<PAGE>

                                                                  EXHIBIT 10.3.1

                             STOCK OPTION AGREEMENT

                              TERMS AND CONDITIONS
                                   (Rev. 2001)

                These Terms and Conditions constitute a part of the Stock Option
Agreement, dated as of the date set forth on the Signature Page to Stock Option
Agreement Terms and Conditions (Rev. 2001) made a part hereof (the "Signature
Page"), concerning certain Options granted by Varco International, Inc., a
Delaware corporation hereinafter referred to as "Company," to the employee of
the Company (or a Subsidiary of the Company) listed on the Signature Page,
hereinafter referred to as "Optionee." These Terms and Conditions and the
Signature Page are collectively referred to as the "Agreement."

                WHEREAS, the Company wishes to afford the Optionee the
opportunity to purchase shares of its $.01 par value Common Stock;

                WHEREAS, the Company wishes to carry out The Amended and
Restated 1996 Equity Participation Plan (the terms of which are hereby
incorporated by reference and made a part of this Agreement); and

                WHEREAS, the Administrator of the Plan has determined that it
would be to the advantage and best interest of the Company and its stockholders
to grant the Option provided for herein to the Optionee as an inducement to
enter into or remain in the service of the Company or a Subsidiary of the
Company and as an incentive for increased efforts during such service, and has
advised the Company thereof and instructed the undersigned officers to issue
said Option.

                NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:

                                   ARTICLE I.

                                   DEFINITIONS
                                   -----------

                Whenever the following terms are used in this Agreement, they
shall have the meaning specified below unless the context clearly indicates to
the contrary. The masculine pronoun shall include the feminine and neuter, and
the singular the plural, where the context so indicates. Capitalized terms used
but not defined in this Agreement shall have the meaning ascribed to such terms
in the Plan.

Section 1.1.    Administrator
------------    -------------

                "Administrator" shall mean the entity that conducts the
administration of the Plan (including the grant of Awards) as provided therein.
With reference to the administration of the Plan with respect to an option
granted or to be granted to Employees or consultants, the term "Administrator"
shall refer to the Committee, unless and to the extent (a) the Board has assumed
the authority for administration of all or any part of the Plan as permitted in
Section 9.2 of the Plan, or (b) the Committee has delegated the authority for
administration of all or part of the Plan

<PAGE>

as permitted by Section 9.5 of the Plan. With reference to the administration of
the Plan with respect to an option granted or to be granted to Section 162(m)
Participants and intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code, the term "Administrator" shall
refer to the Committee comprised solely of two or more Directors each of whom
qualify as an "outside director" under Section 162(m) of the Code.

Section 1.2.    Board
------------    -----

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

Section 1.3.    Cause
------------    -----

                "Cause" shall mean: (i) Optionee's conviction of a felony
involving moral turpitude, dishonesty or a breach of trust as regards the
Company or any Subsidiary; or (ii) Optionee's commission of any act of theft,
fraud, embezzlement or misappropriation against the Company or any Subsidiary
that is materially injurious to any of the Company or any Subsidiary, and
regardless of whether a criminal conviction is obtained; or (iii) Optionee's
willful and continued failure to devote substantially all of his or her business
time to the Company's or its affiliate'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 or any Subsidiary, which
demand specifically identifies the manner in which the Company or any Subsidiary
believes that Optionee has failed to devote substantially all of his business
time to the Company's or any Subsidiary's business affairs; or (iv) Optionee's
unauthorized disclosure of confidential information of the Company or any
Subsidiary that is materially injurious to any of the Company or any Subsidiary.


Section 1.4.    Code
------------    ----

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

Section 1.5.    Common Stock
------------    ------------

                "Common Stock" shall mean the common stock of the Company, par
value $.01 per share, and any equity security of the Company issued or
authorized to be issued in the future, but excluding any warrants, options or
other rights to purchase Common Stock. Debt securities of the Company
convertible into Common Stock shall be deemed equity securities of the Company.

Section 1.6.    Company
------------    -------

                "Company" shall mean Varco International, Inc., a Delaware
corporation, or any successor corporation.

                                       2

<PAGE>

Section 1.7.    Exchange Act
------------    ------------

                "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

Section 1.8.    Option
------------    ------

                "Option" shall mean a non-qualified stock option and/or
incentive stock option granted under this Agreement and Article III of the Plan,
as elected by the Optionee on the Signature Page.

Section 1.9.    Optionee
------------    --------

                "Optionee" shall mean the Employee granted an Option under this
Agreement and the Plan and listed on the Signature Page.

Section 1.10.    Plan
-------------    ----

                "Plan" shall mean The Amended and Restated 1996 Equity
Participation Plan of Varco International, Inc., as amended and/or restated from
time to time.

Section 1.11.   QDRO
------------    ----

                "QDRO" shall mean a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.

Section 1.12.   Rule 16b-3
-------------   ----------

                "Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time.

Section 1.13.   Secretary
-------------   -- -------

                "Secretary" shall mean the Secretary of the Company.

Section 1.14.   Securities Act
-------------   --------------

                "Securities Act" shall mean the Securities Act of 1933, as
amended.

