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                                                                    EXHIBIT 10.2

                              PHARMACIA CORPORATION

                 DIRECTORS EQUITY COMPENSATION AND DEFERRAL PLAN

     The Pharmacia Corporation Directors Equity Compensation and Deferral Plan
(the "Plan") is a continuation and amendment and restatement of the Pharmacia &
Upjohn, Inc. Directors Equity Compensation and Deferral Plan (the "P&U Plan").

     The purpose of the Plan is to provide non-employee members of the Board of
Directors (the "Board") of Pharmacia Corporation (the "Company") with the
opportunity to receive grants of nonqualified stock options and stock awards.
The Plan also permits non-employee directors to defer payment of part or all of
their directors fees payable by the Company. The Company believes that the Plan
will encourage the participants to contribute materially to the growth of the
Company, thereby benefitting the Company's shareholders, and will align the
economic interests of the participants with those of the shareholders.

     As a result of the merger contemplated by the Agreement and Plan of Merger
dated as of December 19, 1999, as amended (the "Merger Agreement"), among
Monsanto Company ("Monsanto"), a subsidiary of Monsanto and Pharmacia & Upjohn,
Inc. ("P&U"), all outstanding stock options, stock awards and deferrals under
the P&U Plan have been converted into options, stock awards and deferrals with
respect to shares of common stock of the Company under this Plan. The number of
shares and exercise price for such options, stock awards and deferrals have been
adjusted pursuant to the Merger Agreement.

         1. Administration

               (1) Committee. The Plan shall be administered and interpreted by
the Board or by a committee of "non-employee directors," as defined under Rule
16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
appointed by the Board. If a committee administers the Plan, references in the
Plan to the "Board," as they relate to Plan administration, shall be deemed to
refer to the committee.

               (2) Board Authority. The Board shall have the sole authority to
(i) determine the individuals to whom grants shall be made under the Plan, (ii)
determine the type, size and terms of the grants to be made, (iii) determine the
time when the grants will be made and the duration of any applicable exercise or
restriction period, including the criteria for exercisability and the
acceleration of exercisability, (iv) amend the terms of any previously issued
grant, (v) establish the terms of deferrals and payments under the Plan, and
(vi) deal with any other matters arising under the Plan.

               (3) Board Determinations. The Board shall have full power and
authority to administer and interpret the Plan, to make factual determinations
and to adopt or
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amend such rules, regulations, agreements and instruments for implementing the
Plan and for the conduct of its business as it deems necessary or advisable, in
its sole discretion. The Board's interpretations of the Plan and all
determinations made by the Board pursuant to the powers vested in it hereunder
shall be conclusive and binding on all persons having any interest in the Plan
or in any awards granted hereunder. All powers of the Board shall be executed in
its sole discretion, in the best interest of the Company, not as a fiduciary,
and in keeping with the objectives of the Plan and need not be uniform as to
similarly situated individuals.

         2. Grants

         Awards under the Plan may consist of nonqualified stock options as
described in Section 5 ("Options") and stock awards as described in Section 6
("Stock Awards") (hereinafter collectively referred to as "Grants"). All Grants
shall be subject to the terms and conditions set forth herein and to such other
terms and conditions consistent with this Plan as the Board deems appropriate
and as are specified in writing by the Board to the individual in a grant
instrument or an amendment to the grant instrument (the "Grant Instrument").
Unrestricted Stock Awards may be granted without a Grant Instrument. The Board
shall approve the form and provisions of each Grant Instrument. Grants under a
particular Section of the Plan need not be uniform as among the Directors.

         3. Shares Subject to the Plan

         (a) Shares Authorized. Subject to adjustment as described below, the
aggregate number of shares of common stock of the Company ("Company Stock") that
may be issued or transferred under the Plan is 400,000 shares. The shares shall
all be treasury shares of Company Stock, and all Grants and other Company Stock
payments under the Plan must be made from treasury shares. If and to the extent
Options granted under the Plan (including without limitation Options granted
under the P&U Plan) terminate, expire, or are canceled, forfeited, exchanged or
surrendered without having been exercised or if any Stock Awards (including
without limitation Stock Awards granted under the P&U Plan) are forfeited, the
shares subject to such Grants shall again be available for purposes of the Plan.
If shares of Company Stock are used to pay the exercise price of an Option, only
the net number of shares received by the Director pursuant to such exercise
shall be considered to have been issued or transferred under the Plan with
respect to such Option, and the remaining number of shares subject to the Option
shall again be available for purposes of the Plan.

               (2) Adjustments. If there is any change in the number or kind of
shares of Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced

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as a result of a spinoff or the Company's payment of an extraordinary dividend
or distribution, the maximum number of shares of Company Stock available for
distribution under the Plan, the number of shares covered by outstanding Grants
and deferrals, the kind of shares issued under the Plan, and the price per share
of outstanding Grants may be appropriately adjusted by the Board to reflect any
increase or decrease in the number of, or change in the kind or value of, issued
shares of Company Stock to preclude, to the extent practicable, the enlargement
or dilution of rights and benefits of Plan participants; provided, however, that
any fractional shares resulting from such adjustment shall be eliminated. Any
adjustments determined by the Board shall be final, binding and conclusive.

         4. Eligibility for Participation; Grant Elections

               (1) Eligibility. All members of the Board who are not employees
of the Company or a subsidiary ("Directors") shall be eligible to participate in
the Plan.

               (2) Grant Elections. The Board may establish amounts and terms
for Grants as it deems appropriate, pursuant to Sections 5 and 6. Before the
beginning of each Plan Year (as defined below), each Director may elect to
receive, as part of his compensation to be earned as a director, Stock Awards or
Options, in amounts to be determined by the Board before the beginning of the
Plan Year. If a Director makes no affirmative election, the Director will
receive a Stock Award. The Options and Stock Awards shall be granted on the
first day of the Plan Year for which the elections are effective or as of such
other date as the Board may determine. Unless the Board determines otherwise,
each Option shall have an exercise price (the "Exercise Price") equal to the
Fair Market Value (as defined below) of a share of Company Stock on the date the
Option is granted, shall be fully exercisable on the date of grant and shall
have a ten-year term. Unless the Board determines otherwise, each Stock Award
shall be fully vested on the date of grant.

               (3) Plan Year. The first Plan Year for the restated Plan is the
period beginning on the date of the next Board meeting following the effective
date of the restated Plan and ending on the day before the 2001 annual Company
shareholders meeting. For subsequent years, a Plan Year is each period that
begins on the date of an annual Company shareholders meeting and ends on the day
before the next annual Company shareholders meeting.

     5. Terms of Options

               (1) Type of Option and Price. The Board shall establish the terms
of each Option in the Grant Instrument as follows:

                    (1) All Options granted under the Plan shall be nonqualified
stock options, which are not intended to qualify as "incentive stock options"
within the meaning of section 422 of the Internal Revenue Code of 1986, as
amended.

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                    (2) The Exercise Price shall be determined by the Board and
shall be not less than the Fair Market Value of a share of Company Stock on the
date the Option is granted.

                    (3) "Fair Market Value" shall mean, per share of Company
Stock, the average of the highest and lowest prices of the Company Stock on the
New York Stock Exchange (the "NYSE"), or such other national securities exchange
as may be designated by the Board, on the applicable date, or, if there are no
sales of Company Stock on the NYSE on such date, then the average of the highest
and lowest prices of the Company Stock on the last previous day on which a sale
on the NYSE is reported.

