Document:

exv10w12

 

Exhibit
10.12

TODCO

SEVERANCE POLICY

(as of February 26, 2007)

SCOPE

This policy applies to all US shore-based salaried employees of the Company and designated US
Payroll Employees.

RESPONSIBILITY

Human Resources

PURPOSE

The purpose of this policy is to define the severance policy of the Company.

ELIGIBILITY

This policy shall apply to US shore-based salaried employees and designated US Payroll
Employees of the Company with the job titles identified in Exhibit “A” attached hereto and Tier 3
and Tier 4 Executives identified in Exhibit “B” attached hereto (“Eligible Employees”). No benefit
shall be payable under this policy to employees who by written employment agreement are entitled to
other severance payments in the event of a Change of Control. As a condition precedent to
eligibility each employee will be required to execute a binding release satisfactory to the Company
pursuant to which such employee releases the Company from any and all claims arising out of any
acts occurring at or prior to termination of the employee’s employment by the Company. This
release shall not release any rights an employee may be entitled to pursuant to indemnification
arrangements with the Company or under the Company’s certificate of incorporation or bylaws. Each
employee may also be required to enter into a mutual non-disparagement agreement with the Company.

POLICY

In the event of (i) involuntary termination other than for “Cause” (as defined below) or (ii)
a Qualifying Termination (as defined below) of the employment of an Eligible Employee by the
Company within the eighteen (18) month period immediately following a “Change in Control” (as
defined below), the Company shall pay such employee a severance benefit in the amount specified
below. “Cause” shall mean termination from employment due to unacceptable performance, misconduct,
dishonesty, or any other violation of the policies of the Company, as determined by the Company. A
“Qualifying Termination” shall be deemed to have occurred when the employment of an Eligible
Employee is terminated by the Company for any reason or upon resignation by an Eligible Employee
following notification of a reduction of salary and/or target bonus under the Company’s Performance
Bonus Plan (or any successor to the plan), a relocation of employment in excess of fifty miles from
such employee’s current work site, a reduction in job title or a significant reduction of
responsibility, a reduction in welfare benefits other than a reduction for all employees of the
Company, or if this policy is terminated following a Change in Control.

BENEFIT

Senior Executives. —Tier 3 Executives shall receive an amount equal to 1.5 times the
employee’s annual base salary plus the amount of such employee’s target bonus under the Company’s
Performance Bonus Plan for the year in which the termination occurs and a continuation of the
welfare benefits of medical insurance, dental insurance, disability insurance and life insurance
for eighteen (18) months after the date

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of termination. Tier 4 Executives shall receive an amount equal to 1.0 times the employee’s annual
base salary plus the amount of such employee’s target bonus under the Company’s Performance Bonus
Plan for the year in which the termination occurs and a continuation of the welfare benefits of
medical insurance, dental insurance, disability insurance and life insurance for twelve (12) months
after the date of termination. In addition to any severance benefit that they are entitled to
receive, Tier 3 and Tier 4 Executives shall also receive payments for accrued and unused vacation
and their target bonus (assuming 100% achievement of executive performance measures) under the
Company’s Performance Bonus Plan in effect on the date of termination, pro-rated through date of
termination.

In the event the premium cost and/or level of coverage shall change for all employees of the
Company, the cost and/or coverage level, likewise, shall change for these employees in a
corresponding manner. The continuation of these welfare benefits shall be discontinued prior to
the end of the applicable period in the event the employee has available substantially similar
benefits from a subsequent employer.

Key Employees and Other Mid-Management Employees — Four weeks pay for every year of service
plus a proportionate share of such employee’s target bonus under the Company’s Performance Bonus
Plan for the year in which the termination occurs with a maximum benefit of one half of annual
salary plus one half of target bonus.

All Other US Shore-Based Non Rotational Salaried Employees. — Two weeks salary for every
year of service with a minimum payment of 4 weeks pay and a maximum benefit of one half of annual
salary.

For purposes of this policy the date used for establishing seniority will be the actual hire date
by TODCO, Transocean Inc., their affiliates or predecessors.