Section 1.15.   Severance Agreement
-------------   -------------------

                "Severance Agreement" shall mean any agreement between the
Company and Optionee that specifies any payments or benefits payable to the
Optionee in connection with or following a change in control of the Company or a
termination of employment of the Optionee, or any similar applicable policy or
plan of the Company.

                                       3

<PAGE>
Section 1.16.   Termination of Employment
-------------   -------------------------

                "Termination of Employment" shall mean the time when the
Employee-employer relationship between the Optionee and the Company or any
Subsidiary is terminated for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, disability or
retirement, but excluding (i) terminations where there is a simultaneous
reemployment, continuing employment of an Optionee by the Company or any
Subsidiary, (ii) at the discretion of the Administrator, terminations which
result in a temporary severance of the Employee-employer relationship, and (iii)
at the discretion of the Administrator, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or any
Subsidiary with the former Employee. The Administrator, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Employment, including, but not by way of limitation, the question
of whether a Termination of Employment resulted from a discharge for good cause,
and all questions of whether particular leaves of absence constitute
Terminations of Employment. Notwithstanding any other provision of the Plan or
this Agreement, the Company or any Subsidiary has an absolute and unrestricted
right to terminate the Optionee's employment at any time for any reason
whatsoever, with or without cause, except to the extent expressly provided
otherwise in writing.

                                   ARTICLE II.

                                 GRANT OF OPTION
                                 ---------------


Section 2.1.    Grant of Option
------------    ---------------

                Effective as of the date set forth on the Signature Page, the
Company irrevocably grants to the Optionee the option to purchase any part or
all of the aggregate number of shares of its Common Stock set forth on the
Signature Page, all upon the terms and conditions set forth in this Agreement.
On the Signature Page, the Optionee has indicated his or her election for this
Option to be either a non-qualified or incentive stock option, or to apportion
the Option shares between the two. If no indication is made, the Option shall be
a non-qualified option.

Section 2.2.    Purchase Price
------------    --------------

                The purchase price of the shares of Common Stock covered by the
Option is set forth on the Signature Page, and shall not be subject to
commission or other charge.

Section 2.3.    Consideration to Company
------------    ------------------------

                In consideration of the granting of this Option by the Company,
the Optionee (i) agrees to render faithful and efficient services to the Company
or its any Subsidiary, with such duties and responsibilities as the Company or
any Subsidiary shall from time to time prescribe, for a period of at least one
(1) year from the date this Option is granted, (ii) agrees not disclose or use,
directly or indirectly, any proprietary or confidential information concerning
the Company or any Subsidiary so long as such information is proprietary and/or
confidential, except any disclosure or use that is for the benefit of the
Company or such Subsidiary and incidental to the Optionee's employment, and
(iii) agrees to abide by all of the terms and conditions of this Agreement and
the Plan. Nothing in the Plan or this Agreement shall confer upon the Optionee

                                       4

<PAGE>

any right to continue in the employ of the Company or any Subsidiary, or shall
interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge the Optionee at
any time for any reason whatsoever, with or without good cause.

Section 2.4.    Adjustments in Option
------------    ---------------------

                (a) In the event that the outstanding shares of the stock
subject to the Option are changed into or exchanged for a different number or
kind of shares of the Company or other securities of the Company, or of another
corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend or
combination of shares, the Administrator shall make an appropriate and equitable
adjustment in the number and kind of shares as to which the Option, or portions
thereof then unexercised, shall be exercisable, to the end that after such event
the Optionee's proportionate interest shall be maintained as before the
occurrence of such event. Such adjustment in the Option may include any
necessary corresponding adjustment in the Option price per share, but shall be
made without change in the total price applicable to the unexercised portion of
the Option (except for any change in the aggregate price resulting from
rounding-off of share quantities or prices). Any such adjustment made by the
Administrator shall be final and binding upon the Optionee, the Company and all
other interested persons.

                (b) Notwithstanding the foregoing, in the event of such a
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, stock dividend or combination, or other adjustment or event which
results in shares of Common Stock being exchanged for or converted into cash,
securities (including securities of another corporation) or other property, the
Company will have the right to terminate the Plan as of the date of the exchange
or conversion, in which case all options, rights and other awards under the Plan
shall become the right to receive such cash, securities or other property, net
of any applicable exercise price.

                (c) In the event of a "spin-off" or other substantial
distribution of assets of the Company which has a material diminutive effect
upon the Fair Market Value of the Company's Common Stock, the Board may in its
discretion make an appropriate and equitable adjustment to the Option to reflect
such diminution in accordance with Section 10.3 of the Plan.

                                  ARTICLE III.

                            PERIOD OF EXERCISABILITY
                            ------------------------

Section 3.1.    Commencement of Exercisability
------------    ------------------------------

                The Option shall become exercisable in the time and manner set
forth on the Signature Page. Except as otherwise may be provided by the
Administrator, no portion of the Option that is unexercisable at Termination of
Employment shall thereafter become exercisable.

Section 3.2.    Duration of Exercisability
------------    --------------------------

                                       5

<PAGE>

                The installments provided for in Section 3.1 are cumulative.
Each such installment that becomes exercisable pursuant to Section 3.1 shall
remain exercisable until it becomes unexercisable under Section 3.3.