               (2) Option Term. The Board shall determine the term of each
Option, which shall not exceed ten years from the date of grant.

               (3) Exercisability of Options. Options may become exercisable
immediately upon grant or they may become exercisable over time in accordance
with such terms and conditions as may be determined by the Board and specified
in the Grant Instrument. The Board may accelerate the exercisability of any or
all outstanding Options at any time for any reason.

               (4) Termination of Service. The Board shall determine whether and
under what circumstances Options may be exercised after a Director ceases to be
a member of the Board. Unless the Board determines otherwise, if a Director
ceases to be a member of the Board for any reason, the Director's Options that
are exercisable at the date the Director ceases to be a member of the Board
shall continue to be exercisable for three years following the date the Director
ceases to be a member of the Board (but not later than the expiration of the
Option term).

               (5) Exercise of Options. A Director may exercise an Option that
has become exercisable, in whole or in part, by delivering a notice of exercise
to the Company with payment of the Exercise Price. The Director shall pay the
Exercise Price for an Option as specified by the Board (i) in cash, (ii) with
the approval of the Board, by delivering shares of Company Stock owned by the
Director (including Company Stock acquired in connection with the exercise of an
Option, subject to such restrictions as the Board deems appropriate) and having
a Fair Market Value on the date of exercise equal to the Exercise Price, or by
attestation (on a form prescribed by the Board) to ownership of shares of
Company Stock having a Fair Market Value on the date of exercise equal to the
Exercise Price, (iii) by payment through a broker in accordance with procedures
permitted by Regulation T of the Federal Reserve Board or (iv) by such other
method as the Board may approve. Shares of Company Stock used to exercise an
Option shall have been held by the Director for the requisite period of time to
avoid adverse accounting consequences to the Company with respect to the Option.
The

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Director shall pay the Exercise Price and the amount of any withholding tax due
at the time of exercise.

     6. Stock Awards

     The Board may issue or transfer shares of Company Stock to a Director under
a Stock Award, upon such terms as the Board deems appropriate. The following
provisions are applicable to Stock Awards:

               (1) General Requirements. The Board shall determine the number of
shares of Company Stock to be issued or transferred pursuant to a Stock Award.
Shares of Company Stock issued or transferred pursuant to Stock Awards may be
issued or transferred for cash consideration or for no cash consideration
(subject to applicable state law), and subject to restrictions or no
restrictions, as determined by the Board. The period of time during which the
Stock Award will remain subject to any restrictions imposed by the Board will be
designated in the Grant Instrument as the "Restriction Period." All restrictions
imposed on Stock Awards shall lapse upon the expiration of the applicable
Restriction Period and the satisfaction of all conditions imposed by the Board.
The Board may determine, as to any or all Stock Awards, that the restrictions
shall lapse without regard to any Restriction Period.

               (2) Restrictions on Transfer and Legend on Stock Certificate.
During the Restriction Period, a Director may not sell, assign, transfer, pledge
or otherwise dispose of the shares of a Stock Award except to a successor under
Section 10. Each certificate for a Stock Award shall contain a legend giving
appropriate notice of the restrictions. The Director shall be entitled to have
the legend removed from the stock certificate covering the shares subject to
restrictions when all restrictions on such shares have lapsed. The Board may
determine that the Company will not issue certificates for Stock Awards until
all restrictions on such shares have lapsed, or that the Company will retain
possession of certificates for Stock Awards until all restrictions on such
shares have lapsed.

               (3) Right to Vote and to Receive Dividends. During the
Restriction Period, the Director shall have the right to vote shares of Stock
Awards and to receive any dividends or other distributions paid on such shares,
subject to any restrictions deemed appropriate by the Board.

     7. Deferral of Directors Compensation

               (1) Terms of Deferral Elections. Directors may elect to defer
payment of their Stock Awards and their fees to be earned for service as a
member of the Board or any committee of the Board, on such terms as the Board
may establish. Unless the Board determines otherwise, deferrals may be made
according to the provisions of subsections (b) through (e) below. The Board may
modify the following terms as it deems appropriate.

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               (2) Deferral Elections.

                    (1) Before the beginning of each Plan Year, each Director
shall have the right to defer the payment of the retainer fees, committee fees
and Stock Awards to be earned by the Director for service as a member of the
Board for the Plan Year. The election shall be effective for the Plan Year for
which the election is made and all subsequent Plan Years until a new election
form is filed with the Company. Any new election shall be effective as of the
beginning of the Plan Year following the date on which the election is made.
Elections shall be made by delivery of an executed election form to the Company.

                    (2) Unless the Board determines otherwise, a Director may
elect to defer 25%, 50%, 75% or 100% of the cash fees to be earned by the
Director for the Plan Year and/or 100% of the Stock Awards to be earned by the
Director for the Plan Year.

                    (3) If a Director first becomes a Director at a date other
than an annual shareholders meeting, the Director's deferral election may be
effective as of the date of the Director's first Board meeting or such other
date as the Board determines.

                    (4) When a Director elects to defer fees or Stock Awards,
the Company shall create an account on the books and records of the Company and
shall credit to the account the Director's deferred fees, deferred Stock Awards
and any interest equivalents and dividend equivalents credited with respect to
the deferred amounts. A Director's deferred cash fees shall be credited to the
Director's account as of the date on which the fees would otherwise have been
paid to the Director. If a Director elects to have cash fees paid in Company
Stock, the fees to be deferred shall be converted into hypothetical shares of
Company Stock as of the date on which the fees would otherwise have been paid,
based on the Fair Market Value of the Company Stock on that date. A Director's
deferred Stock Awards shall be credited to the Director's account on the first
day of the Plan Year as of which they are granted or such other date as the
Board may determine.

               (3) Methods of Payment.

                    (1) A Director who elects to defer fees or Stock Awards
shall elect one of the following methods of payment of the deferred amounts, in
his or her deferral election form:

               (x) Payment may be made in up to 10 substantially equal annual
          installments, commencing in January of the calendar year following the
          calendar year in which the Director resigns, retires or is removed
          from the Board and continuing annually until the total amount of all
          fees subject to the election shall have been paid.

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               (y) Payment may be made in one lump sum payment equal to the full
          amount of the fees subject to such election, payable in January of the
          calendar year following the calendar year in which the Director
          resigns, retires or is removed from the Board.

                    (2) A Director's deferred Stock Awards shall be paid in the
form of Company Stock. A Director's deferred cash fees shall be paid in cash or
in shares of Company Stock, as the Director shall elect in his or her deferral
election form.

                    (3) The Company shall pay a Director's deferred amounts to
the Director in the manner and at the times elected by the Director in his or
her deferral election form, except that if, after a Director has become entitled
to payment of deferred amounts, the remaining deferred amounts are less than
$5,000 or 100 shares of Company Stock, payment of all remaining deferred amounts
shall be accelerated and paid in January of the following calendar year.

                    (4) If a Director dies before or after commencement of
payment of his or her deferred amounts, the then remaining unpaid portion shall
be paid to the Director's beneficiary designated in the designation of
beneficiary form delivered by the Director to the Company. In the event no such
beneficiary shall have been designated by the Director, the executor or
administrator of the Director's estate shall be entitled to receive any
remaining unpaid portion of his deferred amounts. Payment shall be made in a
single payment as soon as practicable after the Director's death, in cash or
shares of Company Stock according to the Director's initial election.

