As filed with the Securities and Exchange Commission on March 7, 2008

Registration No. 333-148885

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 1
to

 

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

National Oilwell Varco, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

Copies to:

 

 

Approximate date of commencement of proposed sale of the securities to the public:  As soon as practicable after the effective date of this Registration Statement.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

Subject To Completion, Dated March 7, 2008

 

PROPOSED MERGER — YOUR VOTE IS VERY IMPORTANT

 

 

Dear Stockholders of Grant Prideco, Inc.:

 

On December 16, 2007, National Oilwell Varco, Inc. and Grant Prideco, Inc. entered into an Agreement and Plan of Merger pursuant to which National Oilwell Varco will acquire all of the issued and outstanding shares of common stock of Grant Prideco. Pursuant to the merger agreement, Grant Prideco will merge with and into NOV Sub, Inc., a wholly owned subsidiary of National Oilwell Varco, with NOV Sub being the surviving company in the merger. As described in greater detail in this document, we believe the transaction will benefit the stockholders of both companies by creating a larger, more diversified company that is better positioned to compete in the global marketplace.

 

In the merger, each stockholder of Grant Prideco will receive 0.4498 of a share of common stock of National Oilwell Varco and $23.20 in cash for each share of common stock of Grant Prideco that the stockholder owns, plus cash in lieu of fractional shares. Stockholders of National Oilwell Varco will continue to own their existing shares, which will not be affected by the merger. Based on the number of outstanding shares of common stock of Grant Prideco on the record date and the number of outstanding shares of common stock of National Oilwell Varco on          , 2008, we anticipate that stockholders of Grant Prideco will own approximately 14% of the outstanding shares of common stock of National Oilwell Varco immediately following the merger. Shares of common stock of National Oilwell Varco and Grant Prideco are traded on the New York Stock Exchange under the trading symbols “NOV” and “GRP”, respectively. On          , 2008, the last trading day before the date of this proxy statement/prospectus, the common stock of National Oilwell Varco closed at $      per share as reported on the New York Stock Exchange. We do not expect that stockholders of Grant Prideco will recognize any gain or loss for U.S. federal income tax purposes as a result of the merger, except to the extent of the cash consideration they receive in the merger.

 

In order to consummate the merger, the merger agreement must be adopted by the stockholders of Grant Prideco. The obligations of National Oilwell Varco and Grant Prideco to complete the merger are also subject to the satisfaction or waiver of several other conditions to the merger, including receiving approvals from regulatory agencies. This proxy statement/prospectus contains detailed information about National Oilwell Varco and Grant Prideco and the proposed merger. We encourage you to read carefully this entire proxy statement/prospectus before voting, including the section entitled “Risk Factors” beginning on page 13 for a discussion of the risks relating to the merger. You can also obtain information about National Oilwell Varco and Grant Prideco from documents that have been filed with the Securities and Exchange Commission.

 

The board of directors of Grant Prideco has unanimously approved the merger agreement and determined that it is advisable and in the best interests of Grant Prideco and its stockholders. Accordingly, Grant Prideco’s board of directors recommends that stockholders of Grant Prideco vote “FOR” the proposal to adopt the merger agreement.

 

The proposal is being presented to the stockholders of Grant Prideco at a special meeting of stockholders. The date, time and place of the meeting is as follows:

 

          , 2008 at   a.m., Houston time at the          , Houston, Texas          .

 

Your vote is very important. The merger cannot be completed unless the stockholders of Grant Prideco vote to approve and adopt the merger agreement. Whether or not you plan to attend Grant Prideco’s special meeting, please take the time to vote your proxy (in writing, over the Internet or by telephone) by following the instructions on the enclosed proxy card. If your shares are held in an account with a bank, broker or other nominee, you must instruct your bank, broker or nominee how to vote those shares.

 

Sincerely,

 

Michael McShane

Chairman, President and Chief Executive Officer

GRANT PRIDECO, INC.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this proxy statement/prospectus or has passed upon the adequacy or accuracy of the disclosure in this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

 

This proxy statement/prospectus is dated           , 2008, and is first being mailed to stockholders of Grant Prideco on or about           , 2008.

 

GRANT PRIDECO, INC.
400 N. Sam Houston Parkway East, Suite 900
Houston, Texas 77060

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

 

Date:          , 2008

 

Time:      a.m. (Houston time)

 

Place: Houston, Texas 770          

 

To the Stockholders of Grant Prideco, Inc.:

 

We will hold a special meeting of stockholders of Grant Prideco, Inc., on          , 2008 at   a.m., Houston time, at          , in order to consider and to vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of December 16, 2007, among National Oilwell Varco, Inc., a Delaware corporation, NOV Sub, Inc., a Delaware corporation and a wholly owned subsidiary of National Oilwell Varco, Inc., and Grant Prideco, Inc., a Delaware corporation, pursuant to which Grant Prideco will be merged with and into NOV Sub, Inc. and each outstanding share of common stock of Grant Prideco will be converted into the right to receive 0.4498 of a share of common stock of National Oilwell Varco and $23.20 in cash, plus cash in lieu of fractional shares.

 

Only stockholders of record at the close of business on           , 2008 are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting. A complete list of stockholders of record of Grant Prideco entitled to vote at the special meeting will be available for the 10 days before the special meeting at our executive offices and principal place of business at 400 N. Sam Houston Parkway East, Suite 900, Houston, Texas 77060 for inspection by stockholders during ordinary business hours for any purpose germane to the special meeting. The list will also be available at the special meeting for examination by any stockholder of record present at the special meeting. Whether or not a quorum of stockholders is present at the special meeting, the presiding officer may choose to adjourn the meeting for any reason, including if he or she determines that it would be in the best interests of Grant Prideco to extend the period of time for solicitation of additional proxies, and the presiding officer may do so until he or she decides conclusively that the business to be conducted at the meeting is completed.

 

Your vote is very important.  All stockholders of Grant Prideco are cordially invited to attend the special meeting in person. However, to ensure your representation at the special meeting, we request that you return your signed proxy card in the postage-paid envelope provided, or using the internet or telephone, in each case following the procedures in the voting instructions provided to you, at your earliest convenience, whether or not you plan to attend the special meeting.

 

You may revoke your proxy at any time before it is voted at the special meeting in the manner described in the proxy statement/prospectus. Any stockholder of record present at the special meeting may revoke its proxy and vote personally at the meeting. If your shares are held in an account at a brokerage firm, bank or other nominee, you must instruct them on how to vote your shares and you must contact your broker, bank or nominee to revoke your instructions.

 

This proxy statement/prospectus describes the proposed merger in detail. We encourage you to read carefully the entire proxy statement/prospectus before voting your shares.

 

The board of directors of Grant Prideco unanimously recommends that stockholders of Grant Prideco vote “FOR” the adoption of the merger agreement.

 

BY ORDER OF THE BOARD OF DIRECTORS,

 

Philip A. Choyce

Vice President, General Counsel and Secretary

 

Houston, Texas

          , 2008

ADDITIONAL INFORMATION

 

This proxy statement/prospectus incorporates by reference important business and financial information about National Oilwell Varco and Grant Prideco from documents filed with the Securities and Exchange Commission that are not included in or delivered with this proxy statement/prospectus. These documents are available to stockholders of Grant Prideco without charge upon written or oral request, excluding any exhibits to those documents, unless the exhibit is specifically incorporated by reference as an exhibit in this proxy statement/prospectus. You can obtain any of the documents incorporated by reference in this proxy statement/prospectus by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers.

 

 

See “Where You Can Find More Information” beginning on page 94 for a detailed description of the documents incorporated by reference into this proxy statement/prospectus.

 

In order for you to receive timely delivery of the documents in advance of the meeting, National Oilwell Varco or Grant Prideco, as applicable, should receive your request by no later than          , 2008.

 

Information contained on the web sites of National Oilwell Varco and Grant Prideco is expressly not incorporated by reference into this proxy statement/prospectus.

 

TABLE OF CONTENTS

 

 

The following are brief answers to some questions that stockholders of Grant Prideco may have regarding the proposed merger being considered at the special meeting of Grant Prideco’s stockholders and regarding the special meeting. You are urged to read and consider carefully the remainder of this proxy statement/prospectus, including the Risk Factors beginning on page 13 and the attached Annexes, because the information in this section does not provide all of the information that might be important to you. Additional important information and descriptions of risks are also contained in the documents incorporated by reference in this proxy statement/prospectus.

 

Your vote is very important. You are encouraged to submit a proxy as soon as possible.

 

 

 

 

 

 

 

 

 

 

 

Innisfree M&A Incorporated

501 Madison Avenue

New York, NY 10022

(888) 750-5834 (toll-free from the U.S. and Canada)

00 800 7710 9970 (toll-free from the E.U.)

Banks and Brokers call collect: +1 (212) 750-5833 or +44 (0)20 7710 9960

 

You may also obtain additional information about National Oilwell Varco and Grant Prideco from documents filed with the Securities and Exchange Commission by following the instructions in the section entitled “Where You Can Find More Information”.

 

SUMMARY

	•	the adoption by stockholders of Grant Prideco of the merger agreement;
	•	the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976;
	•	the receipt of all authorizations, consents, orders and approvals from governmental entities, the failure of which to obtain is reasonably likely to have a material adverse effect on National Oilwell Varco or Grant Prideco;
	•	the declaration of effectiveness of the registration statement, of which this proxy statement/prospectus is a part, by the Securities and Exchange Commission and the absence of any stop order or proceedings seeking a stop order;
	•	the absence of any order, injunction, judgment, decree, statute, rule or regulation that prohibits the merger or makes the merger illegal;
	•	the approval for listing on the NYSE of the shares of common stock of National Oilwell Varco to be issued in the merger, subject to official notice of issuance;
	•	the absence of litigation by any governmental entity that has a reasonable likelihood of success seeking to interfere with the consummation of the merger or that otherwise is reasonably likely to have a material adverse effect on Grant Prideco or National Oilwell Varco;
	•	the continued accuracy of the representations and warranties of National Oilwell Varco and Grant Prideco contained in the merger agreement, except where the failure of a representation or warranty to be accurate would not reasonably be expected to have a material adverse effect on National Oilwell Varco or Grant Prideco;

	•	the performance by National Oilwell Varco and Grant Prideco in all material respects of their respective obligations under the merger agreement;
	•	the receipt of legal opinions from counsel for each of National Oilwell Varco and Grant Prideco to the effect that for federal income tax purposes the merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code; and
	•	the absence of any events that have had or are reasonably expected to have a material adverse effect on either National Oilwell Varco or Grant Prideco.

	•	by mutual written consent of National Oilwell Varco, Grant Prideco and NOV Sub;
	•	by either National Oilwell Varco or Grant Prideco, if the merger is not completed by August 31, 2008;
	•	by either National Oilwell Varco or Grant Prideco, if a court or other government entity issues a nonappealable final order, decree or ruling, or takes any other nonappealable final action, having the effect of permanently restraining, enjoining or otherwise prohibiting the merger;
	•	by either National Oilwell Varco or Grant Prideco, if the necessary approval of the stockholders of Grant Prideco is not obtained at the stockholder meeting at which the merger is voted upon;
	•	by National Oilwell Varco, if the board of directors of Grant Prideco withdraws or modifies its recommendation of the merger to the stockholders of Grant Prideco or recommends an acquisition transaction by a third party relating to Grant Prideco;
	•	by Grant Prideco, upon certain breaches by National Oilwell Varco or NOV Sub of its representations, warranties, covenants or agreements in the merger agreement;
	•	by National Oilwell Varco, upon certain breaches by Grant Prideco of its representations, warranties, covenants or agreements in the merger agreement; or
	•	by Grant Prideco, if, prior to the adoption of the merger agreement by stockholders of Grant Prideco, the board of directors of Grant Prideco receives a superior acquisition proposal from a third party and the board of directors of Grant Prideco concludes, following receipt of the advice of its outside legal counsel, that the failure to accept the superior acquisition proposal would be inconsistent with its fiduciary duties under applicable law.

		Year Ended December 31,
		2007				2006				2005(1)				2004				2003
		(In millions, except per share data)
Operation Data:
Revenue		$	9,789.0			$	7,025.8			$	4,644.5			$	2,318.1			$	2,004.9
Operating Profit			2,044.4				1,111.1				476.8				176.0				164.1
Income before Taxes and Minority Interest			2,028.9				1,049.2				430.0				138.9				121.8
Net Income		$	1,337.1			$	684.0			$	286.9			$	115.2			$	79.7
Net Income per Share(2):
Basic		$	3.77			$	1.95			$	0.92			$	0.67			$	0.47
Diluted		$	3.76			$	1.93			$	0.91			$	0.67			$	0.47
Balance Sheet Data (at end of period):
Total Assets		$	12,114.9			$	9,019.3			$	6,678.5			$	2,576.5			$	2,213.1
Long-term Debt, less Current Maturities			737.9				834.7				835.6				350.0				594.0
Stockholders’ Equity			6,661.4				5,023.5				4,194.2				1,270.2				1,059.2

(1)		Financial results of Varco International, Inc. (“Varco”) have been included in National Oilwell Varco’s consolidated financial statements beginning March 11, 2005, the date the Varco merger was completed and Varco’s common shares were exchanged for shares of National Oilwell Varco’s common stock. Financial information for prior periods and dates may not be comparable with 2005 due to the impact of this business combination on National Oilwell Varco’s financial position and results of operation. See Note 3 of the Notes to National Oilwell Varco’s Consolidated Financial Statements (incorporated herein by reference to National Oilwell Varco’s annual report on Form 10-K for the year ended December 31, 2006) for a description of the Varco merger and related adjusted financial information. Results for the year ended December 31, 2005 include integration costs associated with the Varco merger of $31.7 million and stock-based compensation costs of $15.6 million related to the amortization expense of options assumed in the Varco merger.

(2)		All periods reflect a two-for-one stock split effected as a stock dividend in September 2007.