Section 3.3.    Expiration of Option
------------    --------------------

                Except to the extent otherwise set forth in the Severance
Agreement, if applicable, the Option may not be exercised to any extent by
anyone after the first to occur of the following events:

                (a) The expiration of ten (10) years from the date the Option
was granted, as set forth on the Signature Page;

                (b) The time of the Optionee's Termination of Employment for
Cause;

                (c) The expiration of three (3) months from the date of the
Optionee's Termination of Employment by reason of his retirement, resignation or
termination of his employment not for Cause, unless the Optionee dies within
said three-month period;

                (d) The expiration of one (1) year from the date of the
Optionee's Termination of Employment by reason of his disability;

                (e) The expiration of one (1) year from the date of the
Optionee's death; or

                (f) The effective date of a Corporate Transaction, unless the
Administrator waives this provision in connection with such transaction. At
least ten (10) days prior to the effective date of a Corporate Transaction as to
which this provision is not waived, the Administrator shall give the Optionee
notice of such event if the Option has then neither been fully exercised nor
become unexercisable under this Section 3.3.

Section 3.4.    Acceleration of Exercisability
------------    ------------------------------

                Except to the extent otherwise set forth in the Severance
Agreement, if applicable, in the event of a Corporate Transaction, the
Administrator may, in its absolute discretion and upon such terms and conditions
as it deems appropriate, provide by resolution, adopted prior to such event,
that at some time prior to the effective date of such event this Option shall be
exercisable as to all the shares covered hereby, notwithstanding that this
Option may not yet have become fully exercisable under Section 3.1(a).

                The Administrator may make such determinations and adopt such
rules and conditions as it, in its absolute discretion, deems appropriate in
connection with such acceleration of exercisability, including, but not by way
of limitation, provisions to ensure that any such acceleration and/or option
termination shall be conditioned upon the consummation of the contemplated
Corporate Transaction.

                None of the foregoing discretionary terms of this Section shall
be permitted to the extent that such discretion would be inconsistent with the
requirements of applicable law.

                                       6

<PAGE>

Section 3.5.   Special Tax Consequences
------------   ------------------------

               The Optionee acknowledges that, to the extent that the aggregate
fair market value of stock with respect to which "incentive stock options"
(within the meaning of Section 422 of the Code, but without regard to Section
422(d) of the Code), including all or such portion of the Option elected by the
Optionee to be treated as an incentive stock option, are exercisable for the
first time by the Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company and any Subsidiary of the
Company) exceeds $100,000, such options shall be treated for all purposes as not
qualifying under Section 422 of the Code and therefore shall be subject to
taxation as non-qualified options. The Optionee further acknowledges that the
rules set forth in the preceding sentence shall be applied by taking options
into account in the order in which they were granted. For purposes of these
rules, the fair market value of stock shall be determined as of the time the
option with respect to such stock option is granted and incentive stock options
granted on or before December 31, 1986 shall not be taken into account in
applying such $100,000 limitation.

                                   ARTICLE IV.

                               EXERCISE OF OPTION
                               ------------------

Section 4.1.   Person Eligible to Exercise
------------   ---------------------------

               During the lifetime of the Optionee, only he may exercise the
Option or any portion thereof, or, to the extent the Option or any portion
thereof is transferred in accordance with the terms of the Plan, such transferee
may exercise the Option or such portion thereof so transferred. After the death
of the Optionee, any exercisable portion of the Option may, prior to the time
when the Option becomes unexercisable under Section 3.3, be exercised by his
personal representative or by any person empowered to do so under the Optionee's
will or under the then applicable laws of descent and distribution.

Section 4.2.   Partial Exercise
------------   ----------------

               Any exercisable portion of the Option or the entire Option, if
then wholly exercisable, may be exercised in whole or in part at any time prior
to the time when the Option or portion thereof becomes unexercisable under
Section 3.3; provided, however, that each partial exercise shall be for not less
than one hundred (100) shares (or the minimum installment set forth in Section
3.1, if a smaller number of shares) and shall be for whole shares only.

Section 4.3.   Manner of Exercise
------------   ------------------

               The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:

               (a)  Notice in writing signed by the Optionee or the other person
then entitled to exercise the Option or portion, stating that the Option or
portion is thereby exercised, such notice complying with all applicable rules
established by the Administrator;

                                       7

<PAGE>
               (b)

                    (i)   Full payment (in cash) for the shares with respect to
          which such Option or portion is exercised;

                    (ii)  Payment, in whole or in part, through the delivery of
          a notice that the Optionee has placed a market sell order with a
          broker with respect to the shares of Common Stock then issuable upon
          exercise of the Option, and that the broker has been directed to pay a
          sufficient portion of the net proceeds of the sale to the Company in
          satisfaction of the Option exercise price, provided that payment of
                                                     --------
          such proceeds is then made to the Company upon settlement of such
          sale; or

                    (iii) With the consent of the Administrator, any other
          consideration permitted under the Plan.