                    (5) If, at the time of payment, the aggregate number of
shares of Company Stock payable to a Director shall not be divisible into whole
shares by the applicable number of remaining installments, each remaining
installment, except the last, shall consist of the nearest number of whole
shares into which such number shall be divisible by the number of installments,
and the last installment shall consist of the remainder. Any fractional shares
shall be paid in cash based on the Fair Market Value of Company Stock on the
business day prior to the final payment date.

               (4) Dividend Equivalents. Dividend equivalents shall be credited
on any deferred amounts that are payable in shares of Company Stock as and when
a cash dividend is paid on shares of Company Stock, based on the Fair Market
Value of Company Stock on the date on which the dividend is paid. Dividend
equivalents shall be credited subsequently on the additional shares so credited.
The additional shares shall be distributed at the times provided for payment of
the deferred amounts.

               (5) Interest Equivalents. Interest equivalents shall be credited
and compounded annually on any deferred fees which are payable in cash.
Calculation of the interest equivalents shall be based on the average of the
prime rate published in the Wall Street

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Journal as of the end of each of the prior four quarters, unless the Board
determines otherwise. Interest equivalents shall be paid to Directors at the
times provided for payment of the deferred amounts.

         8. Persons Subject to Taxation Outside the United States

         With respect to Directors who are subject to taxation in countries
other than the United States, the Board may make Grants or allow deferrals on
such terms and conditions as may in the judgment of the Board be necessary or
desirable to foster and promote achievement of the purposes of the Plan, and, in
furtherance of such purposes, the Board may make such modifications, amendments,
procedures and subplans as may be necessary or advisable to comply with the laws
of countries in which Directors are subject to taxation.

         9. Withholding of Taxes

         Amounts payable under the Plan shall be subject to any applicable tax
withholding requirements. Tax withholding requirements may be satisfied in any
of the following ways: (i) the Company may deduct from any amounts payable in
cash (under the Plan or otherwise) any taxes required by law to be withheld;
(ii) the Director may elect to have shares withheld up to an amount that does
not exceed the Director's minimum applicable withholding tax rate; (iii) the
Director may tender shares of Company Stock owned by the Director; or (iv) the
Director may satisfy the Company's withholding tax obligations by such other
method as the Board may approve.

         10. Transferability of Grants

         Only the Director may exercise rights under a Grant during the
Director's lifetime, and a Director may not transfer rights with respect to
Grants or deferrals except by will, by the laws of descent and distribution or
pursuant to a written beneficiary designation filed with the Company. When a
Director dies, the personal representative or other person entitled to succeed
to the rights of the Director may exercise such rights. A successor must furnish
proof satisfactory to the Company of his or her right to receive the Grant or
deferrals under the Director's will, under the applicable laws of descent and
distribution or under the applicable beneficiary designation.

         11. Change of Control of the Company

         As used herein, a "Change of Control" shall mean:

               (1) The acquisition by any individual, entity or group
("Person"), including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act, of beneficial ownership, within the meaning of
Rule 13d-3 promulgated under the Exchange Act, of 33% or more of either (i) the
then outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the

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then outstanding securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that the following acquisitions of Outstanding Company Common Stock or
Outstanding Company Voting Securities shall not constitute a Change in Control:
(A) any acquisition by the Company, (B) any acquisition by an employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (C) any acquisition by any corporation
pursuant to a reorganization, merger or consolidation involving the Company, if,
immediately after such reorganization, merger or consolidation, each of the
conditions described in clauses (i), (ii) and (iii) of subsection (c) of this
Section 11 shall be satisfied; and provided further that, for purposes of clause
(A), if any Person (other than the Company or any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company) shall become the beneficial owner of 33% or more of
the Outstanding Company Common Stock or 33% or more of the Outstanding Company
Voting Securities by reason of any acquisition of Outstanding Company Common
Stock or Outstanding Company Voting Securities by the Company and such Person
shall, after such acquisition by the Company, become the beneficial owner of any
additional shares of the Outstanding Company Common Stock or any additional
Outstanding Voting Securities and such beneficial ownership is publicly
announced, such additional beneficial ownership shall constitute a Change of
Control;

               (2) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of such Board; provided, however, that any individual who becomes a director of
the Company subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by the vote of at least
three-quarters of the directors then comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such nomination)
shall be deemed to have been a member of the Incumbent Board; and provided
further, that no individual who was initially elected as a director of the
Company as a result of an actual or threatened election contest, as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or
any other actual or threatened solicitation of proxies or consents by or on
behalf of any Person other than the Board shall be deemed to have been a member
of the Incumbent Board;

               (3) Approval by the stockholders of the Company of a
reorganization, merger or consolidation involving the Company unless, in any
such case, immediately after such reorganization, merger or consolidation, (i)
more than 50% of the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation and more than 50% of
the combined voting power of the then outstanding securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals or
entities who were the beneficial owners, directly or indirectly, of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities
immediately prior to such reorganization, merger or consolidation and in
substantially the same proportions relative to each

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other as their ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and the Outstanding
Company Voting Securities, as the case may be, (ii) no Person (other than the
Company, any employee benefit plan (or related trust) sponsored or maintained by
the Company or the corporation resulting from such reorganization, merger or
consolidation (or any corporation controlled by the Company), or any Person
which beneficially owned, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 33% or more of the Outstanding Company
Common Stock or the Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 33% or more of the then outstanding
shares of common stock of such corporation or 33% or more of the combined voting
power of the then outstanding securities of such corporation entitled to vote
generally in the election of directors and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the Incumbent Board at
the time of the execution of the initial agreement or action of the Board
providing for such reorganization, merger or consolidation; or

               (4) (i) Approval by the stockholders of the Company of a plan of
complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company other than
to a corporation with respect to which, immediately after such sale or other
disposition, (A) more than 50% of the then outstanding shares of common stock
thereof and more than 50% of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such sale or other disposition and in
substantially the same proportions relative to each other as their ownership,
immediately prior to such sale or other disposition, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the case may be,
(B) no Person (other than the Company, any employee benefit plan (or related
trust) sponsored or maintained by the Company or such corporation (or any
corporation controlled by the Company), or any Person which beneficially owned,
immediately prior to such sale or other disposition, directly or indirectly, 33%
or more of the Outstanding Company Common Stock or the Outstanding Company
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 33% or more of the then outstanding shares of common stock thereof
or 33% or more of the combined voting power of the then outstanding securities
thereof entitled to vote generally in the election of directors and (C) at least
a majority of the members of the board of directors thereof were members of the
Incumbent Board at the time of the execution of the initial agreement or action
of the Board providing for such sale or other disposition (or were approved
directly or indirectly by the Incumbent Board).

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          12. Consequences of a Change of Control

               (1) Notice and Acceleration. Upon a Change of Control, unless the
Board determines otherwise, (i) all outstanding Options shall automatically
accelerate and become fully exercisable and (ii) the restrictions and conditions
on all outstanding Stock Awards shall immediately lapse.

               (2) Assumption of Grants. Upon a Change of Control where the
Company is not the surviving corporation (or survives only as a subsidiary of
another corporation), unless the Board determines otherwise, all outstanding
Options that are not exercised shall be assumed by, or replaced with comparable
options by, the surviving corporation.