		Year Ended December 31,
		2007(1)				2006(1)(2)				2005(3)				2004(4)				2003(5)
		(In millions, except per share data)
Operation Data:
Revenue		$	1,908.6			$	1,530.3			$	1,089.3			$	767.6			$	628.5
Operating Income			580.7				470.7				233.9				121.3				36.2
Income (Loss) from Continuing Operations			478.2				404.1				139.6				50.8				(3.4	)
Net Income			519.2				464.6				189.0				55.3				5.2
Income (Loss) Per Share:
Income (Loss) from Continuing Operations:
Basic		$	3.73			$	3.10			$	1.10			$	0.41			$	(0.03	)
Diluted			3.69				3.05				1.07				0.40				(0.03	)
Net Income:
Basic			4.05				3.56				1.49				0.45				0.04
Diluted			4.01				3.50				1.45				0.44				0.04
Balance Sheet Data (at end of period):
Total Assets		$	2,350.7			$	2,022.1			$	1,540.3			$	1,344.5			$	1,262.1
Long-Term Debt			176.1				237.2				217.5				377.8				426.9
Stockholders’ Equity			1,709.8				1,362.9				996.2				705.5				606.1

(1)		See discussion of other operating items related to 2007 and 2006 in Note 6 to Grant Prideco’s consolidated financial statements for the year ended December 31, 2007 that are incorporated by reference to Grant Prideco’s annual report on Form 10-K for the year ended December 31, 2007.

(2)		Includes a license and royalty payment in 2006 of $20.0 million that Grant Prideco received in exchange for the use of ReedHycalog’s patented technology for the shallow leaching of PDC cutters (see Note 5 to Grant Prideco’s consolidated financial statements for the year ended December 31, 2007 that are incorporated by reference to Grant Prideco’s annual report on Form 10-K for the year ended December 31, 2007).

(3)		Includes total refinancing charges of $57.1 million in 2005, which includes $35.4 million related to replacing Grant Prideco’s previous $190 million credit facility with a new $350 million credit facility, and an early redemption of Grant Prideco’s $200 million 95/8% Senior Notes due 2007 and $21.7 million related to the repurchase of substantially all of Grant Prideco’s 9% Senior Notes.

(4)		Includes $9.0 million of charges in 2004, which include $3.8 million related to the relocation of Grant Prideco’s Corporate offices, $2.0 million due to lease termination, severance and other exit costs related to the Drilling Products rationalization program and $3.2 million of severance costs related to the former Tubular Technology and Services organizational restructuring.

(5)		Includes $37.8 million of charges in 2003, which includes $24.9 million related to fixed asset write-downs, $6.4 million related to inventory reserves for exited product lines, $6.4 million related to asset impairments, $1.5 million related to stock-based compensation expense offset by a benefit of $1.4 million related to the settlement of a contingent liability.

		Year Ended
		December 31,
		2007
		(In millions, except
		per share data)
Statement of Operations Data:
Revenues		$	11,646.3
Operating Profit			2,433.9
Income from Continuing Operations			1,629.9
Income from Continuing Operations per Share:
Basic		$	3.97
Diluted		$	3.95
		December 31,
		2007
		(In millions)
Balance Sheet Data (at end of period):
Cash and Cash Equivalents		$	1,000.0
Total Assets			19,437.0
Long-Term Debt			2,408.4
Total Stockholders’ Equity			10,860.7

	•	historical per share data for National Oilwell Varco;
	•	pro forma per share data for National Oilwell Varco after giving effect to (i) the merger as a purchase of Grant Prideco and (ii) the sale of assets by Grant Prideco; and
	•	historical and equivalent pro forma per share data for Grant Prideco, as adjusted for the pending disposition of assets by Grant Prideco.

		At and for the Year Ended December 31, 2007
		National				Combined				Grant Prideco
		Oilwell Varco				Company								Equivalent
		Historical				Pro Forma(1)				Pro Forma(2)				Pro Forma(3)
Earnings from continuing operations per share:
Basic		$	3.77			$	3.97			$	3.73			$	1.79
Diluted		$	3.76			$	3.95			$	3.69			$	1.78
Cash dividends per share		$	0.00			$	0.00			$	0.00			$	0.00
Book value per share		$	18.84			$	26.49			$	16.60			$	11.92	(4)

(1)		The combined company pro forma data includes the effect of the merger and the pending disposition of assets by Grant Prideco on the basis described in the notes to the unaudited pro forma condensed consolidated financial statements beginning on page 79.

(2)		Grant Prideco Unaudited Pro Forma Condensed Consolidated Balance Sheet represents historical Grant Prideco, as adjusted to reflect the pending disposition of certain Grant Prideco tubular businesses as if it occurred on December 31, 2007.

(3)		The equivalent pro forma information for Grant Prideco was calculated by multiplying the corresponding information for the combined company pro forma by 0.4498. The exchange ratio does not include the $23.20 cash portion of the merger consideration. This information shows how each share of common stock of Grant Prideco would have participated in the corresponding earnings, dividends and book values of National Oilwell Varco had the companies been combined for the periods presented.

(4)		Grant Prideco equivalent pro forma book value per share is calculated by multiplying the combined company pro forma book value per share by an assumed exchange ratio of 0.4498 shares of National Oilwell Varco common stock per share of Grant Prideco common stock.

		Shares of Common Stock of								Shares of Common Stock of
		National Oilwell Varco(1)								Grant Prideco
		High				Low				High				Low
2005
First Quarter		$	25.25			$	16.54			$	25.50			$	17.83
Second Quarter		$	24.61			$	19.63			$	27.47			$	21.41
Third Quarter		$	34.16			$	23.10			$	41.49			$	26.58
Fourth Quarter		$	33.70			$	26.57			$	47.82			$	32.38
2006
First Quarter		$	38.80			$	27.89			$	51.47			$	35.67
Second Quarter		$	36.49			$	28.16			$	55.43			$	39.70
Third Quarter		$	34.32			$	27.43			$	48.33			$	34.32
Fourth Quarter		$	34.30			$	25.81			$	45.32			$	33.11
2007
First Quarter		$	39.64			$	26.87			$	50.71			$	35.61
Second Quarter		$	54.78			$	38.27			$	59.99			$	48.00
Third Quarter		$	75.04			$	48.90			$	59.50			$	48.38
Fourth Quarter		$	82.00			$	61.05			$	56.94			$	44.67
2008
First Quarter (through March 6, 2008)		$	77.84			$	52.51			$	57.54			$	46.20

(1)		All periods reflect the two-for-one stock split effected as a 100% stock dividend paid on September 28, 2007 to National Oilwell Varco’s stockholders of record as of September 7, 2007.

										Equivalent
										Value per Share of
		Common Stock of				Common Stock of				Common Stock of
Date		National Oilwell Varco				Grant Prideco				Grant Prideco
December 14, 2007		$	77.37			$	47.46			$	58.00
, 2008		$				$				$

 

In addition to the other information included in this proxy statement/prospectus, including the matters addressed in “Cautionary Statement Regarding Forward-Looking Statements”, you should carefully consider the following risks before deciding whether to vote for adoption of the merger agreement. In addition, you should read and consider the risks associated with each of the businesses of National Oilwell Varco and Grant Prideco because these risks will also affect the combined company. These risks can be found in National Oilwell Varco’s and Grant Prideco’s respective Annual Reports on Form 10-K for the year ended December 31, 2007, which reports are filed with the SEC and incorporated by reference into this proxy statement/prospectus.

 

Risks Related to the Merger and the Related Transactions

 

We may not be able to successfully integrate the operations of the two companies and realize the anticipated benefits of the merger.

 

Achieving the benefits we expect from the merger will depend in large part on integrating our technology, operations and personnel in a timely and efficient manner to minimize the impact on customers, employees and management. Integration of the two previously independent companies will be a complex, time consuming and costly process. Failure to timely and successfully integrate these companies may have a material adverse effect on the combined company’s business, financial condition and results of operations. The difficulties of combining the companies will present challenges to the combined company’s management, including:

 

 

The combined company will also be exposed to other risks that are commonly associated with transactions similar to the merger, such as unanticipated liabilities and costs, some of which may be material, and diversion of management’s attention. As a result, we cannot assure you that we will realize any of the anticipated benefits of the merger, including anticipated cost savings, and failure to do so could adversely affect the business of the combined company after the merger.

 

The costs of the merger could adversely affect combined financial results.

 

We expect the total merger-related costs, including executive severance but exclusive of other employee benefit costs, to be approximately $110 million, consisting primarily of executive severance, financial advisory, legal and accounting fees, financial printing costs and other related charges. The amount of these expenses is a preliminary estimate and is subject to change. In addition, the combined company will incur certain integration costs, including, but not limited to, costs associated with consolidating administrative and operational functions and the closure of certain facilities. If the benefits of the merger do not exceed the costs associated with the merger, including any dilution to the stockholders of both companies resulting from the issuance of shares in connection with the merger, the combined company’s financial results, including earnings per share, could be adversely affected.

The exchange ratio for the common stock of National Oilwell Varco to be received in the merger is fixed and will not be adjusted in the event of any change in stock price.

 

Upon completion of the merger, each share of common stock of Grant Prideco will be exchanged for 0.4498 of a share of common stock of National Oilwell Varco and $23.20 in cash. The share conversion number is fixed and will not be adjusted as a result of any change in the price of the common stocks of either National Oilwell Varco or Grant Prideco. In addition, neither National Oilwell Varco nor Grant Prideco may terminate the merger agreement solely because of changes in the market price of either company’s common stock. Therefore, if the value of the common stock of National Oilwell Varco declines prior to the completion of the merger, the value of the merger consideration to be received by stockholders of Grant Prideco will decline. The share prices of the common stocks of both National Oilwell Varco and Grant Prideco are by nature subject to the general price fluctuations in the market for publicly traded equity securities and have experienced significant volatility, and we cannot predict or give any assurances as to the market prices of the respective common stocks of National Oilwell Varco and Grant Prideco on the date of the special meeting of Grant Prideco’s stockholders, the date of the completion of the merger or at any time after the completion of the merger. Stockholders of Grant Prideco are encouraged to obtain current market price quotations for the common stocks of National Oilwell Varco and Grant Prideco before voting their shares at the special meeting.

 

Existing stockholders of Grant Prideco will represent a minority of the stockholders of National Oilwell Varco after the merger.

 

Based on the number of outstanding shares of the common stock of Grant Prideco as of December 17, 2007, National Oilwell Varco will issue to stockholders of Grant Prideco approximately 56.3 million shares of common stock of National Oilwell Varco in the merger. As a result, the current stockholders of Grant Prideco and National Oilwell Varco will hold approximately 14% and 86%, respectively, of the common stock outstanding of National Oilwell Varco after the completion of the merger, based on the common stock of National Oilwell Varco and Grant Prideco outstanding as of December 17, 2007. As a result, Grant Prideco’s stockholders, as a general matter, will have significantly less influence over the management and policies of National Oilwell Varco than they currently exercise over the management and policies of Grant Prideco.

 

Failure to complete the merger or delays in completing the merger could negatively impact National Oilwell Varco’s and Grant Prideco’s stock prices and future business and operations.

 

If the merger is not completed for any reason, National Oilwell Varco and Grant Prideco may be subject to a number of material risks, including the following:

 

 

Whether or not the merger is completed, the pendency of the transaction could cause disruptions in the businesses of National Oilwell Varco and Grant Prideco, which could have an adverse effect on their businesses and financial results.

 

In response to the announcement of the merger, National Oilwell Varco’s or Grant Prideco’s customers may delay or defer purchasing decisions. Any delay or deferral of purchasing decisions by customers could negatively affect the business and results of operations of National Oilwell Varco and Grant Prideco, regardless of whether the

merger is ultimately completed. Similarly, current and prospective employees of National Oilwell Varco and Grant Prideco may experience uncertainty about their future roles with the companies until after the merger is completed or if the merger is not completed. This may adversely affect the ability of National Oilwell Varco and Grant Prideco to attract and retain key management, marketing and technical personnel. In addition, the diversion of the attention of the companies’ respective management teams away from the day-to-day operations during the pendency of the transaction could have an adverse effect on the financial condition and operating results of either company.

 

The merger agreement limits Grant Prideco’s ability to pursue alternatives to the merger, and in certain instances requires payment of a termination fee, which could deter a third party from proposing an alternative transaction to the merger.

 

While the merger agreement is in effect, subject to certain limited exceptions, Grant Prideco is prohibited from soliciting, initiating, encouraging or entering into any extraordinary transactions, such as a merger, sale of assets or other business combination, with any third party. As a result of these limitations, Grant Prideco may lose opportunities to enter into a more favorable transaction. If the merger is terminated and the board of directors of Grant Prideco determines to seek another merger or business combination, Grant Prideco cannot assure you that it will be able to find a transaction providing as much stockholder value as this merger.

 

See the section entitled “The Merger Agreement — No Solicitation” beginning on page 59.

 

Moreover, under specified circumstances, Grant Prideco could be required to pay National Oilwell Varco a termination fee of $185.0 million in connection with the termination of the merger agreement. See the section entitled “The Merger Agreement — Termination; Termination Fees and Expenses” beginning on page 64. This termination fee could deter a third party from proposing an alternative to the merger.

 

National Oilwell Varco and Grant Prideco could be required to divest, hold separate or license assets to complete the merger.

 

We cannot complete the merger until the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, or HSR, or any other applicable waiting period has expired or is otherwise terminated. On February 6, 2008, National Oilwell Varco and Grant Prideco refiled antitrust documents relating to the merger with the FTC and the DOJ. On March 6, 2008, the parties received early termination of the waiting period from the FTC and the DOJ. National Oilwell Varco and Grant Prideco have also made, or are in the process of making, the required filings relating to the merger with various government authorities in a number of foreign jurisdictions in which one or both companies have sufficient market presence to require filings. We continue to work with these various governmental agencies to obtain regulatory clearance to complete the merger. As a prerequisite to obtaining the expiration or termination of this waiting period, or to avoid an injunction by a governmental entity, whether foreign or domestic, National Oilwell Varco, Grant Prideco or both companies may be required to divest, hold separate or license certain assets. Although each of National Oilwell Varco and Grant Prideco have agreed to use their reasonable best efforts to obtain the expiration or termination of this waiting period and to obtain any other governmental clearance or approvals under federal, state or foreign antitrust laws, neither National Oilwell Varco nor Grant Prideco is required to divest, hold separate or license any of their respective businesses, product lines or assets, take or agree to take any other action or agree to any limitation, that would reasonably be expected to have a material adverse effect on the financial condition, results of operations or prospects of National Oilwell Varco or Grant Prideco or that is not conditioned upon completion of the merger.