               (c) A bona fide written representation and agreement, in a form
satisfactory to the Administrator, signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Optionee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Administrator may, in its
absolute discretion, take whatever additional actions it deems appropriate to
insure the observance and performance of such representation and agreement and
to effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without limiting the generality of the
foregoing, the Administrator may require an opinion of counsel acceptable to it
to the effect that any subsequent transfer of shares acquired on an Option
exercise does not violate the Securities Act, and may issue stop-transfer orders
covering such shares. Share certificates evidencing stock issued on exercise of
this Option shall bear an appropriate legend referring to the provisions of this
subsection (c) and the agreements herein. The written representation and
agreement referred to in the first sentence of this subsection (c) shall,
however, not be required if the shares to be issued pursuant to such exercise
have been registered under the Securities Act, and such registration is then
effective in respect of such shares;

               (d) Full payment to the Company (or Subsidiary employer) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option, which, with the consent of the Administrator, may
be in the form of consideration used by the Optionee to pay for such shares
under Section 4.3(b); provided, however, that if such payment is in the form of
shares of Common Stock withheld from exercise or delivered by the Optionee, the
Fair Market Value of such shares shall not exceed the sums necessary to pay the
tax withholding based on the minimum statutory withholding rates for federal and
state tax purposes, including payroll taxes, that are applicable to such
supplemental taxable income; and

                                       8

<PAGE>

               (e) In the event the Option or portion shall be exercised
pursuant to Section 4.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the Option.

Section 4.4.   Conditions to Issuance of Stock Certificates
------------   --------------------------------------------

               The shares of stock deliverable upon the exercise of the Option,
or any portion thereof, may be either previously authorized but unissued shares
or issued shares which have then been reacquired by the Company. Such shares
shall be fully paid and nonassessable. The Company shall not be required to
issue or deliver any certificate or certificates for shares of stock purchased
upon the exercise of the Option or portion thereof prior to fulfillment of all
of the following conditions:

               (a)   The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;

               (b)   The completion of any registration or other qualification
of such shares under any state or federal law or under rulings or regulations of
the Securities and Exchange Commission or of any other governmental regulatory
body, which the Administrator shall, in its absolute discretion, deem necessary
or advisable;

               (c)   The obtaining of any approval or other clearance from any
state or federal governmental agency which the Administrator shall, in its
absolute discretion, determine to be necessary or advisable;

               (d)   The receipt by the Company (or Subsidiary employer) of full
payment for such shares, including payment of all amounts which, under federal,
state or local tax law, it is required to withhold upon exercise of the Option;
and

               (e)   The lapse of such reasonable period of time following the
exercise of the Option as the Administrator may from time to time establish for
reasons of administrative convenience.

Section 4.5.   Rights as Stockholder
------------   ---------------------

               The holder of the Option shall not be, nor have any of the rights
or privileges of, a stockholder of the Company in respect of any shares
purchasable upon the exercise of any part of the Option unless and until
certificates representing such shares shall have been issued by the Company to
such holder.

                                       9

<PAGE>

                                   ARTICLE V.

                                OTHER PROVISIONS
                                ----------------

Section 5.1.   Administration
------------   --------------

               The Administrator shall have the power to interpret the Plan and
this Agreement and to adopt such rules for the administration, interpretation
and application of the Plan as are consistent therewith and to interpret or
revoke any such rules. All actions taken and all interpretations and
determinations made by the Administrator in good faith shall be final and
binding upon the Optionee, the Company and all other interested persons. No
member of the Administrator shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
the Option. In its absolute discretion, the Board may at any time and from time
to time exercise any and all rights and duties of the Administrator under this
Plan except with respect to matters which under Rule 16b-3 or Section 162(m) of
the Code, or any regulations or rules issued thereunder, are required to be
determined in the sole discretion of the Administrator.

Section 5.2.   Option Not Transferable
------------   -----------------------

               Neither the Option nor any interest or right therein or part
thereof shall be liable for the debts, contracts or engagements of the Optionee
or his successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution or, to the extent not prohibited by the Code, pursuant to a QDRO.

               Notwithstanding the foregoing provisions of this Section 5.2, the
Administrator, in its sole discretion, may permit the transfer of the Option by
the Optionee, by gift or contribution, to a "family member" of the Optionee (as
defined under the instructions to use of Form S-8). Any Option that has been so
transferred or transferred pursuant to a QDRO shall continue to be subject to
all of the terms and conditions as applicable to the original Optionee, and the
transferee shall execute any and all such documents requested by the
Administrator in connection with the transfer, including without limitation to
evidence the transfer and to satisfy any requirements for an exemption for the
transfer under applicable federal and state securities laws.

Section 5.3.   Shares to Be Reserved
------------   ---------------------

               The Company shall at all times during the term of the Option
reserve and keep available such number of shares of stock as will be sufficient
to satisfy the requirements of this Agreement.

                                       10

<PAGE>

Section 5.4.   Notices
------------   -------

               Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall, if
the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.

Section 5.5.   Titles
------------   ------

               Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.

Section 5.6.   Construction
------------   ------------

               This Agreement shall be administered, interpreted and enforced
under the laws of the State of Texas. The terms of any Severance Agreement shall
supersede and control over the terms of this Agreement.

Section 5.7.   Conformity to Securities Laws
------------   -----------------------------

               The Optionee acknowledges that the Plan and this Agreement are
intended to conform to the extent necessary with all provisions of the
Securities Act and the Exchange Act and any and all regulations and rules
promulgated by the Securities and Exchange Commission thereunder, including
without limitation Rule 16b-3. Notwithstanding anything herein to the contrary,
the Plan shall be administered, and the Option is granted and may be exercised,
only in such a manner as to conform to such laws, rules and regulations. To the
extent permitted by applicable law, the Plan and this Agreement shall be deemed
amended to the extent necessary to conform to such laws, rules and regulations.