               (3) Other Alternatives. Notwithstanding the foregoing, subject to
subsection (d) below, in the event of a Change of Control, the Board may take
one or both of the following actions: the Board may (i) require that Directors
surrender their outstanding Options in exchange for a payment by the Company, in
cash or Company Stock as determined by the Board, in an amount equal to the
amount by which the then Fair Market Value of the shares of Company Stock
subject to the Director's unexercised Options exceeds the Exercise Price of the
Options, or (ii) after giving Directors an opportunity to exercise their
outstanding Options, terminate any or all unexercised Options at such time as
the Board deems appropriate. Such surrender or termination shall take place as
of the date of the Change of Control or such other date as the Board may
specify.

               (4) Limitations. Notwithstanding anything in the Plan to the
contrary, in the event of a Change of Control, the Board shall not have the
right to take any actions described in the Plan (including without limitation
actions described in Subsection (c) above) that would make the Change of Control
ineligible for pooling of interests accounting treatment or that would make the
Change of Control ineligible for desired tax treatment if, in the absence of
such right, the Change of Control would qualify for such treatment and the
Company intends to use such treatment with respect to the Change of Control.

     13. Requirements for Issuance or Transfer of Shares

     No Company Stock shall be issued or transferred hereunder unless and until
all legal requirements applicable to the issuance or transfer of such Company
Stock have been complied with to the satisfaction of the Board. The Board shall
have the right to condition any Grant or deferral hereunder on the Director's
undertaking in writing to comply with such restrictions on his or her subsequent
disposition of such shares of Company Stock as the Board shall deem necessary or
advisable, and certificates representing such shares may be legended to reflect
any such restrictions. Certificates representing shares of Company Stock issued
or transferred under the Plan will be subject to such stop-transfer orders and
other restrictions as

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may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.

     14. Amendment and Termination of the Plan

               (1) Amendment. The Board may amend or terminate the Plan at any
time.

               (2) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date, unless the
Plan is terminated earlier by the Board or is extended by the Board.

               (3) Termination and Amendment of Outstanding Grants. A
termination or amendment of the Plan shall not materially impair the rights of
Directors under then outstanding Grants or deferrals unless the Director
consents or unless the Board acts under Section 20(a). The termination of the
Plan shall not impair the power and authority of the Board with respect to
outstanding Grants or deferrals. Whether or not the Plan has terminated, an
outstanding Grant or deferral may be terminated or amended under Section 20(a)
or may be amended by agreement of the Company and the Director consistent with
the Plan.

               (4) Governing Document. The Plan shall be the controlling
document. No other statements, representations, explanatory materials or
examples, oral or written, may amend the Plan in any manner. The Plan shall be
binding upon and enforceable against the Company and its successors and assigns.

     15. Funding of the Plan

               (1) This Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund with respect to the Plan or
to make any segregation of assets to assure the payment of any Grants or
deferrals under this Plan. The Directors shall in all respects be general
creditors of the Company with respect to amounts not yet paid or distributed
under the Plan.

               (2) The Company may establish a trust (the "Trust") and may make
contributions to the Trust from time to time to provide itself with a source of
funds to assist it in meeting its liabilities under this Plan. The assets held
in the Trust shall be subject to the claims of the Company's creditors in the
event the Company becomes insolvent. The Company may vote any shares of Company
Stock held by the Trust as directed by the Directors in proportion to their
deferred amounts which are payable in shares of Company Stock.

               (3) Grants, deferred amounts, interest equivalents and dividend
equivalents hereunder shall not be subject to the debts or liabilities of any
Director, nor shall

                                       12
<PAGE>   13

such amounts be subject to sale, transfer, assignment, pledge, levy, claim,
garnishment, attachment or encumbrance of any kind by the Director, whether
voluntary or involuntary.

     16. Rights of Participants

     Nothing in this Plan shall entitle any Director or other person to any
claim or right to be granted a Grant under this Plan. Neither this Plan nor any
action taken hereunder shall be construed as giving any individual any rights to
be retained by or in the service of the Company or any employment rights.

     17. No Fractional Shares

     No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Grant. The Board shall determine whether cash, other awards
or other property shall be issued or paid in lieu of such fractional shares or
whether such fractional shares or any rights thereto shall be forfeited or
otherwise eliminated.

     18. Headings

     Section headings are for reference only. In the event of a conflict between
a title and the content of a Section, the content of the Section shall control.

     19. Effective Date of the Plan

     The amended and restated Plan shall be effective as of April 18, 2000.

     20. Miscellaneous

               (1) Compliance with Law. The Plan, the exercise of Options and
the obligations of the Company to issue or transfer shares of Company Stock
under the Plan be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. It is the intent of the
Company that the Plan and all transactions under the Plan comply with all
applicable provisions of Rule 16b-3 or its successors under the Exchange Act. To
the extent that any legal requirement of section 16 of the Exchange Act as set
forth in the Plan ceases to be required under section 16 of the Exchange Act,
that Plan provision shall cease to apply. The Board may revoke any Grant or
deferral if it is contrary to law or modify a Grant or deferral to bring it into
compliance with any valid and mandatory government regulation. The Board may, in
its sole discretion, agree to limit its authority under this Section.

               (2) Governing Law. The validity, construction, interpretation and
effect of the Plan, Grant Instruments and election forms issued under the Plan
shall be governed and construed by and determined in accordance with the laws of
the State of Delaware, without giving effect to the conflict of laws provisions
thereof.

                                       13<PAGE>   1
                              EMPLOYMENT AGREEMENT

     This Employment Agreement ("Agreement") is entered into between IRI
International Corporation, a Delaware corporation having offices at 1000
Louisiana, Suite 5900, Houston, Texas 77002 ("Employer"), and Robert L.
Hargrave, ("Employee"), to be effective as of the Closing Date (as defined in
that certain Agreement of Merger of even date herewith among Employer, Arrow
Acquisition Corp. and National-Oilwell, Inc.

     Employer is desirous of continuing to employ Employee pursuant to the terms
and conditions and for the consideration set forth in this Agreement and of
terminating any prior employment agreement or arrangement, and Employee is
desirous of continuing in the employ of Employer pursuant to such terms and
conditions and for such consideration set forth in this Agreement and of
terminating any prior existing employment agreement or arrangement.

     NOW, THEREFORE, for and in consideration of the mutual promises, covenants,
and obligations contained herein, Employer and Employee agree as follows:

1.   EMPLOYMENT AND DUTIES:

     1.1. Employer agrees to continue to employ Employee, and Employee agrees to
be employed by Employer throughout the Term (as defined below) of this
Agreement, subject to the terms and conditions of this Agreement.

     1.2 Employee shall serve as Vice Chairman and Chief Financial Officer of
the Employer and shall report to the Chief Executive Officer of Employer.
Employee agrees to serve in the assigned position and to perform diligently and
to the best of Employee's abilities the duties and services appertaining to such
position as determined by Employer, as well as such additional or different
duties and services appropriate to such position which Employee from time to
time may be reasonably directed to perform by Employer; provided, that the
Employee shall not be forced to relocate anywhere other than the metropolitan
areas of Houston, Texas or any other city where Employee is located as of the
date of this Agreement. Employer will provide Employee with those resources
reasonably required for the performance of his duties hereunder. Employee shall
at all times comply with and be subject to such generally applicable policies
and procedures as Employer may establish from time to time.