 

Divestitures or licensing of assets can be time consuming and may delay or prevent completion of the proposed merger. Because there may be a limited number of potential buyers or licensees for the assets subject to divestiture or license and because potential buyers will likely be aware of the circumstances of the sale or license, these assets could be sold or licensed at prices or rates lower than their fair market values or the prices National Oilwell Varco or Grant Prideco paid for these assets. Asset divestitures or licenses of National Oilwell Varco’s or Grant Prideco’s assets could also significantly reduce the value of the combined company, eliminate potential cost savings opportunities or lessen the anticipated benefits of the merger.

 

Some of the directors and executive officers of Grant Prideco have interests that differ in several respects from those of Grant Prideco’s stockholders.

 

In considering the recommendation of the board of directors of Grant Prideco to adopt the merger agreement, the stockholders of Grant Prideco should consider that some of their directors and executive officers have interests that differ from, or are in addition to, their interests as stockholders of Grant Prideco generally. These interests include the expectation of being appointed an officer of the combined company, the benefits that directors and officers may receive in connection with any acceleration of the vesting of their outstanding equity awards as a result of the merger or their terminations of service, and the potential payments that certain officers of Grant Prideco may receive as a result of the merger. As a result, these officers and directors may be more likely to vote to adopt the merger agreement than if they did not hold these interests. You should consider whether these interests may have influenced these officers and directors to support or recommend the merger. For a detailed discussion of the interests of the directors and executive officers of Grant Prideco, please read “The Merger — Interests of Certain Persons in the Merger”.

 

If National Oilwell Varco or Grant Prideco fails to obtain all required consents and waivers, third parties may terminate or alter existing contracts.

 

Certain agreements with suppliers, customers, licensors or other business partners may require National Oilwell Varco or Grant Prideco to obtain the approval or waiver of these other parties in connection with the merger. National Oilwell Varco and Grant Prideco have agreed to use reasonable efforts to secure the necessary approvals and waivers. However, we cannot assure you that National Oilwell Varco and/or Grant Prideco will be able to obtain all of the necessary approvals and waivers, and failure to do so could have a material adverse effect on the business of the combined company after the merger.

 

Certain litigation against Grant Prideco, its directors and National Oilwell Varco has been instituted. This litigation could delay or prevent the merger. Similar litigation could also be instituted in the future.

 

As of the date of this proxy statement/prospectus, National Oilwell Varco and Grant Prideco are aware of five lawsuits that have been filed in connection with the proposed merger. All five cases were filed in the district court of Harris County, Texas.

 

The plaintiffs in these lawsuits are stockholders of Grant Prideco. They allege, among other things, breaches of fiduciary duties of the directors of Grant Prideco owed to the stockholders of Grant Prideco in connection with the proposed merger. In one of the complaints, the plaintiffs also allege aiding and abetting by National Oilwell Varco of the alleged breaches. The plaintiffs seek to enjoin the merger and ask for other legal and equitable relief. National Oilwell Varco and Grant Prideco believe that these lawsuits are without merit and intend to defend against them. This litigation could, however, delay or prevent the proposed merger. It is also possible that additional suits seeking to enjoin the proposed merger could be filed. Any such suit could delay or prevent the proposed merger.

 

Risks Related to the Combined Company’s Business

 

National Oilwell Varco and Grant Prideco are dependent upon the oil and gas industry, which may be volatile.

 

The oil and gas industry in which National Oilwell Varco and Grant Prideco participate historically has experienced significant volatility. Demand for our services and products depends primarily upon the number of oil rigs in operation, the number of oil and gas wells being drilled, the depth and drilling conditions of these wells, the volume of production, the number of well completions, capital expenditures of other oilfield service companies and the level of workover activity. Drilling and workover activity can fluctuate significantly in a short period of time, particularly in the United States and Canada. The willingness of oil and gas operators to make capital expenditures to explore for and produce oil and natural gas and the willingness of oilfield service companies to invest in capital equipment will continue to be influenced by numerous factors over which we have no control, including:

 

 

 

 

 

If there is a significant reduction in demand for drilling services, in cash flows of drilling contractors, well servicing companies or production companies or in drilling or well servicing rig utilization rates, then demand for the products and services of the combined company after the merger will decline, and could lead to cancellations of orders placed with the combined company and a reduction of its backlog.

 

Volatile oil and gas prices affect demand for our products.

 

Oil and gas prices have been volatile since 1990. In general, oil prices approximated $18-22 per barrel from 1991 through 1997, experienced a decline into the low teens in 1998 and 1999, and have generally ranged between $25-100 per barrel since 2000. Spot gas prices generally ranged between $1.80-2.60 per mmbtu of gas from 1991 through 1999, then experienced severe spikes into the $10 range in 2001 and 2003. Absent occasional spikes and dips due to imbalances in supply and demand, prices have generally ranged between $5.00-10.00 per mmbtu during the last two years.

 

Expectations for future oil and gas prices cause many shifts in the strategies and expenditure levels of oil and gas companies and drilling contractors, particularly with respect to decisions to purchase major capital equipment of the type we manufacture. Oil and gas prices, which are determined by the marketplace, may fall below a range that is acceptable to our customers, which could reduce demand for our products.

 

Competition in our industry could ultimately lead to lower revenues and earnings.

 

The oilfield products and services industry is highly competitive. National Oilwell Varco and Grant Prideco both compete with regional, national and foreign competitors in each of their current major product lines. These competitors may have greater financial, technical, manufacturing and marketing resources than National Oilwell Varco or Grant Prideco, even on a combined basis, and may be in a better competitive position. The following competitive actions can each affect our revenues and earnings:

 

 

In addition, certain foreign jurisdictions and government-owned petroleum companies located in some of the countries in which National Oilwell Varco and Grant Prideco operate have adopted policies or regulations that may give local nationals in these countries competitive advantages over National Oilwell Varco and Grant Prideco and that could impact the operations of the combined company after the merger.

 

We cannot assure you that the competitive environment in which National Oilwell Varco and Grant Prideco operate will not have an adverse effect on the combined company after the merger. Competition in our industry could lead to lower revenues and earnings.

 

Increases in the prices of our raw materials could affect our results of operations.

 

The combined company of National Oilwell Varco and Grant Prideco is likely to use large amounts of steel and alloy tubulars and bars in the manufacturing of its drilling products. The price of steel and these alloy raw materials has a significant impact on the cost of production. If the combined company is unable to pass future raw material

price increases on to customers, its margins and results of operations, stockholders’ equity, cash flows and financial condition could be adversely affected.

 

Steel and alloy prices have increased significantly during the past several years, caused primarily by significant increases in the prices paid by suppliers for scrap and coke and alloys utilized in their operations.

 

In addition, rising alloy and steel costs also have the potential to delay increases in demand for Grant Prideco’s drill stem components. As drill stem products are not consumables, Grant Prideco’s customers could elect to defer purchases until such time as they determine that steel prices have stabilized or returned to more normalized conditions. Grant Prideco’s forward-looking statements do not assume that there will be any reduced demand for drill stem products as a result of increased prices caused by the current shortages being experienced in the worldwide steel and alloy markets. Reduced demand could adversely affect the results of operations, stockholders’ equity, cash flows and financial condition of the combined company.

 

Interruptions in the supply of raw materials could materially adversely affect our results of operations.

 

The combined company of National Oilwell Varco and Grant Prideco will rely on various suppliers to supply the components utilized to manufacture drilling products. The availability of the raw materials is not only a function of the availability of steel, but also the alloy materials utilized by suppliers in manufacturing component parts that meet the combined company’s proprietary requirements. If material disruptions to the availability of raw materials occurs, it could adversely affect the results of operations, stockholders’ equity, cash flows and financial condition of the combined company, as well as its ability to increase manufacturing operations to help meet its revenue targets.

 

In this regard, Grant Prideco is party to a green-tube supply agreement with voestalpine Tubulars GmbH & Co. KG, or VAT, a company in which Grant Prideco beneficially owns a 50.01% interest, the term of which expires March 31, 2009. If the combined company is unsuccessful in renewing this agreement with VAT in the future, the pricing terms of the existing agreement result in a material increase in the combined company’s green-tube costs or the combined company or VAT fail to perform under the terms of the contract, it could have an adverse affect on the company’s results of operations, stockholders’ equity, cash flows and financial condition and the company’s ability to increase its manufacturing operations to meet the increased revenues upon which its forward-looking statements are based.

 

National Oilwell Varco and Grant Prideco have each aggressively expanded their businesses, and the combined company intends to maintain an aggressive growth strategy after the merger.

 

National Oilwell Varco and Grant Prideco have aggressively expanded and grown their businesses during the past several years, primarily through acquisitions. We anticipate that National Oilwell Varco will continue to pursue an aggressive growth strategy following the merger; however, we cannot assure you that attractive acquisitions will be available after the merger, at reasonable prices or at all. In addition, we cannot assure you that we will successfully integrate the operations and assets of any acquired business with our own or that our management will be able to manage effectively the increased size of the combined company or operate any new lines of business. Any inability on the part of management to integrate and manage acquired businesses and their assumed liabilities could adversely affect our business and financial performance. In addition, after the merger, we may need to incur substantial indebtedness to finance future acquisitions. We cannot assure you that we will be able to obtain this financing on terms acceptable to us or at all. Future acquisitions may result in increased depreciation and amortization expense, increased interest expense, increased financial leverage or decreased operating income for the combined company, any of which could cause our business to suffer.

 

Both National Oilwell Varco’s and Grant Prideco’s operating results have fluctuated during recent years and these fluctuations may continue for the combined company after the merger.

 

Both National Oilwell Varco and Grant Prideco have experienced in the past, and the combined company may experience in the future, fluctuations in quarterly operating results. We cannot assure you that the combined company will realize expected earnings growth or that earnings in any particular quarter will not fall short of either a

prior fiscal quarter or investors’ expectations. The following factors, in addition to others not listed, may affect the combined company’s quarterly operating results in the future:

 

 

In connection with their business operations, National Oilwell Varco and Grant Prideco could be subject to substantial liability claims that adversely affect their results of operations.

 

Both National Oilwell Varco and Grant Prideco manufacture complex products and equipment and the failure of these products and equipment to operate properly or to meet specifications may greatly increase customers’ costs of drilling a well. In addition, many of these products are used in hazardous drilling and production applications where an accident or product failure can cause personal injury or loss of life, damage to property, equipment or the environment, regulatory investigations and penalties, and the suspension of the end-user’s operations. If National Oilwell Varco’s or Grant Prideco’s products or services fail to meet specifications or are involved in accidents or failures, the combined company could face warranty, contract or other litigation claims for which we may be held responsible and our reputation for providing quality products may suffer.

 

The insurance carried by National Oilwell Varco and Grant Prideco may not be adequate in risk coverage or policy limits to cover all losses or liabilities that we may incur or for which we may be responsible. Moreover, in the future we may not be able to maintain insurance at levels of risk coverage or policy limits that we deem adequate or at premiums that are reasonable for us, particularly in the recent environment of significant insurance premium increases. Further, any claims made under our policies will likely cause our premiums to increase.

 

Any future damages deemed to be caused by the products or services of National Oilwell Varco or Grant Prideco that are assessed against us and that are not covered by insurance, or that are in excess of policy limits or subject to substantial deductibles, could have a material adverse effect on our results of operations and financial condition. Litigation and claims for which we are not insured can occur, including employee claims, intellectual property claims, breach of contract claims and warranty claims. Any forward-looking statements of National Oilwell Varco and Grant Prideco assume that such uninsured claims or issues will not occur. If the combined company accounts for warranty reserves on a specific identification basis, a significant unexpected warranty issue during a particular quarter or year could cause a material reduction in the results of operations, stockholders’ equity, cash flows and financial condition of the combined company in the quarter or year in which the reserve for such warranty is made.

 

The results of operations for National Oilwell Varco or Grant Prideco could be adversely affected by actions under U.S. trade laws and new foreign entrants into U.S. markets.

 

Although National Oilwell Varco and Grant Prideco are U.S.-based manufacturing companies, each owns and operates international manufacturing operations that support the U.S.-based businesses. If actions under U.S. trade laws were instituted that limited access to these products, the combined company’s ability to meet customer specifications and delivery requirements would be reduced. Any adverse effects on the ability to import products from foreign subsidiaries could have a material adverse effect on the results of operations, stockholders’ equity, cash flows and financial condition of the combined company.

There are risks associated with National Oilwell Varco’s and Grant Prideco’s presence in international markets, including political or economic instability and currency restrictions.

 

Approximately 59% of National Oilwell Varco’s revenues and 42% of Grant Prideco’s revenues in 2007 were derived from operations outside the United States (based on revenue destination for National Oilwell Varco and based on origination for Grant Prideco). National Oilwell Varco’s foreign operations include significant operations in Canada, Europe, the Middle East, Africa, Southeast Asia, South America and other international markets. Grant Prideco has significant foreign operations in Europe, Canada, Latin America, Southeast Asia and other international markets. Both companies’ revenues and operations are subject to the risks normally associated with conducting business in foreign countries, including uncertain political and economic environments, which may limit or disrupt markets, restrict the movement of funds or result in the deprivation of contract rights or the taking of property without fair compensation. Government-owned petroleum companies located in some of the countries in which National Oilwell Varco or Grant Prideco operates have adopted policies, or are subject to governmental policies, giving preference to the purchase of goods and services from companies that are majority-owned by local nationals. As a result of these policies, National Oilwell Varco and Grant Prideco rely on joint ventures, license arrangements and other business combinations with local nationals in these countries. In addition, political considerations may disrupt the commercial relationships between National Oilwell Varco and Grant Prideco and government-owned petroleum companies.

 

Under broad powers granted to the President of Venezuela by the National Assembly on January 31, 2007, the Venezuelan government began asserting closer government control over its oil and gas reserves. National Oilwell Varco generated revenue of $69.6 million from its Venezuelan operations in 2007, and as of December 31, 2007 had a net equity investment in Venezuela of $53.7 million. These political events could adversely affect the combined company’s operations in Venezuela and financial results in the future.