CHANGE IN CONTROL

“Change in Control.” A Change in Control of TODCO shall be deemed to have occurred as of the
first (1st) day any one or more of the following conditions shall have been satisfied:

	 	(i)	 	The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of shares representing 20% or more of the combined voting power of the then
outstanding voting securities of TODCO entitled to vote generally in the
election of directors (the “Outstanding TODCO Voting Securities”); provided,
however, that for purposes of this subsection (i), the following acquisitions
shall not constitute a Change in Control: (A) any acquisition directly from
TODCO, (B) any acquisition by TODCO (it being understood that an acquisition
by an acquiror of greater than 20% of the Outstanding TODCO Voting Securities
directly from TODCO shall not prevent such acquiror from causing a subsequent
Change in Control if it thereafter acquires an additional 20% of the
Outstanding TODCO Voting Securities in a transaction that would otherwise
constitute a Change of Control), (C) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by TODCO or any corporation or
other entity controlled by TODCO, (D) any acquisition by any corporation or
other entity pursuant to a transaction which complies with clauses (A), (B)
and (C) of Section (iii) below;
	 
	 	(ii)	 	Individuals who, as of the date hereof, are members of the
Board (the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board; provided, however, that for purposes of this
definition, any individual becoming a director subsequent to the date hereof
whose election, or nomination for election by TODCO’s shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be

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	 	 	 	considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board;
	 
	 	(iii)	 	Consummation of a reorganization, merger, conversion or
consolidation or sale or other disposition of all or substantially all of the
assets of TODCO (a “Business Combination”), in each case, unless, following
such Business Combination, (A) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
TODCO Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than fifty percent (50%) of the
then outstanding combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors of the
corporation or other entity resulting from such Business Combination
(including, without limitation, a corporation or other entity which as a
result of such transaction owns TODCO or all or substantially all of TODCO’s
assets either directly or through one or more subsidiaries) in substantially
the same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding TODCO Voting Securities, (B) no Person
(excluding any corporation or other entity resulting from such Business
Combination or any employee benefit plan (or related trust) of TODCO or such
corporation or other entity resulting from such Business Combination)
beneficially owns, directly or indirectly, twenty percent (20%) or more of the
combined voting power of the then outstanding voting securities of the
corporation or other entity resulting from such Business Combination except to
the extent that such ownership existed prior to the Business Combination and
(C) at least a majority of the members of the board of directors of the
corporation or other entity resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
	 
	 	(iv)	 	Approval by the shareholders of TODCO of a complete
liquidation or dissolution of TODCO other than in connection with the transfer
of all or substantially all of the assets of TODCO to an affiliate or a
subsidiary of TODCO and in connection with such transfer the Eligible Employee
is offered the opportunity to continue his employment on substantially the
same terms as he did prior to the transfer.

Notwithstanding the foregoing, no Business Combination between TODCO and its own
subsidiaries shall constitute a Change in Control under this Policy.

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EXHIBIT A

ELIGIBLE EMPLOYEES

US PAYROLL EMPLOYEES

Mid Management 1

 

	 	 	 
	Accountant

	 	Manager, Int’l Accounting
	Administrator, Bids

	 	Manager, IT
	Administrator, Bids & Contract

	 	Manager, Maint. & Proj. Support
	Administrator, Casualty Claims

	 	Manager, Marketing
	Assistant Controller

	 	Manager, Office
	Asst. Purchasing Manager

	 	Manager, Payroll
	Attorney

	 	Manager, Purchasing
	Buyer

	 	Manager, Rig
	CAD Draftsman

	 	Manager, Rig Operations
	Control Analyst

	 	Manager, Training
	Corrosion Superintendent

	 	Manager, Marine & Compliance
	Director, Projects

	 	Manager, Shipping & Receiving
	District Controller

	 	Marine Superintendent
	Electrical Superintendent

	 	Mechanical Superintendent
	Engineering Technician

	 	Project Engineer
	Executive Assistant

	 	Scheduler/ Planner
	HR Representative

	 	Sr. Accountant
	HS&E Advisor

	 	Sr. Administrator, LAN
	Lawson Administrator

	 	Sr. Tech Support Specialist
	Legal Assistant

	 	Sr. Electrical Superintendent
	Maintenance Superintendent

	 	Sr. HS&E Advisor — Int’l
	Manager, Business Development

	 	Sr. Maintenance Supervisor
	Manager, Cash

	 	Sr. Marketing Representative
	Manager, District

	 	Sr. Mechanical Superintendent
	Manager, Facility

	 	Structural Superintendent
	Manager, HS&E

	 	Supervisor, Training
	Manager, Human Resources

	 	Technical Support Engineer
	Manager, Internal Audit

	 	Welders Superintendent

 

			
	1	 	4 weeks per year of service plus
proportionate share of target bonus, maximum 6 months pay and bonus.