     1.3. Employee shall, during the period of Employee's employment by
Employer, devote Employee's full business time, energy, and best efforts to the
business and affairs of Employer. Employee may not engage, directly or
indirectly, in any other business, investment, or activity that interferes with
Employee's performance of Employee's duties hereunder, is contrary to the
interests of Employer or any of its subsidiaries or affiliates or requires any
significant portion of Employee's business time; provided, however, that
Employee may have other business, personal, and civic interests which, from time
to time, require portions of his time but which (i) do not and will not
interfere with the performance of his duties hereunder and (ii) are not and will
not be competitive with the Relevant Business (as defined herein). Such other

<PAGE>   2

interests may include service on boards and governing bodies of charitable,
cultural, educational, and other non-profit organizations, and on the boards of
other enterprises that do not engage in any business in competition with the
Relevant Business.

     1.4. Employee acknowledges and agrees that Employee owes a fiduciary duty
of loyalty, fidelity and allegiance to act at all times in the best interests of
Employer, any of its subsidiaries or affiliates, and to do no act which would
injure the business, interests, or reputation of Employer or any of its
subsidiaries or affiliates. In keeping with these duties, Employee shall make
full disclosure to Employer of all business opportunities pertaining to
Employer's business and shall not appropriate for Employee's own benefit
business opportunities concerning the subject matter of the fiduciary
relationship.

2.   COMPENSATION AND BENEFITS:

     2.1. Employee's initial base salary under this Agreement shall be
($_________) per annum, and shall be paid in installments in accordance with
Employer's standard payroll practice. Employee's base salary may be increased
from time to time by Employer and, after any such change, Employee's new level
of base salary shall be Employee's base salary for purposes of this Agreement
until the effective date of any subsequent change.

     2.2. Employer and Employee may enter into separate written stock option
agreements pursuant to which Employee may be granted options to purchase shares
of common stock of Employer subject to the terms and conditions of any such
agreement. The number of shares and terms of the restrictions placed upon
exercising the options shall be as specified in any such agreement. Employee
acknowledges that his participation in any Employer stock option plans shall be
subject to the Board of Directors approval of his participation

     2.3. Employer's current management incentive program (or such other name as
it has adopted) and the Board of Directors approval of his participation shall
govern employee's participation, if any, in any bonus plans.

     2.4. While employed by Employer, Employee shall be allowed to participate,
on the same basis generally as other employees of Employer, in all general
employee benefit plans and programs, including improvements or modifications of
the same, which on the effective date or thereafter are made available by
Employer to all or substantially all of Employer's employees. Such benefits,
plans, and programs may include, without limitation, medical, health, and dental
care, life insurance, disability protection, and pension plans. Nothing in this
Agreement is to be construed or interpreted to provide greater rights,
participation, coverage, or benefits under such benefit plans or programs than
provided to similarly situated employees pursuant to the terms and conditions of
such benefit plans and programs.

     2.5. Employer shall not by reason of this Article 2 be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing, any
such incentive compensation or
<PAGE>   3

employee benefit program or plan, so long as such actions are similarly
applicable to covered employees generally. Moreover, unless specifically
provided for in a written plan document adopted by the Board of Directors of
Employer, none of the benefits or arrangements described in this Article 2 shall
be secured or funded in any way, and each shall instead constitute an unfunded
and unsecured promise to pay money in the future exclusively from the general
assets of Employer and its subsidiaries and affiliates.

     2.6 Employer may withhold from any compensation, benefits, or amounts
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.

3.   TERM OF THIS AGREEMENT, EFFECT OF EXPIRATION OF TERM, AND TERMINATION PRIOR
     TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION:

     3.1. The term of this Agreement shall be for one (1) year from the date
hereof, and shall be automatically extended for successive terms of one year
commencing on the first anniversary of the effective date of this Agreement, and
on each anniversary date thereafter, unless Employer or Employee gives written
notice to the other, not less than ninety (90) days prior to the next succeeding
anniversary date, that employment will not be renewed or continued hereunder
following such anniversary date.

     3.2. Notwithstanding any other provisions of this Agreement, Employer shall
have the right to terminate Employee's employment under this Agreement at any
time for any of the following reasons:

     (i)  For "cause" upon the determination by the Employer's Board of
          Directors that "cause" exists for the termination of the employment
          relationship. As used in this Section 3.2(i), the term "cause" shall
          mean (a) Employee has engaged in gross negligence, incompetence or
          willful misconduct in the performance of, or Employee's refusal to
          perform, the duties and services required of Employee pursuant to this
          Agreement; (b) Employee has committed any fraudulent or dishonest acts
          involving Employer or has been convicted of a crime involving moral
          turpitude; or (c) Employee's breach of any material provision of this
          Agreement or corporate code or policy. A decision as to whether
          "cause" exists for termination of the employment relationship with
          Employee shall be made by the Employer's Board of Directors. Employee,
          if he so requests, after reasonable notice that cause exists, shall be
          entitled to be heard before the Employer's Board of Directors. If
          Employee disagrees with the decision reached by the Employer's Board
          of Directors, any dispute will be limited to whether the Employer's
          Board of Directors reached its decision in good faith;

     (ii) for any other reason whatsoever, including termination without cause,
          in the sole discretion of Employer's Chief Executive Officer or
          Employer's Board of Directors;
<PAGE>   4

     (iii) upon Employee's death; or

     (iv) upon Employee becoming incapacitated by accident, sickness, or other
          circumstance which in the reasonable opinion of a qualified doctor
          approved by the Executive Committee or Employer's Board of Directors
          renders him mentally or physically incapable of performing the duties
          and services required of Employee, and which will continue in the
          reasonable opinion of such doctor for a period of not less than 180
          days.

The termination of Employee's employment shall constitute a "Termination for
Cause" if made pursuant to Section 3.2(i); the effect of such termination is
specified in Section 3.4. The termination of Employee's employment shall
constitute an "Involuntary Termination" if made pursuant to Section 3.2(ii); the
effect of such termination is specified in Section 3.5. The effect of the
employment relationship being terminated pursuant to Section 3.2(iii) as a
result of Employee's death is specified in Section 3.7. The effect of the
employment relationship being terminated pursuant to Section 3.2(iv) as a result
of the Employee becoming incapacitated is specified in Section 3.8.

     3.3. Notwithstanding any other provisions of this Agreement, Employee shall
have the right to terminate the employment relationship under this Agreement at
any time for any of the following reasons:

     (i)  a material breach by Employer of any material provision of this
          Agreement, including, without limitation, a material reduction in
          Employee's title, position, duties, responsibilities, and authority to
          such an extent that Employee is relegated to a position substantially
          inferior to that which he shall hold with Employer at the commencement
          of this Agreement, or elimination of Employee's job and him not being
          offered employment by Employer or a successor to all or a portion of
          Employer's business or assets, with (a) comparable responsibilities,
          (b) the same or greater base salary, (c) comparable value for his
          participation in any stock option plans and (d) comparable severance
          benefits, and then only if any such breach remains uncorrected for 30
          days following written notice of such breach by Employee to Employer's
          Board of Directors

     (ii) (x) Employer completes a merger or consolidation, a sale of all or
          substantially all of its assets of Employer, or the sale of all of its
          outstanding common stock, in each case in which all of the
          stockholders of Employer receive in such transaction cash and/or
          securities that are publicly traded, and (y) Employee's employment is
          terminated after such transaction by virtue of an Involuntary
          Termination within ninety (90) days after the completion of such
          transaction;

<PAGE>   5

     (iii) any corporation, person or group within the meaning of Sections
          13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as
          amended (the "Act"), becomes the beneficial owner (within the meaning
          of Rule 13d-3 under the Act) of voting securities of Employer
          representing more than fifty percent of the total votes eligible to be
          cast at any election of directors of Employer and Employee's
          employment is terminated after such event by virtue of Involuntary
          Termination within ninety (90) days after the occurrence of such
          event;

     (iv) the dissolution of Employer; or

     (v)  for any other reason whatsoever, in the sole discretion of Employee.