 

The results of our operations are subject to market risk from changes in foreign currency exchange rates.

 

National Oilwell Varco and Grant Prideco earn revenues, pay expenses and incur liabilities in countries using currencies other than the U.S. dollar, including the Canadian dollar, the Euro, the British Pound and the Norwegian Kroner. Approximately 59% of National Oilwell Varco’s 2007 revenue and 42% of Grant Prideco’s 2007 revenue was derived from sales outside the United States. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues, income and expenses into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Thus, increases or decreases in the value of the U.S. dollar against other currencies in which our operations are conducted will affect our revenues and operating income. Because of the geographic diversity of our operations, weaknesses in some currencies might be offset by strengths in others over time. We also use derivative financial instruments to further reduce our net exposure to currency exchange fluctuations. National Oilwell Varco had forward contracts with a notional amount of $4,104.1 million (with a fair value of $103.0 million) as of December 31, 2007 to reduce the impact of foreign currency exchange rate movements, but is also subject to risks that the counterparties to these contracts fail to meet the terms of National Oilwell Varco’s foreign currency contracts. We cannot assure you that fluctuations in foreign currency exchange rates would not affect our financial results.

 

An impairment of goodwill or indefinite-lived intangibles could reduce the combined company’s earnings.

 

National Oilwell Varco had recorded approximately $2,445.1 million of goodwill on its consolidated balance sheet as of December 31, 2007. National Oilwell Varco currently expects to record approximately $2,670.7 million of goodwill and $752.0 million for the Reed Hycalog and Grant Prideco tradenames which are considered indefinite lived upon completion of the merger, but that estimate is subject to change based upon the final number of shares of common stock of National Oilwell Varco issued at the time of closing of the merger and the final valuation of the identified assets and liabilities of Grant Prideco. Consequently, following the merger, we expect that approximately $5,867.8 million, representing approximately 30.2% of the combined company’s consolidated assets on a pro forma as adjusted basis, may be recorded as goodwill and indefinite-lived intangibles. Goodwill is recorded when the purchase price of a business exceeds the fair market value of the tangible and separately measurable intangible net assets. Generally accepted accounting principles will require the combined company to test goodwill and indefinite-lived intangibles for impairment on an annual basis or when events or circumstances occur indicating that an

impairment might exist. If the combined company were to determine that any of its remaining balance of goodwill or indefinite-lived tradenames were impaired, it would record an immediate charge to earnings with a corresponding reduction in stockholders’ equity and increase in balance sheet leverage as measured by debt to total capitalization.

 

We could be adversely affected if we fail to comply with any of the numerous federal, state and local laws, regulations and policies that govern environmental protection, zoning and other matters applicable to our businesses.

 

The businesses of National Oilwell Varco and Grant Prideco are subject to numerous federal, state and local laws, regulations and policies governing environmental protection, zoning and other matters. These laws and regulations have changed frequently in the past and it is reasonable to expect additional changes in the future. If existing regulatory requirements change, we may be required to make significant unanticipated capital and operating expenditures. We cannot assure you that our operations will continue to comply with future laws and regulations. Governmental authorities may seek to impose fines and penalties on us or to revoke or deny the issuance or renewal of operating permits for failure to comply with applicable laws and regulations. Under these circumstances, we might be required to reduce or cease operations or conduct site remediation or other corrective action which could adversely impact our operations and financial condition.

 

Our businesses expose us to potential environmental liability.

 

Our businesses expose us to the risk that harmful substances may escape into the environment, which could result in:

 

 

Our current and past activities, as well as the activities of our former divisions and subsidiaries, could result in our facing substantial environmental, regulatory and other liabilities. These could include the costs of cleanup of contaminated sites and site closure obligations. These liabilities could also be imposed on the basis of one or more of the following theories:

 

 

We may not have adequate insurance for potential environmental liabilities.

 

While National Oilwell Varco and Grant Prideco maintain liability insurance, this insurance is subject to coverage limits. In addition, certain policies do not provide coverage for damages resulting from environmental contamination. We face the following risks with respect to our insurance coverage:

 

 

Even a partially uninsured claim, if successful and of significant size, could have a material adverse effect on our consolidated financial statements.

 

 

As of December 31, 2007, National Oilwell Varco had a backlog of approximately $9 billion of drilling equipment to be manufactured, assembled, tested and delivered by its Rig Technology group. The following factors, in addition to others not listed, could reduce our margins on these contracts, adversely affect our position in the market and subject us to contractual penalties:

 

 

 

 

 

 

 

Such developments could have a material adverse effect on our consolidated financial statements.

 

This proxy statement/prospectus and the documents incorporated by reference contain various forward-looking statements and information that are based on the beliefs of National Oilwell Varco and Grant Prideco, as well as assumptions made by National Oilwell Varco and Grant Prideco and information currently available to us. When used in this proxy statement/prospectus, words such as “anticipate,” “project,” “expect,” “plan,” “goal,” “forecast,” “intend,” “could,” “believe,” “may,” and similar expressions and statements regarding our plans and objectives for future operations, are intended to identify forward-looking statements. Forward-looking statements in this proxy statement/prospectus also include:

 

 

These forward-looking statements are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The following factors, among others, including those discussed in the “Risk Factors” section of this proxy statement/prospectus, could cause actual results to differ materially from those described in the forward-looking statements:

 

 

Except for its ongoing obligations to disclose material information as required by the federal securities laws, neither National Oilwell Varco nor Grant Prideco has any intention or obligation to update these forward-looking statements after it distributes this proxy statement/prospectus.

 

Although we believe that such expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that such expectations will prove to be correct. Such statements are subject to a variety of risks, uncertainties and assumptions. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or expected.

 

You should not put undue reliance on any forward-looking statements. When considering forward-looking statements, please review the risk factors described under “Risk Factors” in this proxy statement/prospectus and incorporated by reference into this proxy statement/prospectus.

 

National Oilwell Varco’s Business

 

This section summarizes information from National Oilwell Varco’s Annual Report on Form 10-K for the year ended December 31, 2007. For a more detailed discussion of National Oilwell Varco’s business, please read National Oilwell Varco’s Annual Report on Form 10-K for the year ended December 31, 2007 and its other filings incorporated into this proxy statement/prospectus by reference.

 

Business Segments

 

National Oilwell Varco’s business has three reportable operating segments:

 

 

Rig Technology

 

National Oilwell Varco’s Rig Technology segment designs, manufactures, sells and services complete systems for the drilling, completion, and servicing of oil and gas wells. The segment offers a comprehensive line of highly-engineered equipment that automates complex well construction and management operations, such as offshore and onshore drilling rigs; derricks; pipe lifting, racking, rotating and assembly systems; coiled tubing equipment and pressure pumping units; well workover rigs; wireline winches; and cranes. Demand for Rig Technology products is primarily dependent on capital spending plans by drilling contractors, oilfield service companies, and oil and gas companies, and secondarily on the overall level of oilfield drilling activity, which drives demand for spare parts for the segment’s large installed base of equipment. National Oilwell Varco has made strategic acquisitions and other investments during the past several years in an effort to expand its product offering and its global manufacturing capabilities, including adding additional operations in the United States, Canada, Norway, the United Kingdom, China, India and Belarus.

 

Petroleum Services & Supplies

 

National Oilwell Varco’s Petroleum Services & Supplies segment provides a variety of consumable goods and services used to drill, complete, remediate and workover oil and gas wells and service pipelines, flowlines and other oilfield tubular goods. The segment manufactures, rents and sells a variety of products and equipment used to perform drilling operations, including transfer pumps, solids control systems, drilling motors and other downhole tools, rig instrumentation systems, and mud pump consumables. Demand for these services and supplies is determined principally by the level of oilfield drilling and workover activity by drilling contractors, major and independent oil and gas companies, and national oil companies. Oilfield tubular services include the provision of inspection and internal coating services and equipment for drillpipe, linepipe, tubing, casing and pipelines; and the design, manufacture and sale of coiled tubing pipe and advanced composite pipe for application in highly corrosive environments. The segment sells its tubular goods and services to oil and gas companies; drilling contractors; pipe distributors, processors and manufacturers; and pipeline operators. This segment has benefited from several strategic acquisitions and other investments completed during the past few years, including adding additional operations in the United States, Canada, the United Kingdom, China, the United Arab Emirates, Kazakhstan, Mexico, Russia, Argentina, India, Bolivia, the Netherlands, Singapore, Malaysia and Vietnam.

 

Distribution Services

 

National Oilwell Varco’s Distribution Services segment provides maintenance, repair and operating supplies and spare parts to drill site and production locations worldwide. In addition to its comprehensive network of field locations supporting land drilling operations throughout North America, the segment supports major offshore drilling contractors through locations in Mexico, the Middle East, Europe, Southeast Asia and South America. Using its advanced information technology platforms and processes, the Distribution Services segment can provide complete procurement, inventory management, and logistics services to its customers. Demand for the segment’s services are determined primarily by the level of drilling, servicing and oil and gas production activities.

Grant Prideco’s Business

 

This section summarizes information from Grant Prideco’s Annual Report on Form 10-K for the year ended December 31, 2007. For a more detailed discussion of Grant Prideco’s business, please read Grant Prideco’s Annual Report on Form 10-K for the year ended December 31, 2007.

 

Business Segments

 

Grant Prideco’s business activities are segregated into four distinct segments:

 

 

 

 

 

For information relating to revenues from external customers, operating income and total assets of each segment, please read the financial statements incorporated by reference into this proxy statement/prospectus.

 

Drilling Products and Services

 

Grant Prideco’s Drilling Products and Services segment manufactures and sells a variety of drill stem products used for the drilling of oil and gas wells. The principal products sold by this segment are: (1) drill pipe products, (2) drill collars and heavyweight drill pipe and (3) drill stem accessories. Demand for the segment’s drill stem products is impacted primarily by changes in drilling activity and worldwide rig activity, but also by the level of inventory held by customers and their perceptions as to future activity and the near-term need for new drill stem products. With the increased complexity of drilling activity, demand for the segment’s proprietary line of eXtreme^® drilling and other premium drilling products has remained strong. The segment’s premium drilling products are specifically designed for extreme drilling conditions such as extended reach, directional, horizontal, deep gas, offshore and ultra-deepwater drilling, as well as high-temperature, high-pressure and corrosive well conditions. The segment’s drill stem products are sold to a variety of customers, including oil and gas drilling contractors, rental tool companies and major, independent and state-owned oil and gas companies. The principal competitors for our drill stem products include Smith International Inc., Texas Steel Conversion, Vallourec and Mannesmann and various smaller local manufacturers in the U.S. and worldwide.

 

ReedHycalog

 

Grant Prideco’s ReedHycalog segment is a leading global designer, manufacturer and distributor of drill bits, hole-opening or hole enlarging tools, coring services and other related technology to the oil and gas industry. This segment services its customer base through a technical sales and marketing network in virtually every significant oil and gas-producing region in the world. All of the products and services are generally sold directly to the upstream oil and gas operators and, to a lesser extent, drilling contractors on turnkey and footage contracts. Competition is based on technical performance, price and service. ReedHycalog manufactures and sells both fixed-cutter bits and roller-cone bits on a global basis. The primary market driver for these bits is worldwide drilling activity or, more specifically, total footage drilled, as well as a function of well depth and complexity; demand for fixed-cutter bits is tied more strongly to offshore, directional or horizontal drilling. This segment provides a complete series of drill bits incorporating advanced materials technology and a range of performance-enhancing features. In addition, the segment provides drill bit selection, well-planning services and vibration monitoring and control through its field sales and engineering organization. Grant Prideco’s principal competitors are Hughes Christensen (a division of Baker Hughes Inc.), Smith Bits (a division of Smith International Inc.), and Security DBS (a division of Halliburton Company) as well as numerous smaller competitors throughout the world.

 

Other Segment

 

Grant Prideco’s Other segment primarily includes the operations of IntelliServ, Inc. (Intelliserv) and XL Systems. In September 2005, Grant Prideco acquired full ownership of IntelliServ, a company focused on the

provision of well-site data transmission services. IntelliServ’s core product, “The IntelliServ^® Network”, was commercialized in 2006 and incorporates various proprietary mechanical and electrical components into its premium drilling tubulars to allow bi-directional data transfer via the drill string. This network functions at speeds several orders of magnitude higher than current mud pulse and electromagnetic transmission systems and will potentially deliver significant improvements in drilling efficiency and well placement. IntelliServ began its commercial operations in the last quarter of 2006 and offers its products and services on a rental basis to oil and gas operators. XL Systems provides integrated packages of large-bore tubular products and services for offshore wells, including a proprietary line of wedge thread marine connections on large-bore tubulars and related engineering and design services. XL Systems provides its product line for drive pipe, jet strings and conductor casing and also offers weld-on connections and service personnel in connection with the installation of these products. In early 2007, XL Systems completed development of its new high-strength Viper^TM weld-on connector which Grant Prideco believes will permit it to penetrate traditional markets that do not require the enhanced performance of XL Systems’ proprietary wedge-thread system.

 

Corporate Segment

 

Grant Prideco’s Corporate segment includes its general corporate overhead expenses.

 

As of the date of this proxy statement/prospectus, National Oilwell Varco and Grant Prideco are aware of five shareholder lawsuits that have been filed in connection with the proposed merger. These lawsuits, each of which has been filed in the District Court of Harris County, Texas, against Grant Prideco, its board of directors and, in one case, National Oilwell Varco, are as follows: Mark Bornstein, On Behalf of Himself and All Others Similarly Situated vs. Grant Prideco, Inc., et al., Cause No. 2007-76092, In the District Court of Harris County, Texas, 269th Judicial District; Catholic Medical Mission Board, On Behalf of Itself and All Others Similarly Situated vs. Grant Prideco, Inc., et al., Cause No. 2007-76418, In the District Court of Harris County, Texas, 55th Judicial District; Thomas Gray, On Behalf of Himself and All Others Similarly Situated vs. Grant Prideco, Inc., et al., Cause No. 2007-76419, In the District Court of Harris County, Texas, 133rd Judicial District; Roslyn Feder, On Behalf of Herself and All Others Similarly Situated vs. Grant Prideco, Inc., et al., In the District Court of Harris County, Texas, 61st Judicial District; and Kenneth Engberg, On Behalf of Himself and All Others Similarly Situated vs. Grant Prideco, Inc., et al., Cause No. 2008-02244, In the District Court of Harris County, Texas, 281st Judicial District.