Section 5.8.   Arbitration
------------   -----------

               In exchange for the option granted herein and the other promises
exchanged herein, the parties agree to submit any and all disputes, claims or
controversies arising out of, or relating to, Optionee's employment, to final
and binding arbitration before the American Arbitration Association in
accordance with its rules relating to the resolution of employment disputes, in
effect at the time of the demand for arbitration. THE COMPANY AND THE OPTIONEE
                                                  ----------------------------
UNDERSTAND AND AGREE THAT BY AGREEING TO THE PROVISIONS OF THIS SECTION 5.8 THEY
--------------------------------------------------------------------------------
ARE WAIVING THEIR RIGHT TO A JURY OR COURT TRIAL.
-------------------------------------------------

               This Section 5.8 expressly applies to all claims arising out of
and relating to Optionee's employment, including without limitation to, any
claims of employment

                                       11

<PAGE>

discrimination, harassment, retaliation and any other employment related claim.
This Section 5.8 expressly applies, but is not limited, to claims brought under
Title VII of the Civil Rights Act, the Age Discrimination in Employment Act, the
Family Medical Leave Act, the Americans with Disabilities Act, the California
Labor Code, the Texas Labor Code, the Fair Employment and Housing Act, and all
other state and local laws. This Section 5.8 does not apply to those claims
where expressly prohibited by law, such as claims arising under the National
Labor Relations Act, claims for medical and disability benefits under applicable
Workers' Compensation statues and claims for unemployment benefits. Employees,
officers, directors and anyone else acting as an agent of the Company or any
Subsidiary are intended beneficiaries of this Section 5.8 and the parties agree
that any claim against an intended beneficiary of this Section 5.8 arising out
of or relating to Optionee's employment will be subject to this Section 5.8.

               This Section 5.8 may be enforced by any court of competent
jurisdiction, and the party seeking enforcement shall be entitled to an award of
all costs, fees and expenses, including attorneys fees, to be paid by the party
against whom enforcement is ordered.

               The arbitration shall be held at the office of the American
Arbitration Association in Harris County, Texas. before a single neutral
arbitrator. The Company shall assume responsibility for any costs payable to the
American Arbitration Association in connection with the arbitration, including
the costs and fees of the arbitrator. However, the arbitrator shall make such
orders with respect to attorneys' fees and other costs in accordance with
applicable law.

               The award or decision of the arbitrator shall be final and
binding on the parties and judgment on the arbitrator's decision may be entered
in any court having jurisdiction. Each of the parties consents to the exercise
of personal jurisdiction over such person by such court and to the propriety of
venue of such court for the purpose of carrying out this provision; and each
waives any objections that such person would otherwise have to the same.

               This Section 5.8 shall in no way effect Optionee's or the
Company's right to seek emergency injunctive relief from a court of competent
jurisdiction, which relief may remain in full force and effect pending the
outcome of the arbitration proceedings.

               Notwithstanding the foregoing, the provisions of this Section 5.8
shall be deemed modified and/or superceded to the extent necessary to be
consistent with any applicable terms contained in any Severance Agreement,
employment agreement or other agreement between the Company and the Optionee,
which agreement shall take precedence over this Section 5.8.

                                       12

<PAGE>

                       NONQUALIFIED STOCK OPTION AGREEMENT
                            FOR INDEPENDENT DIRECTORS

               THIS AGREEMENT, is made by and between Varco International, Inc.,
a Delaware corporation hereinafter referred to as "Company," and (Name), an
independent director of the Company or Subsidiary of the Company, hereinafter
referred to as "Optionee" effective as of (Grant_Date):

                WHEREAS, the Company wishes to afford the Optionee the
opportunity to purchase shares of its $.01 par value Common Stock;

                WHEREAS, the Company wishes to carry out The Amended and
Restated 1996 Equity Participation Plan (the terms of which are hereby
incorporated by reference and made a part of this Agreement), which provides for
the grant of Options to the Optoinee as an inducement to enter into or remain in
the service of the Company or its Subsidiaries and as an incentive for increased
efforts during such service.

                NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:

                                   ARTICLE I.

                                   DEFINITIONS
                                   -----------

                Whenever the following terms are used in this Agreement, they
shall have the meaning specified below unless the context clearly indicates to
the contrary. The masculine pronoun shall include the feminine and neuter, and
the singular the plural, where the context so indicates. Capitalized terms used
but not defined in this Agreement shall have the meaning ascribed to such terms
in the Plan.

Section 1.1.   Board
------------   -----

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

Section 1.2.   Code
------------   ----

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

Section 1.3.   Common Stock
------------   ------------

                  "Common Stock" shall mean the common stock of the Company, par
value $.01 per share, and any equity security of the Company issued or
authorized to be issued in the future, but excluding any warrants, options or
other rights to purchase Common Stock. Debt securities of the Company
convertible into Common Stock shall be deemed equity securities of the Company.