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All Other U.S. Shore-Based Non Rotational Salaried Positions2

 

	 	 	 
	A/P and A/R Coordinator

	 	 

	Administrative Assistants
	 	 
	HR Administrator
	 	 
	HR Assistant
	 	 
	Tech Engineer Assistant
	 	 
	HS&E Audit Coordinator
	 	 
	Buyer
	 	 
	A/P Clerk
	 	 
	Billing Clerk
	 	 
	File Room Clerk
	 	 
	HR Data Clerk
	 	 
	Maintenance Clerk
	 	 
	Receiving Clerk
	 	 
	HR Representative
	 	 
	Project Administrator
	 	 
	Receptionist
	 	 
	Benefits Representative
	 	 
	Sr. Accounting Clerk
	 	 
	Sr. Payroll Administrator
	 	 
	Sr. A/P Clerk
	 	 

 

			
	 2	 	2 weeks per year of service, maximum 6 months
pay and bonus.

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EXHIBIT B

SENIOR EXECUTIVES

	 	 	 
	Executive Positions	 	Tier
	 
	 	 
	Tier 3 Executives
	 	 
	Vice President — Chief Financial Officer
	 	3
	Vice President — Operations
	 	3
	Vice President — General Counsel
	 	3
	Vice President — Engineering
	 	3
	 
	 	 
	Tier 4 Executives
	 	 
	Vice President — Marketing
	 	4
	Vice President — Human Resources
	 	4
	Vice President — Int’l Operations
	 	4
	Vice President — HSE
	 	4
	Vice President — Int’l Business Development
	 	4
	Treasurer
	 	4
	Controller
	 	4

6exv10w19

 

Exhibit 10.19

[Date]

[Name]

[Address]

Dear [Name],

Effective as of [Date] (the “Award Date”), TODCO (the “Company”) hereby grants to you a
nonqualified stock option (“Option”) to purchase [number] shares of common stock of the Company
(“Common Stock”) in accordance with the TODCO 2005 Long Term Incentive Plan (the “Plan”). Your
award is more fully described in the attached Appendix A, Terms and Conditions of Nonqualified
Stock Option Award (which together with this letter is the “Award Letter”).

The price
at which you may purchase the shares of Common Stock covered by the
Option is $             per
share (“Exercise Price”) which is the Fair Market Value of a Share of Common Stock on the Award
Date. Unless otherwise provided in the attached Appendix A, your Option will expire on the [date
which is the 10-year anniversary of the Award Date] (“Expiration Date”), and will become vested and
exercisable in installments as follows, provided that you are and have been continuously employed
with the Company on the “Exercise Date”:

	 	 	 
	Exercise Date	 	“Number of Shares Exercisable”
	 
	 	 
	     [Date]

	 	                    
	     [Date]

	 	                    
	     [Date]

	 	                    

This award is subject to the terms and conditions set forth in the enclosed Plan, this Award
Letter, the Prospectus for the Plan, and any rules and regulations adopted by the Executive
Compensation Committee of the Company’s Board of Directors.

This Award Letter, the Plan and any other attachments should be retained in your files for future
reference.

Very truly yours,

Jan Rask

President and Chief Executive Officer

Enclosures

 

 

Appendix A

Terms and Conditions of

Employee Nonqualified Stock Option Award

[Date]

The Option granted to you by TODCO (the “Company”) to purchase shares of common stock of the
Company (“Common Stock”) is subject to the terms and conditions set forth in the TODCO 2005 Long
Term Incentive Plan (the “Plan”), the enclosed Prospectus for the Plan, any rules and regulations
adopted by the Executive Compensation Committee of the Company’s Board of Directors (the
“Committee”), and this Award Letter. Any terms used and not defined in the Award Letter shall have
the meanings set forth in the Plan. In the event there is an inconsistency between the terms of
the Plan and this Award Letter, the terms of the Plan will control.

	1.	 	Exercise Price

You may purchase the shares of Common Stock covered by the Option for the Exercise Price stated in
this Award Letter.

	2.	 	Term of Option

Your Option expires on the [date which is the 10-year anniversary of the Award Date]. However,
your Option will terminate prior to the Expiration Date as provided in Section 6 of this Appendix A
upon the occurrence of one of the events described in that Section. Regardless of the provisions
of Section 6, in no event can your Option be exercised after the Expiration Date

	3.	 	Vesting and Exercisability of Option

     (a) Unless it becomes exercisable on an earlier date as provided in Sections 6 or 7
below, your Option will become vested and exercisable in installments with respect to the
Number of Shares Exercisable on the Exercise Dates as set forth in this Award Letter.