 

Each of the plaintiffs in these five lawsuits alleges that they are stockholders of Grant Prideco and each of these five lawsuits is brought as a putative class action. Each of these lawsuits alleges that the proposed merger consideration is inadequate and that Grant Prideco and its individual directors breached fiduciary duties owed to the stockholders of Grant Prideco in connection with the proposed merger. Additionally, in the Bornstein suit, plaintiff alleges that National Oilwell Varco aided and abetted the alleged breach of fiduciary duty by Grant Prideco and its board of directors. The plaintiffs in each of these actions seek certification of their lawsuits as class actions, seek to enjoin the proposed merger and also ask for other legal and equitable relief, including an award of attorneys’ fees and costs of court. On January 17, 2008, Grant Prideco filed a motion requesting that all of these shareholder actions be consolidated with the Bornstein case in the 269th Judicial District Court of Harris County, Texas. The Court has not yet ruled on this motion to consolidate.

 

This litigation is in its very early stages; however, National Oilwell Varco and Grant Prideco believe that each of these five lawsuits is without merit and intend to defend them.

 

This proxy statement/prospectus is being provided to the stockholders of Grant Prideco as part of a solicitation of proxies by Grant Prideco’s board of directors for use at Grant Prideco’s special meeting to be held at the time and place specified below, and at any properly convened meeting following an adjournment or postponement thereof. This proxy statement/prospectus provides stockholders of Grant Prideco with the information they need to know to be able to vote or instruct their vote to be cast at Grant Prideco’s special meeting.

 

Date, Time and Place of the Special Meeting of Grant Prideco’s Stockholders

 

The special meeting is scheduled to be held as follows:

 

Houston, Texas on          , 2008 at      a.m., Houston time.

 

Purpose of the Special Meeting of Grant Prideco’s Stockholders

 

The special meeting of Grant Prideco’s stockholders is being held in order to consider and vote on the adoption of the Agreement and Plan of Merger, dated as of December 16, 2007, among National Oilwell Varco, Inc., a Delaware corporation, NOV Sub, Inc., a wholly owned subsidiary of National Oilwell Varco, Inc. and a Delaware corporation, and Grant Prideco, Inc., a Delaware corporation, as amended prior to the special meeting, pursuant to which Grant Prideco will be merged with and into NOV Sub and each outstanding share of common stock of Grant Prideco will be converted into 0.4498 of a share of common stock of National Oilwell Varco and $23.20 in cash, plus cash in lieu of fractional shares.

 

Recommendation of the Board of Directors of Grant Prideco

 

Recommendation of the Board of Directors of Grant Prideco

 

The board of directors of Grant Prideco has determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of Grant Prideco and its stockholders, and has approved the merger agreement and merger.

 

Grant Prideco’s board of directors unanimously recommends that you vote “FOR” the adoption of the merger agreement.

 

Record Date; Stockholders Entitled to Vote; Quorum

 

Only holders of record of the common stock of Grant Prideco at the close of business on           , 2008, the record date for Grant Prideco’s special meeting, are entitled to notice of, and to vote at, Grant Prideco’s special meeting. At the close of business on the record date,           shares of common stock of Grant Prideco were issued and outstanding and held by           holders of record. Holders of record of the common stock of Grant Prideco on the record date are entitled to one vote per share at the special meeting on each proposal. A list of stockholders of Grant Prideco will be available for review for any purpose germane to the special meeting at Grant Prideco’s executive offices and principal place of business during regular business hours for a period of 10 days before the special meeting. The list will also be available at the special meeting for examination by any stockholder of record present at the special meeting.

 

A quorum is necessary to hold a valid special meeting. A quorum will be present at Grant Prideco’s special meeting if the holders of a majority of the outstanding shares of the common stock of Grant Prideco entitled to vote on the record date are present, in person or by proxy. If a quorum is not present at the special meeting, we expect the presiding officer to adjourn the meeting to solicit additional proxies. Abstentions and broker “non-votes” count as present for establishing a quorum for the transaction of all business.

 

Vote Required

 

The adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of the common stock of Grant Prideco entitled to vote at the special meeting, either in person or by proxy. Whether or not a quorum of stockholders is present at the special meeting, the presiding officer may

choose to adjourn the meeting for any reason, including if he or she determines that it would be in the best interests of Grant Prideco to extend the period of time for solicitation of additional proxies, and the presiding officer may do so until he or she decides conclusively that the business to be conducted at the meeting is completed.

 

As of the record date for Grant Prideco’s special meeting, the directors and executive officers of Grant Prideco as a group owned and were entitled to vote           shares of the common stock of Grant Prideco, or less than     % of the outstanding shares of the common stock of Grant Prideco on that date.

 

Voting at the Special Meeting

 

Whether or not you plan to attend Grant Prideco’s special meeting, please vote your shares. If your shares are held in your name, you may vote in person at the special meeting or by proxy. If your shares are held in an account with a broker, bank or other nominee, you must follow the instructions from your broker, bank or nominee in order to vote.

 

Voting in Person

 

If you plan to attend Grant Prideco’s special meeting and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that if your shares are held in “street name”, which means your shares are held of record by a broker, bank or other nominee, and you wish to vote at the special meeting, you must bring to the special meeting a proxy from the record holder (your broker, bank or nominee) of the shares authorizing you to vote at the special meeting.

 

Voting by Proxy

 

You should vote your proxy even if you plan to attend Grant Prideco’s special meeting. You can always change your vote at the special meeting.

 

Stockholders of Grant Prideco of record may submit their proxies by: (1) accessing the Internet website specified on their proxy cards; (2) calling the telephone number specified on their proxy cards; or (3) completing, signing and mailing their proxy cards. If you vote your proxy over the Internet or by telephone, you should NOT return your proxy card in the postage-paid envelope. If you hold your shares of common stock of Grant Prideco in street name, you will receive instructions from your broker, bank or other nominee that you must follow in order to vote your shares.

 

If you vote via the Internet or by telephone, you should be aware that you may incur costs such as usage charges from telephone companies or Internet service providers, and that you must bear these costs.

 

How Proxies are Counted

 

All shares represented by properly executed proxies received in time for the special meeting will be voted at the appropriate special meeting in the manner specified by the stockholders giving those proxies. Properly executed proxies that do not contain voting instructions will be voted “FOR” the adoption of the merger agreement.

 

Only shares affirmatively voted for the proposal, and properly executed proxies that do not contain voting instructions, will be counted as favorable votes for the adoption of the merger agreement. Shares of common stock of Grant Prideco held by persons attending the special meeting but not voting, shares of common stock held by persons not represented at the meeting in person or by proxy and shares of common stock of Grant Prideco for which Grant Prideco received proxies but with respect to which holders of those shares have abstained from voting, will have the same effect as votes against the adoption of the merger agreement.

 

A broker “non-vote” occurs when a nominee holding shares for a beneficial owner has not received instructions from the beneficial owner and does not have discretionary authority to vote the shares. Shares represented by proxies that reflect a broker “non-vote” will be counted for purposes of determining whether a quorum exists, and those proxies will have the same effect as votes against the adoption of the merger agreement.

Revocation of Proxies

 

Submitting a proxy on the enclosed form does not preclude you from voting in person at the special meeting. A stockholder of record may revoke a proxy at any time before it is voted by:

 

 

 

 

A stockholder of record may revoke a proxy by any of these methods, regardless of the method used to deliver the stockholder’s previous proxy. Attendance at the special meeting without voting will not itself revoke a proxy.

 

Written notices of revocation and other communications with respect to the revocation of proxies should be addressed:

 

Grant Prideco, Inc.

400 N. Sam Houston Parkway East

Suite 900

Houston, Texas 77060

Attention: Corporate Secretary

 

Please note that if your shares are held of record by a broker, bank or other nominee, and you decide to attend and vote at the special meeting, your vote in person at the special meeting will not be effective unless you have obtained and present a proxy issued in your name from the record holder (your broker, bank or nominee). If your shares are held in the name of a broker, bank or other nominee, you may change your vote by submitting new voting instructions to your broker, bank or nominee in accordance with its established procedures.

 

Solicitation of Proxies

 

Grant Prideco is soliciting proxies for its special meeting from its stockholders. Grant Prideco will pay its own cost of soliciting proxies, including the cost of mailing this proxy statement, from its stockholders. In addition to solicitation by use of the mails, proxies may be solicited by Grant Prideco’s directors, officers and employees in person or by telephone or other means of communication. These persons will not receive additional compensation, but may be reimbursed for reasonable out-of-pocket expenses in connection with this solicitation. In addition, Grant Prideco has retained the services of Innisfree M&A Incorporated to assist in the solicitation of proxies for an estimated fee not to exceed $125,000, plus reimbursement of out-of-pocket expenses. Grant Prideco will make arrangements with brokerage houses, custodians, nominees and fiduciaries to forward proxy solicitation materials to beneficial owners of shares held of record by them. Grant Prideco will also reimburse these brokerage houses, custodians, nominees and fiduciaries for their reasonable expenses incurred in forwarding the proxy materials.

Assistance

 

Stockholders who have questions regarding the materials, need assistance voting their shares or require additional copies of the proxy statement/prospectus or proxy card should contact or call:

 

Grant Prideco, Inc.

400 N. Sam Houston Parkway East

Suite 900

Houston, Texas 77060

Attention: Corporate Secretary

 

or

 

Innisfree M&A Incorporated

501 Madison Avenue

New York, NY 10022

Banks and Brokers call collect: or

 

Banks and Brokerage Firms, Please Call Collect:

+1 (212) 750-5833

+44 (0)20 7710 9960

 

Stockholders, Please Call:

(888) 750-5834 (toll-free from the U.S. and Canada)

00 800 7710 9970 (toll-free from the E.U.)

 

Background of the Merger

 

With both companies being leaders in the oilfield services industry, the managements of National Oilwell Varco and Grant Prideco are generally familiar with each other’s business. In addition, both companies regularly assess the industry and potential opportunities for business combinations and other strategic relationships to enhance stockholder value.

 

During 2004, Merrill A. Miller, Jr., the Chairman, President and Chief Executive Officer of National Oilwell Varco (which was at that time called National Oilwell), and Michael McShane, the Chairman, President and Chief Executive Officer of Grant Prideco, met and discussed the idea of exploring a strategic transaction between National Oilwell and Grant Prideco. Among other things, Messrs. Miller and McShane discussed the industrial logic of combining the product lines of the two companies. No proposals were made or agreements reached during this discussion. After these discussions, in August 2004, National Oilwell announced that it had reached an agreement to acquire Varco International. National Oilwell and Grant Prideco did not have any further discussions of a potential transaction at that time.

 

On September 5, 2005, Mr. Miller contacted Mr. McShane by telephone to discuss a potential business combination between Grant Prideco and National Oilwell Varco. Messrs. Miller and McShane discussed the potential benefits to their respective stockholders of a strategic transaction between the two companies. Mr. McShane indicated to Mr. Miller that Grant Prideco was not for sale, but in order to explore the possibilities of such a strategic transaction, they agreed to negotiate and execute a confidentiality agreement, exchange certain information about the companies’ businesses and financial results and further explore the potential benefits to stockholders of a strategic transaction. Mr. McShane informally notified each of the members of Grant Prideco’s board of directors regarding his discussion with Mr. Miller and Grant Prideco’s intent to enter into a confidentiality agreement in order to gain more information on the potential benefits of a strategic combination with National Oilwell Varco.

 

On September 13, 2005, the two companies executed a mutual confidentiality agreement pursuant to which they agreed not to disclose information shared with each other in the course of their exploration of a potential transaction. Beginning on September 16, 2005 and continuing throughout October and November 2005, members of the companies’ senior management teams exchanged documents, engaged in telephone conferences and met on various occasions to conduct management presentations and perform accounting, financial and legal due diligence reviews of the two companies. From time to time, Mr. McShane also informally updated Grant Prideco’s board of directors on the progress of these discussions.

 

On September 30, 2005, Mr. Miller and Mr. McShane met to discuss the status of their discussions and due diligence. No specific terms of a potential transaction were discussed at this meeting.

 

On October 13, 2005, Mr. McShane and Mr. Miller met again to discuss the status of their discussions and due diligence. At this meeting, Mr. Miller informed Mr. McShane that National Oilwell Varco was considering a stock-for-stock transaction similar to the transaction between National Oilwell and Varco. Mr. McShane indicated to Mr. Miller that any stock transaction without some sort of meaningful control premium would be difficult for him to support and asked if Mr. Miller would consider a meaningful control premium. Mr. Miller indicated he would have to get back to Mr. McShane.

 

On October 25, 2005, Mr. Miller and Mr. McShane met for breakfast. Mr. Miller proposed a combination between Grant Prideco and National Oilwell Varco in which Grant Prideco’s stockholders would receive $40.69 per share of Grant Prideco’s common stock based upon the preceding day’s closing price of National Oilwell Varco’s common stock, to be paid in the form of shares of National Oilwell Varco’s common stock. Mr. McShane indicated that he would present Mr. Miller’s proposal for discussion at the meeting of Grant Prideco’s board of directors scheduled in November 2005.

 

At a meeting of Grant Prideco’s board of directors held on November 10, 2005, the board considered the company’s strategic plan and potential alternatives to maximize stockholder value, including, among other things, continuing to operate as a stand-alone company and pursuing a potential transaction with National Oilwell Varco on

the terms proposed by Mr. Miller. Representatives of Fulbright & Jaworski L.L.P., Grant Prideco’s outside legal counsel, reviewed with the board the fiduciary duties of directors in the context of considering a company’s strategic alternatives. After further discussion with the board and members of Grant Prideco’s management, the board determined at the meeting that it was advisable and in the best interests of Grant Prideco’s stockholders at that time to pursue the company’s existing strategic plan and not to pursue the proposed strategic transaction with National Oilwell Varco. Mr. McShane subsequently informed Mr. Miller of this determination.