<PAGE>

Section 1.4.   Company
------------   -------

               "Company" shall mean Varco International, Inc., a Delaware
corporation, or any successor corporation.

Section 1.5.   Director
------------   --------

               "Director" shall mean a member of the Board.

Section 1.6.   Exchange Act
------------   ------------

               "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

Section 1.7.   Independent Director
------------   --------------------

               "Independent Director" shall mean a member of the Board who is
not an Employee of the Company.

Section 1.8.   Option
------------   ------

               "Option" shall mean a non-qualified stock option granted under
this Agreement and Article III of the Plan.

Section 1.9.   Optionee
------------   --------

               "Optionee" shall mean an Independent Director granted an Option
under this Agreement and the Plan.

Section 1.10.  Plan
-------------  ----

               "Plan" shall mean The Amended and Restated 1996 Equity
Participation Plan of Varco International, Inc., as amended and/or restated from
time to time.

Section 1.11.  QDRO
-------------  ----

               "QDRO" shall mean a qualified domestic relations order as defined
by the Code or Title I of the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder.

Section 1.12.  Rule 16b-3
-------------  ----------

               "Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time.

Section 1.13.  Secretary
-------------  ---------

               "Secretary" shall mean the Secretary of the Company.

                                       2

<PAGE>

Section 1.14.  Securities Act
-------------  --------------

               "Securities Act" shall mean the Securities Act of 1933, as
amended.

Section 1.15.  Termination of Directorship
-------------  ---------------------------

               "Termination of Directorship" shall mean the time when the
Optionee ceases to be a Director for any reason, including, but not by way of
limitation, a termination by resignation, failure to be elected, death or
retirement. The Board, in its sole and absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Directorship.

                                   ARTICLE II.

                                 GRANT OF OPTION
                                 ---------------

Section 2.1.   Grant of Option
------------   ---------------

               In consideration of the Optionee's agreement to serve as an
Independent Director of the Company or its Subsidiaries until the next annual
meeting of stockholders of the Company and for other good and valuable
consideration, on (Grant_Date) the Company irrevocably grants to the Optionee
the option to purchase any part or all of an aggregate of four thousand (4,000)
shares of its Common Stock upon the terms and conditions set forth in this
Agreement and the Plan.

Section 2.2.   Purchase Price
------------   --------------

               The purchase price of the shares of stock covered by the Option
shall be $(Exercise_Price) per share (which is the Fair Market Value of a share
of Common Stock on the date of the granting of this Option) without commission
or other charge.

Section 2.3.   Consideration to Company
------------   ------------------------

               In consideration of the granting of this Option by the Company,
the Optionee agrees to render faithful and efficient services to the Company or
a Subsidiary, with such duties and responsibilities as the Company shall from
time to time prescribe, until the next annual meeting of stockholders of the
Company. Nothing in the Plan or this Agreement shall confer upon any Optionee
any right to continue as a director of the Company, or shall interfere with or
restrict in any way the rights of the Company and any Subsidiary, which are
hereby expressly reserved, to discharge the Optionee at any time for any reason
whatsoever, with or without good cause.

Section 2.4.   Adjustments in Option
------------   ---------------------

               (a) In the event that the outstanding shares of the stock subject
to the Option are changed into or exchanged for a different number or kind of
shares of the Company or other securities of the Company, or of another
corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend or
combination of

                                       3

<PAGE>

shares, the Board shall make an appropriate and equitable adjustment in the
number and kind of shares as to which the Option, or portions thereof then
unexercised, shall be exercisable, to the end that after such event the
Optionee's proportionate interest shall be maintained as before the occurrence
of such event. Such adjustment in the Option may include any necessary
corresponding adjustment in the Option price per share, but shall be made
without change in the total price applicable to the unexercised portion of the
Option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices). Any such adjustment made by the Board shall be
final and binding upon the Optionee, the Company and all other interested
persons.

               (b)   Notwithstanding the foregoing, in the event of such a
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, stock dividend or combination, or other adjustment or event which
results in shares of Common Stock being exchanged for or converted into cash,
securities (including securities of another corporation) or other property, the
Company will have the right to terminate the Plan as of the date of the exchange
or conversion, in which case all options, rights and other awards under the Plan
shall become the right to receive such cash, securities or other property, net
of any applicable exercise price.

               (c)   In the event of a "spin-off" or other substantial
distribution of assets of the Company which has a material diminutive effect
upon the Fair Market Value of the Company's Common Stock, the Board may in its
discretion make an appropriate and equitable adjustment to the Option to reflect
such diminution in accordance with Section 10.3 of the Plan.

                                  ARTICLE III.

                            PERIOD OF EXERCISABILITY
                            ------------------------

Section 3.1.   Commencement of Exercisability
------------   ------------------------------

               (a)   Subject to Section 5.6, the Option shall become exercisable
in four (4) cumulative installments as follows:

                     (i)   The first installment shall consist of twenty-five
          percent (25%) of the shares covered by the Option and shall become
          exercisable on the first anniversary of the date the Option is
          granted.

                     (ii)  The second installment shall consist of twenty-five
          percent (25%) of the shares covered by the Option and shall become
          exercisable on the second anniversary of the date the Option is
          granted.