     (b) The number of shares covered by each installment will be in addition to the number
of shares which previously became exercisable.

     (c) To the extent your Option has become vested and exercisable, you may exercise the
Option as to all or any part of the shares covered by the Option, at any time on or before
the Option Expiration Date.

	4.	 	Exercise of Option

Subject to the limitations set forth in this Award Letter and in the Plan, your Option may be
exercised by written notice provided to the Company as set forth below. Such written notice shall
(a) state the number of shares of Common Stock with respect to which your Option is being exercised
and (b) unless otherwise permitted by the Committee be accompanied by a wire transfer, cashier’s
check, cash or money order payable to TODCO in the full amount of the Exercise Price for any shares
of Common Stock being acquired and any appropriate withholding taxes (as provided in Section 8 of
this Appendix), or by other consideration in the form and

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manner approved by the Committee pursuant to Sections 5 and 8 of this Appendix. If any law or
regulation requires the Company to take any action with respect to the shares specified in such
notice, the time for delivery thereof, which would otherwise be as promptly as possible, shall be
postponed for the period of time necessary to take such action. You shall have no rights of a
shareholder with respect to shares of Common Stock subject to your Option unless and until such
time as your Option has been exercised and ownership of such shares of Common Stock has been
transferred to you.

	5.	 	Satisfaction of Exercise Price

     (a) Payment of Cash or Common Stock. Your Option may be exercised by payment in cash
(including check, bank draft, money order or wire transfer payable to the Company), in
Common Stock, in a combination of cash and Common Stock or in such other manner as the
Committee in its discretion may provide.

     (b) Payment of Common Stock. The fair market value of any shares of Common Stock
tendered or withheld as all or part of the Exercise Price shall be determined in accordance
with the Plan on the date agreed to by the Company in advance as the date of exercise. The
certificates evidencing previously owned shares of Common Stock tendered must be duly
endorsed or accompanied by appropriate stock powers. Only stock certificates issued solely
in your name may be tendered in exercise of your Option. Fractional shares may not be
tendered in satisfaction of the Exercise Price; any portion of the Exercise Price which is
in excess of the aggregate fair market value of the number of whole shares tendered must be
paid in cash. If a certificate tendered in exercise of the Option evidences more shares
than are required pursuant to the immediately preceding sentence for satisfaction of the
portion of the Exercise Price being paid in Common Stock, an appropriate replacement
certificate will be issued to you for the number of excess shares.

	6.	 	Termination of Employment Prior to a Change in Control

     (a) General. The following rules apply to your Option in the event of your death,
disability, retirement, or other termination of employment prior to a Change in Control.

     (i) Termination of Employment. If your employment terminates for any
reason other than death, disability, retirement, or for the convenience of the
Company (as those terms are used below), your Option will expire as to all unvested
and not yet exercisable shares on such date and no additional portions of your
Option will become exercisable. Your Option will be limited to only the number of shares of Common Stock which you were entitled to purchase under the Option on the
date of the termination of your employment and will remain exercisable for the
earlier of 60 days or the Expiration Date.

     (ii) Retirement. If your employment terminates by reason of retirement
for the convenience of the Company or under a retirement program of the Company or
one of its subsidiaries or otherwise (as determined by the

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Committee) your Option will expire as to all unvested and not yet exercisable shares on such date and no additional portions of your Option will become
exercisable. Your Option will be limited to only the number of shares of Common
Stock which you were entitled to purchase under the Option on the date of your
retirement and will be exercisable until the Expiration Date.

     (iii) Death or Disability. If your employment terminates by reason of
disability (as determined by the Committee), your Option will become fully
exercisable, and 100% vested as to all shares covered by the Option, and your Option
will remain exercisable until the Expiration Date. If your employment terminates by
reason of your death, your Option will become 100% vested and fully exercisable as
to all of the shares covered by the Option and remain exercisable until the
Expiration Date.

     (iv) Convenience of the Company. If your employment is terminated for
the convenience of the Company (as determined by the Committee), your Option will
become 100% vested and shall be fully exercisable as to all shares covered by the
Option and will remain exercisable until the Expiration Date.

     (v) Adjustments by the Committee. The Committee may, in its sole
discretion, exercised before or after your termination of employment, declare all or
any portion of your Option immediately exercisable and/or make any other
modification as permitted under the Plan.