 

On March 30, 2007, at Mr. Miller’s request, Messrs. Miller and McShane met for breakfast in Houston, Texas. During the course of this meeting, Mr. Miller indicated that National Oilwell Varco was aware of the recent consolidation occurring in the oil country tubular industry and of potential interest in Grant Prideco, and that National Oilwell Varco was still interested in a combination with Grant Prideco. Mr. Miller did not make any specific proposals at this meeting. After the meeting, Mr. McShane contacted each of the members of Grant Prideco’s board of directors to update them on his conversation with Mr. Miller that day.

 

On April 10, 2007, Messrs. Miller and McShane met for breakfast in Houston, Texas. During the course of that meeting, Mr. Miller proposed a combination in which Grant Prideco’s shareholders would receive $56.00 per share, half of which would be paid in cash and half in the form of shares of National Oilwell Varco’s common stock. No agreement was reached at this meeting on these matters or on whether to pursue a transaction.

 

Later on April 10, 2007, following Mr. McShane’s meeting with Mr. Miller, Grant Prideco’s board of directors held a special meeting by telephone. During the course of the meeting, the board received an update on Mr. McShane’s contacts with Mr. Miller and an update on industry developments, including recent transactions involving other oilfield services and equipment companies. The board also considered the financial terms of National Oilwell Varco’s proposal and senior management’s analyses of the potential synergies that could be realized in a combination of the two companies. After further discussions with the board and Grant Prideco’s senior management, the board determined at that meeting that it was advisable and in the best interests of Grant Prideco’s stockholders to explore further the strategic alternatives to enhance stockholder value, including, among other things, through a potential business combination with National Oilwell Varco or another party. Following this meeting, on April 11, 2007, Grant Prideco engaged Credit Suisse to act as its financial advisor and Cravath, Swaine & Moore LLP to act as its outside legal counsel in connection with this exploration of Grant Prideco’s strategic alternatives. Mr. McShane informed Mr. Miller that Grant Prideco had engaged Credit Suisse to assist in the process of evaluating Grant Prideco’s alternatives.

 

Thereafter, and continuing into May 2007, Credit Suisse, based on discussions with management of Grant Prideco, began contacting other companies in the oil services and equipment industries who might be interested in a potential business combination with Grant Prideco and assisting Grant Prideco in evaluating potential transactions. Over the course of the following weeks, Credit Suisse contacted six companies on behalf of Grant Prideco. During that period, three companies met with Grant Prideco’s management, either in person or by conference call, to conduct due diligence reviews of Grant Prideco’s business and financial results.

 

During that period, Grant Prideco’s management also continued discussions with National Oilwell Varco. On April 25, 2007, National Oilwell Varco and Grant Prideco entered into a second mutual confidentiality agreement relating to the new process, pursuant to which the companies agreed not to disclose certain information in connection with their evaluation of a potential business combination. In the following days, members of Grant Prideco’s management met with management of National Oilwell Varco and presented updated financial information and projections as part of National Oilwell Varco’s due diligence review of Grant Prideco.

 

Other than National Oilwell Varco, no parties contacted by Credit Suisse on behalf of Grant Prideco decided to submit a business combination proposal with respect to a business combination involving Grant Prideco. On April 28, 2007, Messrs. Miller and McShane met again for breakfast in Houston, Texas. During the course of that meeting, Messrs. Miller and McShane discussed, among other things, the consideration that would be paid to Grant Prideco’s stockholders in a proposed combination, including the possible form in which consideration would be paid. Following some discussion, Mr. Miller made a revised offer of $57.00 per share of Grant Prideco’s common stock, half of which would be paid in the form of cash and half in the form of shares of common stock of National Oilwell Varco. No agreement was reached on these matters at this meeting. In the week following this meeting,

Mr. McShane contacted each of the members of Grant Prideco’s board of directors to update them on his conversation with Mr. Miller.

 

On May 4, 2007, Mr. McShane contacted Mr. Miller by telephone to discuss further the consideration that would be paid to Grant Prideco’s stockholders in a potential transaction between the companies. Mr. McShane asked if Mr. Miller could increase the consideration that National Oilwell Varco was willing to pay and requested a price of $62.00 per share, which proposed price had been determined after consultation with Grant Prideco’s directors. Messrs. Miller and McShane spoke again by telephone on May 7, 2007, to discuss further the matter and Mr. Miller informed Mr. McShane that National Oilwell Varco was not able to increase its offer. No agreement was reached on these matters during the course of these telephone calls.

 

At the regular meeting of Grant Prideco’s board of directors on May 17, 2007, the board received an update on the ongoing exploration of Grant Prideco’s strategic alternatives. Members of Grant Prideco’s senior management reviewed for the board the financial and strategic analyses that management undertook with respect to the proposed transaction with National Oilwell Varco. Members of management and representatives of Credit Suisse updated the board on the contacts made with other companies, noting that at least four parties had expressed preliminary interest, but that after receiving further information from Grant Prideco, all these parties had stated that, although they were interested in acquiring parts of Grant Prideco’s businesses, they were not interested in exploring further a transaction involving the entire company. Members of Grant Prideco’s management also reviewed with the board management’s analysis of the financial and strategic considerations relating to a potential sale of the company in pieces, including the tax inefficiencies and execution risks that management had identified. Representatives of Credit Suisse discussed with the board certain strategic considerations with respect to the alternatives being explored by Grant Prideco. Representatives of Cravath and Fulbright reviewed with the board the fiduciary duties of directors in the context of considering the company’s strategic alternatives. After further discussion with Grant Prideco’s legal and financial advisors and members of management, the board directed the company’s management to terminate its discussions with National Oilwell Varco. Mr. McShane subsequently informed Mr. Miller of this decision.

 

On August 1, 2007, Messrs. Miller and McShane met for lunch in Houston, Texas. During the course of the meeting, Mr. Miller indicated that National Oilwell Varco continued to be interested in discussing a transaction involving Grant Prideco in its entirety. Mr. McShane indicated to Mr. Miller that Grant Prideco was not for sale and informed Mr. Miller that Grant Prideco had been contacted by another company in the oil services industry regarding a potential sale of parts of Grant Prideco’s Tubular Technologies and Services, or TTS, division and that he would be seeking approval from Grant Prideco’s board to pursue a process of exploring this possibility. Thus, Mr. McShane informed Mr. Miller that if National Oilwell Varco was serious about making a new proposal, there would be a need to move quickly. Mr. Miller and Mr. McShane agreed to have their respective management teams update due diligence. Following a discussion about the terms of a transaction, Mr. Miller indicated to Mr. McShane that he would get back to him with a revised proposal once due diligence was completed. Subsequently, members of National Oilwell Varco’s and Grant Prideco’s managements exchanged documents and conducted telephone calls in connection with their due diligence reviews of the companies and a potential transaction.

 

On August 9, 2007, at a regularly scheduled meeting of Grant Prideco’s board of directors, the board authorized management to explore a potential sale of several product lines within the TTS segment, to engage in discussions with the party that had contacted Mr. McShane regarding the TTS business and to contact other companies in the oil country tubular steel industries to gauge their interest in acquiring these businesses. Grant Prideco engaged Credit Suisse to assist it in this process. Mr. McShane also discussed with the board his conversation with Mr. Miller.

 

Following the August 9, 2007 board meeting and continuing into September 2007, Credit Suisse, based on discussions with the management of Grant Prideco, contacted four parties, in addition to the party that contacted Mr. McShane in July 2007, that might be interested in acquiring product lines within the TTS segment. Some of these potential acquirors had previously been contacted by Credit Suisse in May 2007 with respect to their potential interest in engaging in a business combination with Grant Prideco. Through Credit Suisse, Grant Prideco also received unsolicited inquiries from two additional companies interested in acquiring some or all of the TTS segment. In the course of discussions with these potential acquirors, Credit Suisse inquired of one of these parties’

financial advisors as to whether such party had any interest in a transaction involving Grant Prideco in its entirety and was informed that such party was still not interested in a transaction involving the entire company, but was only interested in certain of Grant Prideco’s product lines.

 

On September 6, 2007, Messrs. Miller and McShane met for breakfast in New York to continue discussing a potential transaction between the companies, including the potential consideration that would be paid to Grant Prideco’s stockholders. During the course of the meeting, Mr. Miller made a revised proposal of $58.00 per share, half of which would be paid in the form of shares of National Oilwell Varco’s common stock and half of which would be paid in cash. Mr. McShane inquired as to whether there was room for National Oilwell Varco to increase its proposed price. Mr. Miller stated that National Oilwell Varco was not prepared to raise its proposed price. The following day, Mr. McShane contacted each of the members of Grant Prideco’s board of directors to update them on his meeting with Mr. Miller.

 

On September 12, 2007, Mr. McShane and Mr. Miller spoke on the telephone and Mr. McShane updated Mr. Miller on contacts the company had received regarding potential joint ventures with certain of the company’s product lines as well as other positive developments within its product lines. Mr. Miller informed Mr. McShane that he would consider these factors but his offer had not changed. Mr. McShane informally updated Grant Prideco’s board of Mr. Miller’s response.

 

On September 19, 2007, Grant Prideco received preliminary offers for the purchase of the TTS division. Mr. McShane updated the directors regarding the offers and obtained concurrence to move forward with the TTS division sale process and to terminate discussions with National Oilwell Varco. National Oilwell Varco was informed of Grant Prideco’s decision.

 

On October 30, 2007, Grant Prideco announced that it had entered into a definitive agreement to sell three of the four business units within its TTS division to Vallourec S.A. Following the announcement, Mr. McShane and Mr. Miller exchanged informal communications that the parties should keep in touch.

 

In early December 2007, Mr. Miller contacted Mr. McShane to schedule a breakfast meeting for December 7, 2007. The meeting was canceled due to an unforeseen conflict and on December 8, 2007, Mr. Miller contacted Mr. McShane by telephone. Mr. Miller indicated to Mr. McShane that National Oilwell Varco was still interested in a transaction with Grant Prideco and was still willing to offer $58.00 per share of Grant Prideco’s common stock, half of which would be paid in cash and half in shares of common stock of National Oilwell Varco. Mr. McShane updated Mr. Miller on Grant Prideco’s expectations for 2008, noting that due to declining North American demand for Grant Prideco’s products, the company’s expectations for 2008 were lower compared to the projections previously provided to National Oilwell Varco. Mr. Miller and Mr. McShane also discussed the positive results of the TTS sale process. Mr. Miller informed Mr. McShane that this was the highest price that National Oilwell Varco was prepared to offer and, given declining conditions in North America, Mr. Miller did not believe the board of National Oilwell Varco would consider any increase in price. No agreement was reached on the proposed transaction during the course of this phone call. Messrs. Miller and McShane agreed to schedule a conference call for the following week between their respective management teams to update their due diligence reviews. Mr. McShane also agreed to discuss the potential merger consideration, including the possible form in which consideration would be paid, with Grant Prideco’s board of directors. Following his discussion with Mr. Miller, Mr. McShane contacted each of the members of Grant Prideco’s board regarding his discussion with Mr. Miller.

 

On December 9, 2007, Mr. McShane contacted a senior officer of one of the companies previously contacted by Credit Suisse in April 2007 in order to gauge whether the company had any interest in pursuing a transaction with Grant Prideco. This senior officer had recently indicated to Mr. McShane during unrelated business discussions that his company would be interested in participating in any renewed process. On December 10, 2007, this company stated that it was not interested in pursuing a transaction involving Grant Prideco in its entirety, but would be very interested in purchasing some, but not all, of Grant Prideco’s product lines. Mr. McShane contacted each of the members of Grant Prideco’s board to update them on these discussions.

 

On December 10, 2007, members of senior management of Grant Prideco and National Oilwell Varco held a conference call to continue their due diligence reviews. Over the course of the next few days, members of Grant Prideco’s senior management forwarded additional business and financial information to National Oilwell Varco in

response to its due diligence requests and participated in various phone calls to answer follow-up questions posed by its management.

 

On December 12 and 13, 2007, Messrs. Miller and McShane spoke several times to discuss the consideration that would be paid to Grant Prideco’s stockholders in the proposed transaction, including the form in which the consideration would be paid. Mr. Miller informed Mr. McShane that National Oilwell Varco would not increase its offer. No agreement was reached with respect to these matters during these discussions.

 

On the morning of December 13, 2007, the board of directors of Grant Prideco held a special meeting by telephone. Representatives of Credit Suisse, Cravath and Fulbright also participated in the call. On the telephone call, Mr. McShane updated the board on the status of his discussions with National Oilwell Varco and with the other company he contacted on December 9, 2007. Mr. McShane also reviewed with the board management’s analysis of the potential benefits and risks of the proposed transaction with National Oilwell Varco. Representatives of Cravath and Fulbright reviewed with the board the fiduciary duties of directors in the context of the evaluation of a company’s strategic alternatives. Representatives of Credit Suisse reviewed with the board certain strategic considerations with respect to the proposed transaction with National Oilwell Varco. Mr. McShane and representatives of Credit Suisse also discussed their contacts over the previous several months with other companies that might be interested in a potential business combination with Grant Prideco. After further discussion, the board of directors of Grant Prideco authorized Mr. McShane to continue negotiations with National Oilwell Varco and to seek a larger equity component to the transaction.

 

On December 13, 2007, Messrs. Miller and McShane concluded their price discussions and agreed upon a price of $58.00 per share of Grant Prideco’s common stock, 60% of which would be in the form of shares of National Oilwell Varco’s common stock, subject to a fixed exchange ratio that would be determined based on the closing trading price of National Oilwell Varco’s common stock on the business day immediately prior to the execution of a merger agreement. This agreement on price was made subject to the negotiation of a definitive merger agreement and the approval of each company’s board of directors.

 

On December 13, 2007, National Oilwell Varco and its legal advisor, Andrews Kurth LLP, provided Grant Prideco, Cravath and Fulbright with an initial draft of the merger agreement for their review. The companies’ legal advisors began negotiation of the merger agreement.

