements as may
be necessary to keep available for at least 90 days a prospectus covering the
Common Stock meeting the requirements of such securities laws, and to furnish to
the Grantee such numbers of copies of the registration statement and prospectus
as amended or supplemented as may reasonably be requested.  The Grantor shall
bear the cost of the registration, including, but not limited to, all
registration and filing fees, printing expenses, and fees and disbursements of
counsel and accountants for the Grantor, except that the Grantee shall pay the
fees and disbursements of its counsel and the underwriting fees and selling
commissions applicable to the Option Shares sold by the Grantee.  The Grantor
shall indemnify and hold harmless Grantee, its affiliates and its officers and
directors from and against any and all losses, claims, damages, liabilities and
expenses arising out of or based upon any statements contained in, omissions or
alleged omissions from, each registration statement filed pursuant to this
paragraph; provided, however, that this provision does not apply to any loss,
           --------  -------
liability, claim, damage or expense to the extent it arises out of any statement
or omission made in reliance upon and in conformity with written information
furnished to the Grantor by the Grantee, its affiliates or its officers
expressly for use in any registration statement (or any amendment thereto) or
any preliminary prospectus filed pursuant to this paragraph.  The Grantor shall
also indemnify and hold harmless each underwriter and each person who controls
any underwriter within the meaning of either the Securities Act or the
Securities Exchange Act of 1934, as amended, against any and all losses, claims,
damages, liabilities and expenses arising out of or based upon any statements
contained in, omissions or alleged omissions from, each registration statement
filed pursuant to this paragraph; provided, however, that this provision does
                                  --------  -------
not apply to any loss, liability, claim, damage or expense to the extent it
arises out of any statement or omission made in reliance upon and in conformity
with written information furnished to the Grantor by the underwriters expressly
for use in any registration statement (or any amendment thereto) or any
preliminary prospectus filed pursuant to this paragraph.

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        10.      Profit Limitation.
                 -----------------

                 (a)     Notwithstanding any other provision of this Agreement,
in no event shall the Grantee's Total Profit (as hereinafter defined) exceed
$35,000,000 (the "Profit Limit") and, if it otherwise would exceed such amount,
                  ------------
the Grantee, at its sole election, shall either (i) deliver to the Grantor for
cancellation Option Shares previously purchased by Grantee (valued at the
average closing price of the Common Stock on the NYSE for the five trading days
ending on the trading date immediately preceding the date of delivery), (ii) pay
cash or deliver other consideration to the Grantor, or (iii) undertake any
combination thereof, so that Grantee's Total Profit shall not exceed the Profit
Limit after taking into account the foregoing actions.

                 (b)     Notwithstanding any other provision of this Agreement,
the Option may not be exercised for a number of Option Shares as would, as of
the date of the Exercise Notice, result in a Notional Total Profit (as defined
below) of more than the Profit Limit and, if exercise of the Option otherwise
would exceed the Profit Limit, the Grantee, at its discretion, may increase the
Purchase Price for that number of Option Shares set forth in the Exercise Notice
so that the Notional Total Profit shall not exceed the Profit Limit; provided
that nothing in this sentence shall restrict any exercise of the Option
permitted hereby on any subsequent date at the Purchase Price set forth in
Section 1(a) hereof.

                 (c)     As used herein, the term "Total Profit" shall mean the
                                                   ------------
aggregate amount (before taxes) of the following:  (i) the amount of cash
received by Grantee pursuant to Section 8.03(e) of the Merger Agreement, (ii)
(x) the amount received by Grantee pursuant to the Grantor's repurchase of
Option Shares pursuant to Sections 1(d), 7 or 8 hereof, less (y) the Grantee's
aggregate purchase price for such Option Shares, (iii) the amount received by
Grantee in respect of a Cash Exercise Notice pursuant to Section 1(d) hereof,
and (iv) (x) the net cash amounts received by Grantee pursuant to the sale of
Option Shares (or any other securities into which such Option Shares are
converted or exchanged) to any unaffiliated party, less (y) the Grantee's
aggregate purchase price for such Option Shares.