     (b) Committee Determinations. The Committee shall have absolute discretion to
determine the date and circumstances of termination of your employment under this Section 6
and Section 7, and make all determinations under the Plan pursuant to Section 1.3 of the
Plan, and its determination shall be final, conclusive and binding upon you.

	7.	 	Change in Control

     (a) Acceleration Upon Change in Control. Notwithstanding the provisions of Sections 3
and 6, if you are employed on the date of an occurrence of a Change in Control (as defined
below) and a successor entity does not assume this Option, your Option will
immediately become 100% vested and fully exercisable as to all shares covered by this Option
and the Option will remain exercisable until the Expiration Date after a Change in Control.
If you are employed on the date of a Change in Control and a successor entity
assumes this Option, the Option shall continue to vest in accordance with the
Exercise Dates provided in this Award Letter; provided, however, that the following rules
apply to your Option in the event of your death, disability, retirement or other termination
of employment:

     (i) Termination of Employment. If your employment terminates for any
reason other than death, disability, retirement, or within 18 months after a Change
in Control without cause or for good reason (as those terms are used below), your
Option will expire as to all unvested and not yet exercisable shares on such date
and no additional portions of your Option will become exercisable.

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Your Option will be limited to only the number of shares of Common Stock which
you were entitled to purchase under the Option on the date of the termination of
your employment and will remain exercisable for the earlier of 60 days or
the Expiration Date.

     (ii) Retirement. If your employment terminates by reason of retirement
for the convenience of the Company or under a retirement program of the Company or
one of its subsidiaries or otherwise (as determined by the Committee) your Option
will expire as to all unvested and not yet exercisable shares on such date and no
additional portions of your Option will become exercisable. Your Option will be
limited to only the number of shares of Common Stock which you were entitled to
purchase under the Option on the date of your retirement and will be exercisable
until the Expiration Date.

     (iii) Death or Disability. If your employment terminates by reason of
disability (as determined by the Committee), your Option will become fully
exercisable, and 100% vested as to all shares covered by the Option, and your Option
will remain exercisable until the Expiration Date. If your employment terminates by
reason of your death, your Option will become 100% vested and fully exercisable as
to all of the shares covered by the Option and remain exercisable until the
Expiration Date.

     (iv) Termination Without Cause or for Good Reason. If your employment
is terminated without cause or for good reason (as determined by the Committee),
within 18 months after a Change in Control, your Option will become 100% vested and
shall be fully exercisable as to all shares covered by the Option and will remain
exercisable until the Expiration Date.

     (v) Adjustments by the Committee. The Committee may, in its sole
discretion, exercised before or after your termination of employment, declare all or
any portion of your Option immediately exercisable and/or make any other
modification as permitted under the Plan.

     (b) Change in Control. A Change in Control of the Company shall be deemed to have
occurred as of the first day any one or more of the following conditions shall have been
satisfied:

     (i) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
shares representing 20% or more of the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the “Outstanding Company Voting Securities”); provided, however, that for
purposes of this Subsection (i), the following acquisitions shall not constitute a
Change in Control: (1) any acquisition directly from the Company, (2) any
acquisition by the Company (it being understood that an acquisition by an acquiror
of greater than 20% of the Outstanding Company

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Voting Securities directly from TODCO shall not prevent such acquiror from
causing a subsequent Change in Control if it thereafter acquires an additional 20%
of the Outstanding Company Voting Securities in a transaction that would otherwise
constitute a Change in Control), (3) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation or
other entity controlled by the Company, or (4) any acquisition by any corporation
or other entity pursuant to a transaction which complies with clauses (1), (2) and
(3) of Section 7(b)(iii); or

     (ii) Individuals who, as of the effective date of the Plan (as defined in the
Plan), are members of the Board of Directors of the Company (the “Incumbent Board”)
cease for any reason to constitute at least a majority of the Board of Directors of
the Company; provided, however, that for purposes of this Section 7(b)(ii), any
individual becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company’s shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board, shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board of Directors of
the Company; or

     (iii) Consummation of a reorganization, merger, conversion or consolidation or
sale or other disposition of all or substantially all of the assets of the Company
(a “Business Combination”), in each case, unless, following such Business
Combination, (1) all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of the then outstanding combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors of the corporation or other entity resulting from such Business
Combination (including, without limitation, a corporation or other entity which as a
result of such transaction owns the Company or all or substantially all of the
Company’s assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Voting Securities, (2) no Person
(excluding any corporation or other entity resulting from such Business Combination
or any employee benefit plan (or related trust) of the Company or such corporation
or other entity resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of the combined voting power of the then
outstanding voting securities of the corporation or other entity resulting from such
Business Combination except to the extent that such ownership existed prior to the
Business Combination and (3) at least a majority of the members of the board of
directors of the corporation or other entity resulting from such Business
Combination were members of the Incumbent Board