 

On December 13, 2007, Mr. McShane was contacted by the chief executive officer of another company in the oilfield services and equipment industry. The company’s chief executive officer informed Mr. McShane that his company had been evaluating, and was interested in pursuing, a transaction with Grant Prideco. That afternoon, Mr. McShane met with this chief executive officer to discuss further a potential transaction. The chief executive officer indicated that his company would be interested in acquiring Grant Prideco and subsequently selling certain of Grant Prideco’s product lines. Mr. McShane discussed the potential tax inefficiencies of such a strategy and the chief executive officer informed Mr. McShane that he believed his company had the ability to reduce the tax inefficiencies. However, the other company needed additional information to analyze further the potential tax consequences of making those subsequent sales. After this meeting, Mr. McShane updated the board of directors of Grant Prideco on his discussions and, in order to aid with this company’s tax analysis, on December 13, 2007, members of Grant Prideco’s senior management provided management of this other company with the financial information of Grant Prideco that such company requested in order to complete its analysis. On December 14, 2007, this other company’s chief executive officer contacted Mr. McShane and stated that, after completing its analysis of the potential tax consequences, his company was no longer interested in pursuing a transaction with Grant Prideco due to the tax inefficiencies. Mr. McShane updated Grant Prideco’s board of directors on this contact.

 

From December 14, 2007 through December 16, 2007, the management teams, financial advisors and legal advisors of National Oilwell Varco and Grant Prideco had frequent negotiations regarding the terms of the merger agreement and related documents and discussions regarding due diligence matters. During that period, a number of drafts of the merger agreement and related documentation were negotiated, and various financial, operational and legal due diligence items were exchanged between the parties.

 

On December 16, 2007, Grant Prideco’s board of directors held a special meeting, at which the company’s senior management and outside legal and financial advisors were present. Prior to the meeting, Grant Prideco’s

board was provided with a summary of the proposed merger agreement and a copy of the current draft of the merger agreement. Also prior to the meeting, Grant Prideco’s board was provided a summary of Credit Suisse’s preliminary financial analyses of the transaction. At the meeting, members of Grant Prideco’s management updated the board on the conclusion of discussions with National Oilwell Varco and reviewed with the board the strategic rationale and potential benefits and risks of the proposed transaction. Members of Grant Prideco’s management also reviewed Grant Prideco’s stand-alone strategic plan and financial forecasts, its financial analyses of other strategic alternatives available to Grant Prideco, the current conditions in the financial markets and in the markets for Grant Prideco’s products, and management’s findings regarding due diligence with respect to National Oilwell Varco. Members of Grant Prideco’s management also reviewed with the board the industry participants that had been contacted throughout 2007 as to a potential transaction with Grant Prideco and management’s analysis of the inefficiencies that would have been involved in selling the company in pieces to the participants that had indicated interest in that type of sale. Representatives of Cravath reviewed with the board the fiduciary duties of directors in the context of considering a company’s strategic alternatives, including the proposed transaction with National Oilwell Varco. Representatives of Cravath and Grant Prideco’s General Counsel, Philip A. Choyce, also reviewed various other legal matters with the board and reviewed with the board the proposed terms of the merger agreement and related matters. Representatives of Credit Suisse reviewed Credit Suisse’s financial analyses of the proposed transaction and delivered its oral opinion to Grant Prideco’s board (which was subsequently confirmed in writing dated as of the same date) to the effect that, as of December 16, 2007, the merger consideration to be received by the holders of shares of Grant Prideco common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders. Following these presentations, a careful consideration of the merger agreement and a lengthy discussion, all members of management, including Mr. McShane, left the meeting and further discussions were conducted among the non-management directors and representatives of Credit Suisse, Cravath and Fulbright. After a brief discussion, the representatives of Credit Suisse also left the meeting and further discussions were conducted among the non-management directors and representatives of Cravath and Fulbright. Following the additional discussions and deliberation, all parties rejoined the meeting and Grant Prideco’s board of directors unanimously determined that the merger agreement and the merger were advisable and in the best interests of Grant Prideco’s stockholders, unanimously approved the merger agreement and the merger in accordance with Delaware law and unanimously recommended that Grant Prideco’s stockholders adopt the merger agreement. The board of directors of Grant Prideco authorized the appropriate officers of Grant Prideco to execute and deliver the merger agreement and related documentation.

 

National Oilwell Varco, NOV Sub, Inc. and Grant Prideco executed the merger agreement on the evening of December 16, 2007.

 

Prior to the opening of financial markets on December 17, 2007, National Oilwell Varco and Grant Prideco issued a joint press release announcing the execution of the merger agreement.

 

Grant Prideco’s Reasons for the Merger and Recommendation of Grant Prideco’s Board of Directors

 

The board of directors of Grant Prideco believes that the terms of the merger are advisable and in the best interests of Grant Prideco and its stockholders and has unanimously approved the merger agreement and the merger and recommends that the stockholders of Grant Prideco vote “FOR” the proposal to adopt the merger agreement.

 

In reaching its conclusion, the board of directors of Grant Prideco consulted with its management and legal, financial and other advisors, and considered a variety of factors weighing in favor of the merger, including the factors listed below.

 

Expected Benefits of the Merger.  The combination of National Oilwell Varco and Grant Prideco is expected to result in several significant strategic benefits to the combined companies and Grant Prideco’s stockholders, including the following:

 

 

 

Other Material Factors Considered.  During the course of its deliberations relating to the merger agreement and the merger, the board of directors of Grant Prideco considered the following factors in addition to the benefits described above:

 

 

 

The board of directors of Grant Prideco weighed these factors against a number of other material factors identified in its deliberations weighing negatively against the merger, including:

 

 

 

 

 

After consideration of these material factors, the board of directors of Grant Prideco determined that these risks could be mitigated or managed by Grant Prideco or National Oilwell Varco or the combined company, were reasonably acceptable under the circumstances or were unlikely to have a material impact on the merger or the combined company or that, overall, the risks were significantly outweighed by the potential benefits of the merger.

 

This discussion of the information and factors considered by the board of directors of Grant Prideco includes the material positive and negative factors considered by the board of directors, but is not intended to be exhaustive and may not include all of the factors considered by Grant Prideco’s board. Grant Prideco’s board of directors did not quantify or assign any relative or specific weights to the various factors that it considered in reaching its determination that the merger agreement and the merger are advisable and in the best interests of Grant Prideco’s stockholders. Rather, Grant Prideco’s board of directors viewed its position and recommendation as being based on the totality of the information presented to it and the factors it considered. In addition, individual members of the board of directors of Grant Prideco may have given differing weights to different factors. It should be noted that this explanation of the reasoning of the board of directors of Grant Prideco and certain information presented in this section is forward-looking in nature and, therefore, that information should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” in this proxy statement/prospectus, beginning on page 23.

 

Opinion of Credit Suisse Securities (USA) LLC — Financial Advisor to Grant Prideco

 

Credit Suisse Opinion

 

Grant Prideco retained Credit Suisse to act as Grant Prideco’s financial advisor in connection with the proposed merger. In connection with Credit Suisse’s engagement, Grant Prideco requested that Credit Suisse evaluate the fairness, from a financial point of view, of the merger consideration to be received by holders of shares of common stock of Grant Prideco pursuant to the merger agreement. On December 16, 2007, Credit Suisse rendered its oral opinion to the Board of Directors of Grant Prideco (which was subsequently confirmed in writing by delivery of Credit Suisse’s written opinion dated the same date) to the effect that, as of December 16, 2007, the merger consideration to be received by the holders of shares of common stock of Grant Prideco pursuant to the merger agreement was fair, from a financial point of view, to such holders.

Credit Suisse’s opinion was prepared for the information of Grant Prideco’s Board of Directors in connection with its consideration of the merger. Credit Suisse’s opinion only addressed the fairness from a financial point of view of the merger consideration to be received by the holders of common stock of Grant Prideco in the merger and did not address any other aspect or implication of the merger. The summary of Credit Suisse’s opinion in this proxy statement/prospectus is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex B to this proxy statement/prospectus and sets forth the assumptions made, procedures followed, qualifications and limitations on the review undertaken and other matters considered by Credit Suisse in preparing its opinion. However, neither Credit Suisse’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement/prospectus are intended to be, and do not constitute, advice or a recommendation to any stockholder as to how such stockholder should act or vote with respect to any matter relating to the merger.

 

In arriving at its opinion, Credit Suisse:

 

 

In connection with its review, Credit Suisse did not independently verify any of the foregoing information, and Credit Suisse assumed and relied upon such information being complete and accurate in all material respects. With respect to the financial projections for Grant Prideco referred to above, Credit Suisse was advised by Grant Prideco’s management, and with Grant Prideco’s consent assumed, that such projections were reasonably prepared on bases reflecting the best currently available estimates and judgments of Grant Prideco’s management with respect to the future financial performance of Grant Prideco. With respect to the publicly available research analyst estimates for National Oilwell Varco referred to above, Credit Suisse was advised by National Oilwell Varco’s management, and with Grant Prideco’s consent assumed, that such estimates represented reasonable estimates and judgments with respect to the future financial performance of National Oilwell Varco. Credit Suisse assumed, with Grant Prideco’s consent, that the proposed merger would be treated as a tax-free reorganization for federal income tax purposes. Credit Suisse also assumed, with Grant Prideco’s consent, that, in the course of obtaining any regulatory or third party consents, approvals or agreements in connection with the proposed merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Grant Prideco, National Oilwell Varco or the contemplated benefits of the proposed merger and that the proposed merger would be consummated in accordance with the terms of the merger agreement without waiver, modification or amendment of any material term, condition or agreement thereof. In addition, Credit Suisse was not requested to make, and has not made, an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of Grant Prideco or National Oilwell Varco, nor was Credit Suisse furnished with any such evaluations or appraisals.

In preparing its opinion to the Board of Directors of Grant Prideco, Credit Suisse performed a variety of analyses, including those described below. The summary of Credit Suisse’s valuation analyses is not a complete description of the analyses underlying Credit Suisse’s fairness opinion. The preparation of a fairness opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytic methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither a fairness opinion nor its underlying analyses are readily susceptible to partial analysis or summary description. Credit Suisse arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, analytic method or factor. Accordingly, Credit Suisse believes that its analyses must be considered as a whole and that selecting portions of its analyses, analytic methods and factors, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying its analyses and opinion.

 

In performing its analyses, Credit Suisse considered business, economic, industry and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of its written opinion. No company, transaction or business used in Credit Suisse’s analyses for comparative purposes is identical to Grant Prideco, National Oilwell Varco or the proposed merger. While the results of each analysis were taken into account in reaching its overall conclusion with respect to fairness, Credit Suisse did not make separate or quantifiable judgments regarding individual analyses. The reference valuation ranges indicated by Credit Suisse’s analyses are illustrative and not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond Grant Prideco’s control and the control of Credit Suisse. Much of the information used in, and accordingly the results of, Credit Suisse’s analyses are inherently subject to substantial uncertainty.

 

Credit Suisse’s opinion and analyses were provided to the Board of Directors of Grant Prideco in connection with its consideration of the proposed merger and were among many factors considered by the Board of Directors of Grant Prideco in evaluating the proposed merger. Neither Credit Suisse’s opinion nor its analyses were determinative of the merger consideration or of the views of Grant Prideco’s Board of Directors or Grant Prideco’s management with respect to the merger. The amount of consideration payable in the proposed merger was determined through negotiation between Grant Prideco and National Oilwell Varco. Credit Suisse’s opinion did not address the fairness of the amount or nature of, or any other aspect relating to, any compensation to any officers, directors or employees of any party to the merger, or class of such persons, relative to the merger consideration or otherwise. The issuance of Credit Suisse’s opinion was approved by an authorized internal committee.

 

The following is a summary of the material valuation analyses performed in connection with the preparation of Credit Suisse’s opinion rendered to the Board of Directors of Grant Prideco on December 16, 2007. Considering the narrative description of the analyses without considering the methodologies underlying, and the assumptions, qualifications and limitations affecting, each analysis could create a misleading or incomplete view of Credit Suisse’s analyses.

 

For purposes of its analyses, Credit Suisse reviewed a number of financial metrics of Grant Prideco, National Oilwell Varco and certain other companies, including:

 

Enterprise Value — generally the value as of a specified date of the relevant company’s outstanding equity securities (taking into account its outstanding options and other convertible securities) plus the value of its minority interests plus the value of its net debt (the value of its outstanding indebtedness and capital lease obligations less the amount of cash and cash equivalents on its balance sheet) as of a specified date.

 

EBITDA — generally the amount of the relevant company’s earnings before interest, taxes, depreciation, and amortization for a specified time period.

 

After-Tax Cash Flow — generally the amount of the relevant company’s net income plus the amounts of depreciation and amortization, deferred taxes and other non-cash operating items for a specified time period.

Unless the context indicates otherwise, enterprise and per share equity values used in the selected companies analysis described below were calculated using the closing price of the common stock of Grant Prideco, the common stock of National Oilwell Varco and the common stock of the selected tubular steel and oilfield services companies listed below as of December 14, 2007, and the transaction values for the target companies used in the selected transactions analysis described below were calculated as of the announcement date of the relevant transaction based on the purchase prices paid in the selected transactions. Estimates of EBITDA and After-Tax Cash Flow for Grant Prideco for the fiscal years ending December 31, 2007 and December 31, 2008 were based on estimates provided by Grant Prideco’s management, as adjusted for the pending sale of its tubular businesses to Vallourec S.A. Estimates of EBITDA and After-Tax Cash Flow for National Oilwell Varco for the fiscal years ending December 31, 2007 and December 31, 2008 were based on publicly available research analyst estimates. Estimates of EBITDA and After Tax Cash Flow for the selected companies listed below for the fiscal years 2007 and 2008 were based on publicly available research analyst estimates for those companies. For purposes of its analyses and opinion, Credit Suisse assumed (based on the closing price of common stock of National Oilwell Varco on December 14, 2007) that the merger consideration had an implied value of $58 per share of the common stock of Grant Prideco.

 

Selected Companies Analysis

 

Credit Suisse reviewed enterprise value as a multiple of estimated 2007 and 2008 EBITDA and equity value as a multiple of estimated 2007 and 2008 After-Tax Cash Flow for Grant Prideco and selected companies with publicly-traded equity securities.