                 (d)     As used herein, the term "Notional Total Profit" with
                                                   ---------------------
respect to any number of Option Shares as to which Grantee may propose to
exercise the Option shall be the Total Profit determined as of the date of the
Exercise Notice assuming that the Option were exercised on such date for such
number of Option Shares and assuming that such Option Shares, together with all
other Option Shares held by Grantee and its affiliates as of such date, were
sold for cash at the closing market price for the Common Stock as of the close
of business on the preceding trading day (less customary brokerage commissions).

        11.      Expenses.  Each party hereto shall pay its own expenses
                 --------
incurred in connection with this Agreement, except as otherwise specifically
provided herein.

        12.      Specific Performance.  The Grantor acknowledges that if the
                 --------------------
Grantor fails to perform any of its obligations under this Agreement, immediate
and irreparable harm or injury would be caused to the Grantee for which money
damages would not be an adequate remedy. In such event, the Grantor agrees that
the Grantee shall have the right, in addition to any other rights it may have,
to specific performance of this Agreement. Accordingly, if the Grantee should

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institute an action or proceeding seeking specific enforcement of the provisions
hereof, the Grantor hereby waives the claim or defense that the Grantee has an
adequate remedy at law and hereby agrees not to assert in any such action or
proceeding the claim or defense that such a remedy at law exists. The Grantor
further agrees to waive any requirement for the securing or posting of any bond
in connection with obtaining any such equitable relief.

        13.    Notice.  All notices, requests, demands and other communications
               ------
hereunder shall be sent in the manner and to the addresses set forth in the
Merger Agreement.

        14.    Parties in Interest.  Nothing in this Agreement, express or
               -------------------
implied, is intended to confer upon any person other than the Grantor or the
Grantee, or their successors or assigns, any rights or remedies under or by
reason of this Agreement.

        15.    Entire Agreement; Amendments.  This Agreement, together with the
               ----------------------------
Merger Agreement and the other documents referred to therein, contains the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings, oral or written, with respect to such transactions.  The terms
of this Agreement may be amended, modified or waived only by an agreement in
writing signed by the party against whom such amendment, modification or waiver
is sought to be enforced.

        16.    Assignment.  No party to this Agreement may assign any of its
               ----------
rights or obligations under this Agreement without the prior written consent of
the other party hereto, except that the Grantee may assign its rights and
obligations hereunder to any direct or indirect wholly-owned subsidiary of the
Grantee (provided that such assignment shall not relieve the Grantee of its
obligations hereunder if such transferee does not perform such obligations). Any
Option Shares sold or transferred by the Grantee to any other person or entity
in compliance with the terms hereof (other than a direct or indirect wholly-
owned subsidiary of the Grantee) shall no longer have the benefit of the rights
provided for herein with respect to such Option Shares (including without
limitation those set forth in Sections 1(d) and 9) and shall no longer be
subject to the restrictions or rights in favor of the Grantor provided for
herein with respect to such Option Shares (including without limitation those
set forth in Sections 7 and 8).

        17.    Headings.  The section headings herein are for convenience only
               --------
and shall not affect the construction of this Agreement.

        18.    Counterparts.  This Agreement may be executed in any number of
               ------------
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.

        19.    Governing Law.  This Agreement shall be governed by and construed
               -------------
in accordance with the laws of the State of Delaware (regardless of the laws
that might otherwise govern under applicable Delaware principles of conflicts of
law).

        20.    Survival.  All representations and warranties contained in this
               --------
Agreement shall survive delivery of and payment for the Option Shares.

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<PAGE>

        21.    Severability.  If any term, provision, covenant or restriction of
               ------------
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.

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<PAGE>

     IN WITNESS WHEREOF, the Grantee and the Grantor have caused this Agreement
to be duly executed and delivered on the day and year first above written.

                                    TUBOSCOPE INC.



                                    By:    /s/ John F. Lauletta
                                           --------------------
                                           Name:  John Lauletta
                                           Name:  Chief Executive Officer


                                    VARCO INTERNATIONAL, INC.



                                    By:    /s/ George Boyadjieff
                                           ---------------------
                                           Name:  George Boyadjieff
                                           Title:  Chief Executive Officer

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