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at the time of the execution of the initial agreement, or of the action of the
Board of Directors of the Company, providing for such Business Combination; or

     (iv) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company other than in connection with the transfer of all or
substantially all of the assets of the Company to an affiliate or a Subsidiary of
the Company and in connection with such transfer you are offered the opportunity to
continue your employment on substantially the same terms as existed immediately
prior to the transfer.

	8.	 	Tax Consequences and Income Tax Withholding

     (a) You should review the TODCO 2005 Long Term Incentive Plan Prospectus for a general
summary of the federal income tax consequences of your Option based on currently applicable
provisions of the Code and related regulations. The summary does not discuss state and
local tax laws, which may differ from the federal tax law. Neither the Company nor the
Committee guarantees the tax consequences of your award herein. You are advised to consult
your own tax advisor regarding the application of the tax laws to your particular situation.

     (b) The Option is not intended to be an “incentive stock option,” as defined in Section
422 of the Code.

     (c) This Award Letter is subject to your making arrangements satisfactory to the
Company to satisfy any applicable federal, state or local withholding tax liability arising
from the grant or exercise of your Option. You can either make a cash payment to the
Company of the required amount or you can elect to satisfy your withholding obligation by
having the Company retain shares of Common Stock having a value equal to the amount of your
withholding obligation from the shares otherwise deliverable to you upon the exercise of
your Option. You may not elect to have the Company withhold shares of Common Stock having a
value in excess of the minimum statutory withholding tax liability. If you fail to satisfy
your withholding obligation in a time and manner satisfactory to the Company, the Company
shall have the right to withhold the required amount from your salary or other amounts
payable to you prior to transferring any shares of Common Stock to you pursuant to this
Option.

	9.	 	Restrictions on Resale

There are no restrictions imposed by the Plan on the resale of shares of Common Stock acquired
under the Plan. However, under the provisions of the Securities Act of 1933 (the “Securities Act”)
and the rules and regulations of the Securities and Exchange Commission (the “SEC”), resales of
shares acquired under the Plan by certain officers and directors of the Company who may be deemed
to be “affiliates” of the Company must be made pursuant to an appropriate effective registration
statement filed with the SEC, pursuant to the provisions of Rule 144 issued under the Securities
Act, or pursuant to another exemption from registration provided in the Securities Act. At the
present time, the Company does not have a currently effective registration statement pursuant to
which such resales may be made by affiliates. There are no restrictions

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imposed by the SEC on the resale of shares acquired under the Plan by persons who are not
affiliates of the Company; provided, however, that all employees, this Award Letter and the Option
and its exercise hereunder are subject to the Company’s policies against insider trading (including
black-out periods during which no sales are permitted), and to other restrictions on resale that
may be imposed by the Company from time to time if it determines said restrictions are necessary or
advisable to comply with applicable law.

	10.	 	Effect on Other Benefits

Income recognized by you as a result of this Award Letter or the exercise of the Option or sale of
Common Stock will not be included in the formula for calculating benefits under any of the
Company’s retirement and disability plans or any other benefit plans.

	11.	 	Compliance with Laws

This Award Letter and any Common Stock that may be issued hereunder shall be subject to all
applicable federal and state laws and the rules of the exchange on which shares of the Company’s
Common stock are traded.

	12.	 	Miscellaneous

     (a) Not an Agreement for Continued Employment or Services. This Award Letter shall
not, and no provision of this Award Letter shall be construed or interpreted to, create any
right to be employed or to provide services to or continue your employment with or provide
services to the Company, the Company’s affiliates, parent, subsidiary or their affiliates.

     (b) Community Property. Each spouse individually is bound by, and such spouse’s
interest, if any, in the grant of this Option or in any shares of Common Stock is subject to
the terms of this Award Letter. Nothing in this Award Letter shall create a community
property interest where none otherwise exists.

If you have any questions regarding your Option or would like to obtain additional information
about the Plan or the Committee, please contact the Company’s General Counsel, TODCO, 2000 W. Sam
Houston Parkway South, Suite 800, Houston, Texas 77042 (telephone (713) 278 6000). Your Award
Letter, the Plan and any other attachments should be retained in your files for future reference.

8

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