                     (iii) The third installment shall consist of twenty-five
          percent (25%) of the shares covered by the Option and shall become
          exercisable on the third anniversary of the date the Option is
          granted.

                                       4

<PAGE>

                     (iv)   The fourth installment shall consist of twenty-five
          percent (25%) of the shares covered by the Option and shall become
          exercisable on the fourth anniversary of the date the Option is
          granted.

               (b)   No portion of the Option that is unexercisable at
Termination of Directorship shall thereafter become exercisable.

Section 3.2.   Duration of Exercisability
------------   --------------------------

               The installments provided for in Section 3.1 are cumulative. Each
such installment that becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.

Section 3.3.   Expiration of Option
------------   --------------------

               The Option may not be exercised to any extent by anyone after the
first to occur of the following events:

               (a)   The expiration of ten (10) years from the date the Option
was granted;

               (b)   The expiration of three (3) months from the date of the
Optionee's Termination of Directorship for any reason other than such Optionee's
death or permanent and total disability (within the meaning of Section 22(e)(3)
of the Code), unless the Optionee dies within said three-month period;

               (c)   The expiration of twelve (12) months from the date of the
Optionee's Termination of Directorship by reason of such Optionee's permanent
and total disability;

               (d)   The expiration of twelve (12) months from the date of the
Optionee's death; or

               (e)   The effective date of a Corporate Transaction unless the
Board waives this provision in connection with such transaction and such waiver
is consistent with Rule 16b-3. At least ten (10) days prior to the effective
date of such Corporate Transaction, the Board shall give the Optionee notice of
such event if the Option has then neither been fully exercised nor become
unexercisable under this Section 3.3.

Section 3.4.   Acceleration of Exercisability
------------   ------------------------------

               To the extent consistent with the requirements of Rule 16b-3, in
the event of a Corporate Transaction, the Board may, in its absolute discretion
and upon such terms and conditions as it deems appropriate, provide by
resolution adopted prior to such event that at some time prior to the effective
date of such event this Option shall be exercisable as to all the shares covered
hereby, notwithstanding that this Option may not yet have become fully
exercisable under Section 3.1(a).

                                       5

<PAGE>

               The Board may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction.

               None of the foregoing discretionary terms of this Section shall
be permitted to the extent that such discretion would be inconsistent with the
requirements of Rule 16b-3.

Section 3.5.   Acceleration of Exercisability upon Retirement
------------   ----------------------------------------------

               To the extent consistent with the requirements of Rule 16b-3,
this Option shall be exercisable as to all the shares covered hereby,
notwithstanding that this Option may not yet have become fully exercisable under
Section 3.1(a), upon the retirement of the Optionee in accordance with the
Company's retirement policy applicable to Directors.

                                   ARTICLE IV.

                               EXERCISE OF OPTION
                               ------------------

Section 4.1.   Person Eligible to Exercise
------------   ---------------------------

               During the lifetime of the Optionee, only he may exercise the
Option or any portion thereof, or, to the extent the Option, or any portion
thereof, is transferred in accordance with the terms of the Plan, such
transferee may exercise the Option or such portion thereof so transferred. After
the death of the Optionee, any exercisable portion of the Option may, prior to
the time when the Option becomes unexercisable under Section 3.3, be exercised
by his personal representative or by any person empowered to do so under the
Optionee's will or under the then applicable laws of descent and distribution.

Section 4.2.   Partial Exercise
------------   ----------------

               Any exercisable portion of the Option or the entire Option, if
then wholly exercisable, may be exercised in whole or in part at any time prior
to the time when the Option or portion thereof becomes unexercisable under
Section 3.3; provided, however, that each partial exercise shall be for not less
than one hundred (100) shares (or the minimum installment set forth in Section
3.1, if a smaller number of shares) and shall be for whole shares only.

Section 4.3.   Manner of Exercise
------------   ------------------

               The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:

               (a)  Notice in writing signed by the Optionee or the other person
then entitled to exercise the Option or portion, stating that the Option or
portion is thereby exercised, such notice complying with all applicable rules
established by the Board;

                                       6

<PAGE>

               (b)

                    (i)    Full payment (in cash) for the shares with respect to
          which such Option or portion is exercised;

                    (ii)   Payment, in whole or in part, through the delivery of
          a notice that the Optionee has placed a market sell order with a
          broker with respect to shares of Common Stock then issuable upon
          exercise of the Option, and that the broker has been directed to pay a
          sufficient portion of the net proceeds of the sale to the Company in
          satisfaction of the Option exercise price, provided that payment of
                                                     --------
          such proceeds is then made to the Company upon settlement of such
          sale; or

                    (iii)  With the consent of the Board, any other form of
          consideration permitted by the Plan;

               (c)  A bona fide written representation and agreement, in a form
satisfactory to the Board, signed by the Optionee or other person then entitled
to exercise such Option or portion, stating that the shares of stock are being
acquired for his own account, for investment and without any present intention
of distributing or reselling said shares or any of them except as may be
permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Optionee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Board may, in its absolute
discretion, take whatever additional actions it deems appropriate to insure the
observance and performance of such representation and agreement and to effect
compliance with the Securities Act and any other federal or state securities
laws or regulations. Without limiting the generality of the foregoing, the Board
may require an opinion of counsel acceptable to it to the effect that any
subsequent transfer of shares acquired on an Option exercise does not violate
the Securities Act, and may issue stop-transfer orders covering such shares.
Share certificates evidencing stock issued on exercise of this Option shall bear
an appropriate legend referring to the provisions of this subsection (c) and the
agreements herein. The written representation and agreement referred to in the
first sentence of this subsection (c) shall, however, not be required if the
shares to be issued pursuant to such exercise have been registered under the
Securities Act, and such registration is then effective in respect of such
shares;