The termination of Employee's employment by Employee shall constitute an
"Involuntary Termination" if made pursuant to Section 3.3(i), 3.3(ii), 3.3(iii)
or 3.3(iv); the effect of such termination is specified in Section 3.5. The
termination of Employee's employment by Employee shall constitute a "Voluntary
Termination" if made pursuant to Sections 3.3(v); the effect of such termination
is specified in Section 3.4.

     3.4. Upon a "Voluntary Termination" of the employment relationship by
Employee or a termination of the employment relationship for "Cause" by
Employer, all future compensation to which Employee is entitled and future
benefits for which Employee is eligible shall cease and terminate as of the date
of termination. Employee shall be entitled to pro rata salary through the date
of such termination, but Employee shall not be entitled to any bonuses not yet
paid at the date of such termination.

     3.5. Upon an Involuntary Termination of the employment relationship by
either Employer or Employee pursuant to Sections 3.2(ii), 3.3(i), 3.3(ii),
3.3(iii) or 3.3 (iv), Employee shall be entitled, in consideration of Employee's
continuing obligations hereunder after such termination (including, without
limitation, Employee's non-competition obligations), to receive a lump sum
payment equal to 150% of Employee's base salary for the year in which
termination occurs. Employee's rights under this Section 3.5 are Employee's sole
and exclusive rights against Employer or its subsidiaries or affiliates, and
Employer's and its subsidiaries' and affiliates' sole and exclusive liability to
Employee under this Agreement, in contract, tort, or otherwise, for any
Involuntary Termination of the employment relationship, provided however,
Employee's rights and obligations with respect to Employee stock options, if
any, are governed the controlling option agreement.

     3.6. Employee covenants not to sue or lodge any claim, demand or cause of
action against Employer based on Involuntary Termination for any monies other
than those specified in Section 3.5. If Employee breaches this covenant,
Employer and its subsidiaries' and affiliates' shall be entitled to recover from
Employee all sums expended by Employer and its subsidiaries and affiliates
(including costs and attorneys fees) in connection with such suit, claim, demand
or cause of action. Employer and its subsidiaries and affiliates shall not be
entitled to offset any of the amounts specified in the immediately preceding
sentence against amounts otherwise owing by Employer and its subsidiaries and
affiliates to Employee prior to a final determination under
<PAGE>   6

the terms of the arbitration provisions of this Agreement that Employee has
breached the covenant contained in this Section 3.6.

     3.7. Upon termination of the employment relationship as a result of
Employee's death, Employee's heirs, administrators, or legatees shall be
entitled to Employee's pro rata salary through the date of such termination, but
Employee's heirs, administrators, or legatees shall not be entitled to any
individual bonuses not yet paid to Employee at the date of such termination.

     3.8. Upon termination of the employment relationship as a result of
Employee's incapacity, Employee shall be entitled to his pro rata salary for a
period of six months following the date of such termination, but Employee shall
not be entitled to any individual bonuses not yet paid to Employee at the date
of such termination.

     3.9. In all cases, the compensation and benefits payable to Employee under
this Agreement upon termination of the employment relationship shall be reduced
and offset by any amounts to which Employee may otherwise be entitled under any
and all severance plans or policies of Employer or its subsidiaries or
affiliates or any successor to all or a portion of the business or assets of
Employer; provided, however, that no sums received by Employee pursuant to
Employer's pension and retirement and thrift plan shall be considered a payment
requiring offset under this Section.

     3.10. Termination of the employment relationship shall not terminate those
obligations imposed by this Agreement which are continuing in nature, including,
without limitation, Employee's obligations of confidentiality, non-competition
and Employee's continuing obligations with respect to business opportunities
that had been entrusted to Employee by Employer during the employment
relationship.

     3.11. This Agreement governs the rights and obligations of Employer and
Employee with respect to Employee's salary and other perquisites of employment.
Except as otherwise provided in this Agreement, Employee's rights and
obligations with respect to any Employee stock options and other incentive
awards shall be governed by the applicable plans, awards, or other governing
documents.

4.   UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS:

     4.1. Employee shall at all times comply with United States laws applicable
to Employee's actions on behalf of Employer and its subsidiaries and affiliates,
including specifically, without limitation, the United States Foreign Corrupt
Practices Act, generally codified in 15 USC 78 (FCPA), as the FCPA may hereafter
be amended, and/or its successor statutes. If Employee pleads guilty to or nolo
contendre or admits civil or criminal liability under the FCPA or other
applicable United States law, or if a court finds that Employee has personal
civil or criminal liability under the FCPA or other applicable
<PAGE>   7

United States law, or if a court finds that Employee committed an action
resulting in Employer or any of its subsidiaries or affiliates having civil or
criminal liability or responsibility under the FCPA or other applicable United
States law, such action or finding shall constitute "cause" for termination
under this Agreement unless Employer's Board of Directors determines that the
actions found to be in violation of the FCPA or other applicable United States
law were taken in good faith and in compliance with all applicable policies of
Employer. Moreover, to the extent that Employer or its subsidiaries or
affiliates is found or held responsible for any civil or criminal fines or
sanctions of any type under the FCPA or other applicable United States law or
suffers other damages as a result of Employee's actions, Employee shall be
responsible for, and shall reimburse and pay to that entity an amount of money
equal to, such civil or criminal fines, sanctions or damages. The rights
afforded Employer or its subsidiaries and affiliates under this provision are in
addition to any and all rights and remedies otherwise afforded by the law.

5.   OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS:

     5.1. All information, ideas, concepts, improvements, discoveries, and
inventions, whether patentable or not, which are conceived, made, developed or
acquired by Employee, individually or in conjunction with others, during
Employee's employment by Employer (whether during business hours or otherwise
and whether on Employer's premises or otherwise) which relate to Employer's or
any of its subsidiaries' or affiliates' businesses, products or services
(including, without limitation, all such information relating to corporate
opportunities, research, financial and sales data, pricing and trading terms,
evaluations, opinions, interpretations, acquisition prospects, the identity of
customers or their requirements, the identity of key contacts within the
customer's organizations or within the organization of acquisition prospects, or
marketing and merchandising techniques, prospective names, and marks) shall be
disclosed to Employer and are and shall be the sole and exclusive property of
Employer. Upon termination of Employee's employment, for any reason, Employee
promptly shall deliver the same, and all copies thereof, to Employer.

     5.2. Employee will not, at any time during or after his employment by
Employer, make any unauthorized disclosure of any confidential business
information or trade secrets of Employer or its subsidiaries or affiliates, or
make any use thereof, except in the carrying out of his employment
responsibilities hereunder. Employer's subsidiaries and affiliates shall be
third party beneficiaries of Employee's obligations under this Section. As a
result of Employee's employment by Employer, Employee may also from time to time
have access to, or knowledge of, confidential business information or trade
secrets of third parties, such as customers, suppliers, partners, joint
ventures, and the like, of Employer and its subsidiaries and affiliates.
Employee also agrees to preserve and protect the confidentiality of such third
party confidential information and trade secrets to the same extent, and on the
same basis, as Employer's or any of their subsidiaries' or affiliates'
confidential business information and trade secrets.

     5.3. If, during Employee's employment by Employer, Employee creates any
original work of authorship fixed in any tangible medium of expression which is
the subject matter of

<PAGE>   8

copyright (such as videotapes, written presentations on acquisitions, computer
programs, E-mail, voice mail, electronic databases, drawings, maps,
architectural renditions, models, manuals, brochures, or the like) relating to
Employer's or any of its subsidiaries' or affiliates' businesses, products, or
services, whether such work is created solely by Employee or jointly with others
(whether during business hours or otherwise and whether on Employer's or any of
its subsidiaries' or affiliates' premises or otherwise), Employer shall be
deemed the author of such work if the work is prepared by Employee in the scope
of his employment; or, if the work is not prepared by Employee within the scope
of his employment but is specially ordered by Employer or any of its
subsidiaries or affiliates as a contribution to a collective work, as a part of
a motion picture or other audiovisual work, as a translation, as a supplementary
work, as a compilation, or as an instructional text, then the work shall be
considered to be work made for hire and Employer or any of its subsidiaries or
affiliates shall be the author of the work. If such work is neither prepared by
Employee within the scope of his employment nor a work specially ordered that is
deemed to be a work made for hire, then Employee hereby agrees to assign, and by
these presents does assign, to Employer all of Employee's worldwide right,
title, and interest in and to such work and all rights of copyright therein.

     5.4. Both during the period of Employee's employment by Employer and
thereafter, Employee shall assist Employer or any of its subsidiaries or
affiliates and their nominees, at any time, in the protection of Employer's or
any of its subsidiaries' or affiliates' worldwide right, title, and interest in
and to information, ideas, concepts, improvements, discoveries, and inventions,
and its copyrighted works, including without limitation, the execution of all
formal assignment documents requested by Employer or any of its subsidiaries or
affiliates or their nominees and the execution of all lawful oaths and
applications for applications for patents and registration of copyright in the
United States and foreign countries.

6.   POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS:

     6.1. As part of the consideration for the compensation and benefits to be
paid to Employee hereunder, and as an additional incentive for Employer to enter
into this Agreement, Employer and Employee agree to the non-competition
provisions of this Article 6. Employee agrees that during the period of
Employee's non-competition obligations hereunder, Employee will not, directly or
indirectly for Employee or for others, in any county within the State of Texas,
and to the extent allowed by law, in any geographic area or market where
Employer or any of its subsidiaries or affiliated companies are engaged in the
Relevant Business as of the date of termination of the employment relationship
or have during the previous twelve months engaged in the Relevant Business:

     (i)  engage in the business of the design, manufacture, sale, repair and
          distribution of products used in oil and gas drilling and production
          and any other business engaged in by the Employer immediately prior to
          the date of this Agreement (the "Relevant Business");

     (ii) render advice or services to, or otherwise assist, any other person,
          association, or entity who is engaged, directly or indirectly, in the
          Relevant Business; and
<PAGE>   9

     (iii) induce any employee of Employer or any of its subsidiaries or
          affiliates to terminate his or her employment with Employer or any of
          its subsidiaries or affiliates, or hire or assist in the hiring of any
          such employee by any person, association, or entity not affiliated
          with Employer or any of its subsidiaries or affiliates; provided,
          however, that this clause (iii) shall not apply to responses to
          general advertising not directed toward employees of Employer or any
          of its subsidiaries or affiliates.

These non-competition obligations shall apply during Employee's employment and
for a period of one (1) year after termination of employment. After termination
of employment these non-competition obligations shall apply only to businesses
having annual revenues in excess of $20 million dollars competitive with any
line of business conducted by Employer or any of its subsidiaries having annual
revenues in excess of $20 million dollars for the last fiscal year prior to the
time of termination. If Employer or any of its subsidiaries or affiliates
abandons a particular aspect of its business, that is, ceases such aspect of its
business with the intention to permanently refrain from such aspect of its
business, then this post-employment non-competition covenant shall not apply to
such former aspect of that business.

     6.2. Employee understands that the foregoing restrictions may limit his
ability to engage in certain businesses during the period provided for above,
but acknowledges that Employee will receive sufficiently high remuneration and
other benefits (e.g., the right to receive compensation under Section 3.5 for
the remainder of the Term upon Involuntary Termination) under this Agreement to
justify such restriction. Employee acknowledges that money damages would not be
sufficient remedy for any breach of this Article 6 by Employee, and Employer or
any of its subsidiaries or affiliates shall be entitled to enforce the
provisions of this Article 6 by terminating any payments then owing to Employee
under this Agreement and/or to specific performance and injunctive relief as
remedies for such breach or any threatened breach. Such remedies shall not be
deemed the exclusive remedies for a breach of this Article 6, but shall be in
addition to all remedies available at law or in equity to Employer or any of its
subsidiaries or affiliates, including, without limitation, the recovery of
damages from Employee and his agents involved in such breach.

     6.3. It is expressly understood and agreed that Employer and Employee
consider the restrictions contained in this Article 6 to be reasonable and
necessary to protect the proprietary information of Employer and its
subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions
are found by a court having jurisdiction to be unreasonable, or overly broad as
to geographic area or time, or otherwise unenforceable, the parties intend for
the restrictions therein set forth to be modified by such courts so as to be
reasonable and enforceable and, as so modified by the court, to be fully
enforced.

7.        EMPLOYEE CONFIDENTIALITY COMMITMENT:

     7.1 In the course of employment, Employer will provide Employee with a
great deal

<PAGE>   10

of proprietary, confidential, and restricted information, including Trade
Secrets (as herein defined), not known to those outside of Employer
(collectively, "Confidential Information"). "Trade Secrets" are any information,
including a formula, pattern, compilation, program, device, method, technique,
or process, that derives independent economic value, actual or potential, from
not being generally known to the public or to other persons who can obtain
economic value from its disclosure or use is the subject of efforts that are
reasonable under circumstances to maintain its secrecy.

     7.2 Employee shall not disclose or make use of Employer's Confidential
Information to anyone not employed by either Employer without written
authorization. Employee shall be bound by Employer's rules governing company
trade secret usage and will not use Employer's Trade Secrets outside the scope
of Employee's employment. Employee further shall not disclose or use Employer's
Confidential Information for any purpose for a period of one (1) year after
employment with Employer is terminated.

     7.3 Employee will not disclose any Confidential Information to persons
(including other employees of Employer unless such persons have executed a
declaration similar to this one); provided, however, that Employee may make such
disclosure if required by law. Employee will hold Confidential Information in
trust, and consistently exercise all reasonable precautions to ensure that it is
not disclosed to any unauthorized persons, or used in any unauthorized manner,
published, or otherwise disseminated, either during or subsequent to, employment
with Employer, and will immediately report to Employer any breach or violation
of the commitments made in this declaration, whether the breach or violation is
intentional or inadvertent.