               (d)  Full payment to the Company of all amounts which, under
federal, state or local tax law, it is required to withhold upon exercise of the
Option, which, with the consent of the Board, may be in the form of
consideration used by the Optionee to pay for such shares under Section 4.3(b);
and

               (e)  In the event the Option or portion shall be exercised
pursuant to Section 4.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the Option.

                                       7

<PAGE>

Section 4.4.   Conditions to Issuance of Stock Certificates
------------   --------------------------------------------

               The shares of stock deliverable upon the exercise of the Option,
or any portion thereof, may be either previously authorized but unissued shares
or issued shares which have then been reacquired by the Company. Such shares
shall be fully paid and nonassessable. The Company shall not be required to
issue or deliver any certificate or certificates for shares of stock purchased
upon the exercise of the Option or portion thereof prior to fulfillment of all
of the following conditions:

               (a)   The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;

               (b)   The completion of any registration or other qualification
of such shares under any state or federal law or under rulings or regulations of
the Securities and Exchange Commission or of any other governmental regulatory
body, which the Board shall, in its absolute discretion, deem necessary or
advisable;

               (c)   The obtaining of any approval or other clearance from any
state or federal governmental agency which the Board shall, in its absolute
discretion, determine to be necessary or advisable;

               (d)   The receipt by the Company of full payment for such shares,
including payment of all amounts which, under federal, state or local tax law,
it is required to withhold upon exercise of the Option; and

               (e)   The lapse of such reasonable period of time following the
exercise of the Option as the Board may from time to time establish for reasons
of administrative convenience.

Section 4.5.   Rights as Stockholder
------------   ---------------------

               The holder of the Option shall not be, nor have any of the rights
or privileges of, a stockholder of the Company in respect of any shares
purchasable upon the exercise of any part of the Option unless and until
certificates representing such shares shall have been issued by the Company to
such holder.

                                   ARTICLE V.

                                OTHER PROVISIONS
                                ----------------

Section 5.1.   Administration
------------   --------------

               With respect to this Option, the full Board, acting by a majority
of its members in office, shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Board in good faith shall be final and binding upon the Optionee,
the Company and

                                       8

<PAGE>

all other interested persons. No member of the Board shall be personally liable
for any action, determination or interpretation made in good faith with respect
to the Plan or the Option.

Section 5.2.   Option Not Transferable
------------   -----------------------

               Neither the Option nor any interest or right therein or part
thereof shall be liable for the debts, contracts or engagements of the Optionee
or his successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution or, to the extent not prohibited by the Code, pursuant to a QDRO.

               Notwithstanding the foregoing provisions of this Section 5.2, the
Administrator, in its sole discretion, may permit the transfer of the Option by
the Optionee, by gift or contribution, to a "family member" of the Optionee (as
defined under the instructions to use of Form S-8). Any Option that has been so
transferred or transferred pursuant to a QDRO shall continue to be subject to
all of the terms and conditions as applicable to the original Optionee, and the
transferee shall execute any and all such documents requested by the
Administrator in connection with the transfer, including without limitation to
evidence the transfer and to satisfy any requirements for an exemption for the
transfer under applicable federal and state securities laws.

Section 5.3.   Shares to Be Reserved
------------   ---------------------

               The Company shall at all times during the term of the Option
reserve and keep available such number of shares of stock as will be sufficient
to satisfy the requirements of this Agreement.

Section 5.4.   Notices
------------   -------

               Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall, if
the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.

                                       9

<PAGE>

Section 5.5.   Titles
------------   ------

               Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.

Section 5.6.   Construction
------------   ------------

               This Agreement shall be administered, interpreted and enforced
under the laws of the State of Texas.

Section 5.7.   Conformity to Securities Laws
------------   -----------------------------

               The Optionee acknowledges that the Plan and this Agreement are
intended to conform to the extent necessary with all provisions of the
Securities Act and the Exchange Act and any and all regulations and rules
promulgated by the Securities and Exchange Commission thereunder, including
without limitation Rule 16b-3. Notwithstanding anything herein to the contrary,
the Plan shall be administered, and the Option is granted and may be exercised,
only in such a manner as to conform to such laws, rules and regulations. To the
extent permitted by applicable law, the Plan and this Agreement shall be deemed
amended to the extent necessary to conform to such laws, rules and regulations.

               IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.

                                   VARCO INTERNATIONAL, INC.


                                   By: _________________________________________
                                       John F. Lauletta,
                                       President and Chief Operating Officer

                                   By: _________________________________________
                                       James F. Maroney,
                                       Vice President, Secretary and General
                                       Counsel

________________________________
(Name)
(Address)
(City), (State) (Zip_Code)

Optionee's Taxpayer Identification Number:

(Tax_ID0

                                       10