     7.4 Employee acknowledges that the Confidential Information, particularly
regarding Trade Secrets, is material to the successful and profitable operation
of Employer, and if such Confidential Information is improperly divulged, it
will constitute an irreparable injury to Employer. Therefore, Employee consents
to the imposition of whatever injunctive or other relief Employer deems
necessary or appropriate in order to protect the Confidential Information.

     7.5 In the event Employee has any question as to whether information is to
be covered by the terms of this Section, Employee shall treat such information
as Confidential Information, and as such, falling under the terms and
obligations of this Section.

8.   MISCELLANEOUS:

     8.1. For purposes of this Agreement the terms "affiliates" or "affiliated"
means an entity who directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with Employer.

     8.2. Employer and Employee shall refrain, both during the employment
relationship and after the employment relationship terminates, from publishing
any oral or written statements about each other or any of Employer's
subsidiaries' or affiliates' directors, officers, employees,
<PAGE>   11

agents or representatives that are slanderous, libelous, or defamatory; or that
disclose private or confidential information about Employee's or Employer's or
any of its subsidiaries' or affiliates' business affairs, officers, employees,
agents, or representatives; or that constitute an intrusion into the seclusion
or private lives of Employee or Employer's or any of its subsidiaries' or
affiliates' directors, officers, employees, agents, or representatives; or that
give rise to unreasonable publicity about the private lives of Employee or
Employer's or any of its subsidiaries' or affiliates' officers, employees,
agents, or representatives; or that place Employee or Employer or any of its
subsidiaries or affiliates or their respective officers, employees, agents, or
representatives in a false light before the public; or that constitute a
misappropriation of the name or likeness of Employee or Employer or any of its
subsidiaries or affiliates or their respective officers, employees, agents, or
representatives. A violation or threatened violation of this prohibition may be
enjoined.

     8.3. For purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:

If to Employer to:

         IRI International Corporation
         1000 Louisiana, Suite 5900
         Houston, Texas  77002

         Attn:  Hushang Ansary, Chairman and Chief Executive Officer
         Fax:  (713) 659-3137

with a copy to:

         Jones, Day, Reavis & Pogue
         599 Lexington Avenue
         New York, NY  10022

         Attn:  Mr. William F. Henze II
         Fax:   (212) 755-7306

If to Employee, to the address reflected in Employer's records as his residence.

Either Employer or Employee may furnish a change of address to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.

     8.4. This Agreement shall be governed in all respects by the laws of the
State of Texas, excluding any conflict-of-law rule or principle that might refer
the construction of the Agreement to the laws of another State or country.

<PAGE>   12

     8.5. No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.

     8.6. It is a desire and intent of the parties that the terms, provisions,
covenants, and remedies contained in this Agreement shall be enforceable to the
fullest extent permitted by law. If any such term, provision, covenant, or
remedy of this Agreement or the application thereof to any person, association,
or entity or circumstances shall, to any extent, be construed to be invalid or
unenforceable in whole or in part, then such term, provision, covenant, or
remedy shall be construed in a manner so as to permit its enforceability under
the applicable law to the fullest extent permitted by law. In any case, the
remaining provisions of this Agreement or the application thereof to any person,
association, or entity or circumstances other than those to which they have been
held invalid or unenforceable, shall remain in full force and effect.

     8.7. Any and all claims, demands, cause of action, disputes, controversies
and other matters in question arising out of or relating to this Agreement, any
provision hereof, the alleged breach thereof, or in any way relating to the
subject matter of this Agreement, involving Employer, its subsidiaries and
affiliates and Employee (all of which are referred to herein as "Claims"), even
though some or all of such Claims allegedly are extra-contractual in nature,
whether such Claims sound in contract, tort or otherwise, at law or in equity,
under state or federal law, whether provided by statute or the common law, for
damages or any other relief, including equitable relief and specific
performance, shall be resolved and decided by binding arbitration pursuant to
the Federal Arbitration Act in accordance with the Commercial Arbitration Rules
then in effect with the American Arbitration Association. In the arbitration
proceeding the Employee shall select one arbitrator, the Employer shall select
one arbitrator and the two arbitrators so selected shall select a third
arbitrator. Should one party fail to select an arbitrator within five days after
notice of the appointment of an arbitrator by the other party or should the two
arbitrators selected by the Employee and the Employer fail to select an
arbitrator within ten days after the date of the appointment of the last of such
two arbitrators, any person sitting as a Judge of the United States District
Court of any District in Texas, upon application of the Employee or the
Employer, shall appoint an arbitrator to fill such space with the same force and
effect as though such arbitrator had been appointed in accordance with the
immediately preceding sentence of this Section 8.7. The decision of a majority
of the arbitrators shall be binding on the Employee, the Employer and its
subsidiaries and affiliates. The arbitration proceeding shall be conducted in
Houston, Texas. Judgment upon any award rendered in any such arbitration
proceeding may be entered by any federal or state court having jurisdiction.
This agreement to arbitrate shall be enforceable in either federal or state
court. The enforcement of this agreement to arbitrate and all procedural aspects
of this Agreement to arbitrate, including but not limited to, the construction
and interpretation of this agreement to arbitrate, the scope of the arbitrable
issues, allegations of waiver, delay or defenses to arbitrability, and the rules
governing the conduct of the arbitration, shall be governed by and construed
pursuant to the Federal Arbitration Act.

<PAGE>   13
     In deciding the substance of any such Claim, the Arbitrators shall apply
the substantive laws of the State of Texas; provided, however, that the
Arbitrators shall have no authority to award treble, exemplary or punitive type
damages under any circumstances regardless of whether such damages may be
available under Texas law, the parties hereby waiving their right, if any, to
recover treble, exemplary or punitive type damages in connection with any such
Claims.

     8.8. This Agreement shall be binding upon and inure to the benefit of
Employer, its subsidiaries and affiliates, and any other person, association, or
entity which may hereafter acquire or succeed to all or a portion of the
business or assets of Employer by any means whether direct or indirect, by
purchase, merger, consolidation, or otherwise. Employee's rights and obligations
under this Agreement are personal and such rights, benefits, and obligations of
Employee shall not be voluntarily or involuntarily assigned, alienated, or
transferred, whether by operation of law or otherwise, by Employee without the
prior written consent of Employer.

     8.9. Except as provided in (1) written company policies promulgated by
Employer dealing with issues such as securities trading, business ethics,
governmental affairs and political contributions, consulting fees, commissions
and other payments, compliance with law, investments and outside business
interests as officers and employees, reporting responsibilities, administrative
compliance, and the like, (2) the written benefits, plans, and programs
referenced in Sections 2.2, 2.3 and 2.4, or (3) any signed written agreements
contemporaneously or hereafter executed by Employer and Employee, this Agreement
constitutes the entire agreement of the parties with regard to such subject
matters, and contains all of the covenants, promises, representations,
warranties, and agreements between the parties with respect to such subject
matters and replaces and merges previous agreements and discussions pertaining
to the employment relationship between Employer and Employee. Specifically, but
not by way of limitation, any other employment agreement or arrangement in
existence as of the date hereof between Employer and Employee is hereby canceled
and Employee hereby irrevocably waives and renounces all of Employee's rights
and claims under any such agreement or arrangement.

     IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement
in multiple originals to be effective on the date first stated above.

EMPLOYEE
                                        International Corporation
                                        IRI

By: /s/ Robert L. Hargrave              By: /s/ Hushang Ansary
    ---------------------------             ----------------------------
                                        Title:  Chairman

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