 

The selected companies were selected because they were deemed to be similar to Grant Prideco in one or more respects, which included nature of business, size, diversification, financial performance and geographic concentration. The selected companies were:

 

Baker Hughes Incorporated

BJ Services Company

Cameron International Corporation

FMC Technologies, Inc.

Halliburton Company

National Oilwell Varco, Inc.

OAO TMK

Schlumberger Limited

Smith International, Inc.

SSAB Svenskt Stål AB

Tenaris S.A.

United States Steel Corporation

Vallourec S.A.

Weatherford International Ltd.

 

Credit Suisse applied ranges of enterprise value and equity value multiples based on the selected companies analysis to corresponding financial data for Grant Prideco provided by Grant Prideco’s management. The selected companies analysis indicated an implied reference range value per share of Grant Prideco’s common stock of $47.93 to $60.46, as compared to the implied value of the proposed merger consideration of $58.00 per share of common stock of Grant Prideco.

 

Discounted Cash Flow Analysis

 

Credit Suisse also calculated the net present value of the estimated unlevered, free cash flows that Grant Prideco could generate over fiscal years 2008 through 2012, based on the two sets of assumptions provided by Grant Prideco’s management (Case One and Case Two). Credit Suisse then calculated a range of terminal values by multiplying estimated EBITDA for the 2012 fiscal year by selected multiples ranging from 8.0x to 9.0x. The estimated unlevered free cash flow and terminal values were then discounted to the present value using discount rates ranging from 9.5% to 11.5%, which were calculated based on estimates of Grant Prideco’s weighted average cost of capital. The discounted cash flow analyses indicated an implied reference range value per share of Grant Prideco’s common stock of $48.60 to $55.78 for Case One and $54.59 to $62.87 for Case Two, as compared to the implied value of the proposed merger consideration of $58.00 per share of common stock of Grant Prideco.

Selected Transactions Analysis

 

Credit Suisse calculated enterprise value multiples of certain financial data based on the purchase prices paid in selected publicly-announced transactions involving target companies that it deemed relevant. The calculated multiples included enterprise value as a multiple of the target company’s latest twelve months of EBITDA. The selected transactions were selected because Credit Suisse deemed the target companies similar to Grant Prideco in one or more respects, including the nature of their business, size, diversification, financial performance and geographic concentration.

 

The selected transactions were:

 

 

Credit Suisse applied ranges of multiples based on the selected transactions analysis to corresponding historical financial data for Grant Prideco provided by Grant Prideco’s management, as adjusted for the pending sale of its tubular businesses to Vallourec S.A. The selected transactions analysis indicated an implied reference range value per share of Grant Prideco’s common stock of $52.69 to $64.84, as compared to the implied value of the proposed merger consideration of $58.00 per share of common stock of Grant Prideco.

 

Other Considerations

 

Credit Suisse also calculated multiples of enterprise value and equity value and considered certain financial data for National Oilwell Varco, Grant Prideco and certain of the selected companies identified above that Credit Suisse deemed similar to National Oilwell Varco. Credit Suisse applied multiple ranges based on the selected companies analysis to corresponding financial data for National Oilwell Varco based on publicly available research analyst estimates for National Oilwell Varco. The selected companies analysis indicated an implied reference range

value per share of National Oilwell Varco’s common stock of $68.25 to $79.18, as compared to the closing price per share of National Oilwell Varco’s common stock on December 14, 2007 of $77.37.

 

Other Matters

 

The Board of Directors of Grant Prideco engaged Credit Suisse pursuant to a letter agreement dated as of April 17, 2007, as amended, to act as Grant Prideco’s financial advisor with respect to certain potential transactions including a possible sale of Grant Prideco. The Board of Directors of Grant Prideco selected Credit Suisse as Grant Prideco’s financial advisor based on Credit Suisse’s qualifications, experience and reputation, and its familiarity with Grant Prideco’s Board of Directors and Grant Prideco’s business. Credit Suisse is an internationally recognized investment banking firm and is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. Pursuant to the engagement letter, Grant Prideco will pay Credit Suisse a fee for its services, a significant portion of which is contingent upon the consummation of the proposed merger. Credit Suisse also became entitled to a fee upon the delivery of its opinion. Grant Prideco has also agreed to reimburse Credit Suisse for certain expenses and to indemnify Credit Suisse and certain related parties against certain liabilities, including liabilities arising under the federal securities laws, and to reimburse certain other expenses arising out of or relating to Credit Suisse’s engagement.

 

Credit Suisse and its affiliates have in the past provided, and may in the future provide, investment banking and financial services to Grant Prideco, National Oilwell Varco and/or their respective affiliates, as well as private investment firms with investments in or otherwise affiliated or associated with Grant Prideco, and other entities affiliated or associated with such private investment firms, for which Credit Suisse and its affiliates have received, and would expect to receive, compensation, including during the past two years having acted as (i) financial advisor to Grant Prideco in connection with its pending sale of certain tubular technologies and services businesses, (ii) a lender in a credit facility of Grant Prideco and (iii) a lender in a credit facility of National Oilwell Varco. Credit Suisse is a full service securities firm engaged in securities trading and brokerage activities as well as providing investment banking and other financial services. In the ordinary course of business, Credit Suisse and its affiliates may acquire, hold or sell, for its and its affiliates own accounts and the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of Grant Prideco, National Oilwell Varco and any other company that may be involved in the proposed merger, as well as provide investment banking and other financial services to such companies.

 

Interests of Certain Persons in the Merger

 

In considering the recommendation of the board of directors of Grant Prideco with respect to the merger, the stockholders of Grant Prideco should be aware that some of the executive officers and directors of Grant Prideco have interests in the transaction that differ from, or are in addition to, the interests of the stockholders of Grant Prideco generally. The board of directors of Grant Prideco was aware of these interests and considered them, among other matters, when making its decision to approve the merger agreement and the merger and recommend that the stockholders of Grant Prideco vote in favor of the adoption of the merger agreement.

 

Stock Options and Restricted Stock

 

As of the date of this proxy statement/prospectus, certain of Grant Prideco’s directors and executive officers hold options to purchase shares of common stock of Grant Prideco. At the effective time of the merger, all options that are outstanding at the effective time of the merger to purchase Grant Prideco’s common stocks granted to Grant Prideco’s executive officers and directors under Grant Prideco’s equity compensation plans will be converted into a right to purchase National Oilwell Varco’s common stock pursuant to the terms of the merger agreement, as discussed in more detail in the section entitled “The Merger Agreement — Stock Options and Employee Benefits.” Except for options to purchase 4,165 shares granted to Quintin V. Kneen, the Vice President of Finance of Grant Prideco, all of Grant Prideco’s stock options granted to Grant Prideco’s executive officers and directors will already be fully vested and exercisable at the time of the merger and will not become vested and exercisable as a result of the merger. The unvested options granted to Mr. Kneen will vest as a result of the merger.

 

As of the date of this proxy statement/prospectus, certain of Grant Prideco’s directors and executive officers hold restricted shares of Grant Prideco’s common stock. At the effective time of the merger, all shares of Grant Prideco’s restricted common stock granted to Grant Prideco’s executive officers and directors under Grant Prideco’s equity compensation plans that have not vested immediately prior to the effective time of the merger will, pursuant to their terms, become partially or fully vested upon the effective time of the merger or convert in an equivalent value of restricted shares of National Oilwell Varco common stock. As a result, the directors and officers will be entitled to receive the same merger consideration in respect of those shares as shareholders are entitled to receive in respect of outstanding shares of Grant Prideco’s common stock.

 

Grant Prideco estimates that the numbers of shares of its common stock held by Grant Prideco’s directors and executive officers that may become vested as a result of the merger and the value of the merger consideration that will be payable in respect of those shares, calculated based on the closing trading price of shares of National Oilwell Varco’s common stock on December 14, 2007, the business day immediately preceding the date of the merger agreement would be as follows:

 

 

 

 

In addition to the foregoing, pursuant to the terms of the merger agreement, Grant Prideco is permitted to grant additional options and restricted shares in the ordinary course of business in accordance with past practice, following consultation with National Oilwell Varco and provided that the amounts so granted do not exceed the amounts granted to such persons (or persons similarly situated in the case of new or additional responsibilities or new hires) during 2007. Any such awards may also become fully vested upon the effective time of the merger.

 

Grant Prideco’s Nonqualified Deferred Compensation Plans Covering Executive Officers

 

Certain of Grant Prideco’s executive officers are participants in Grant Prideco’s Nonqualified Deferred Compensation (the “NQDC Plan”) and/or Grant Prideco’s Executive Deferred Compensation Plan (the “EDC Plan”). It is anticipated that, immediately prior to the effective time of the merger, Grant Prideco will terminate the NQDC Plan and the EDC Plan and make accelerated distributions thereunder to plan participants, including Grant Prideco’s executive officers, upon the effective time of the merger. All executive officers are fully vested in their benefits earned under the NQDC Plan.

 

The EDC Plan provides for deferred amounts and company contributions to be credited to each executive’s account as “non-monetary units” that are equal to the number of whole shares of common stock of Grant Prideco that could have been purchased at a price equal to the average closing price during the calendar month for which the allocation was made. Grant Prideco will amend the EDC Plan to provide that, upon the effective time of the merger,

(i) the executive officers and other participants will have fully nonforfeitable interests in their benefits earned under the EDC Plan and (ii) each non-monetary unit will entitle the holder thereof to receive the same merger consideration as the other holders of Grant Prideco common stock upon the effective time of the merger.

 

As of the date of this proxy statement/prospectus, all of Grant Prideco’s executive officers who are participants in the EDC Plan other than Matthew D. Fitzgerald have fully nonforfeitable interests in their EDC Plan benefits. Effective as of December 31, 2007, the EDC Plan account balance of Mr. Fitzgerald was $667,072 of which, $533,658 was fully vested. As noted above, in connection with the merger, the EDC Plan will be amended so that all participants, including Mr. Fitzgerald, will have fully nonforfeitable interests in their unvested amounts as of the effective time of the merger.

 

Grant Prideco, Inc. Deferred Compensation Plan for Non-Employee Directors

 

All of Grant Prideco’s directors, other than Mr. McShane, are participants in Grant Prideco’s Deferred Compensation Plan for Non-Employee Directors (the “Director Deferred Compensation Plan”). The Director Deferred Compensation Plan provides for deferred amounts and company contributions to be credited to each executive’s account as “non-monetary units” that are equal to the number of whole shares of common stock of Grant Prideco that could have been purchased at a price equal to the mean between the high and low sales price per share of common stock of Grant Prideco determined on the last trading day of the calendar month for which the allocation was made. Grant Prideco’s non-employee directors have benefits accrued under the Director Deferred Compensation Plan. Grant Prideco will amend the Director Deferred Compensation Plan to specify that each non-monetary unit will entitle the holder thereof to receive the same merger consideration as the other holders of Grant Prideco’s common stock upon the effective date of the merger. It is anticipated that Grant Prideco will terminate the Director Deferred Compensation Plan and make accelerated distributions thereunder to Grant Prideco’s non-employee directors upon the effective time of the merger.

 

Employment Agreement with Mr. McShane

 

Under the terms of Mr. McShane’s employment agreement with Grant Prideco, if Grant Prideco (or its successor) terminates Mr. McShane’s employment for any reason other than “cause” or “disability” or if he terminates his employment for “good reason”, as defined in the employment agreement, Mr. McShane will be entitled to receive the following benefits: (a) three times the sum of (i) his current annual base compensation and (ii) the highest bonus paid to Mr. McShane during the three years prior to the year of termination; (b) an annual incentive payment equal to the highest bonus paid to Mr. McShane during the three years prior to the year of termination (or if greater, his most recently paid fiscal year bonus), pro-rated to the date of termination; (c) three times the amount that was credited on Mr. McShane’s behalf as the employer matching contribution under the Grant Prideco 401(k) Plan, the EDC Plan and NQDC Plan for the prior 12-month period, grossed up for any taxes owed on this amount; (d) the maintenance of all welfare benefits after termination for a period of three years provided Mr. McShane makes his required contribution; (e) a cash lump sum amount equal to three times his annual car allowance; (f) outplacement services; and (g) an additional amount (a “gross-up” payment) in respect of excise taxes that may be imposed under the “golden parachute” rules on payments and benefits received in connection with the merger. The gross-up payment would make Mr. McShane whole for excise taxes (and for all taxes on the gross-up payment) in respect of payments and benefits received pursuant to all plans, agreements and arrangements of Grant Prideco (including for example, acceleration of vesting of equity awards). Assuming the effective time of the merger was March 15, 2008 and Mr. McShane’s employment were to have terminated under one of the circumstances described above, Grant Prideco estimates that Mr. McShane would have been entitled to a lump-sum cash payment equal to approximately $8,494,715 and to other benefits with an estimated value of approximately $36,000.

 

The definition of “good reason” in Mr. McShane’s employment agreement includes:

 

 

Employment Agreement with Mr. Fitzgerald

 

Under the terms of his employment agreement, if in connection with the merger Grant Prideco (or its successor) terminates Mr. Fitzgerald’s employment for any reason other than “cause” or “disability” or if Mr. Fitzgerald terminates his employment for “good reason”, as defined in the employment agreement, Mr. Fitzgerald will be entitled to receive the following benefits: (a) three times the sum of (i) his current annual base compensation and (ii) the highest bonus paid to Mr. Fitzgerald during the three years prior to the year of termination; (b) an annual incentive payment equal to the highest bonus paid to Mr. Fitzgerald during the three years prior to the year of termination (or if greater, most recently earned, but not yet paid fiscal year bonus), prorated to the date of termination; (c) three times the amount that was credited on Mr. Fitzgerald’s behalf as the employer matching contribution under Grant Prideco’s 401(k) Plan, the EDC Plan and NQDC Plan for the prior 12-month period, grossed up for any taxes owed on this amount; (d) all welfare benefits would be maintained after termination for a period of three years provided Mr. Fitzgerald makes his required contribution; (e) his car allowance for three years; (f) outplacement services; and (g) an additional amount (a “gross-up” payment) in respect of excise taxes that may be imposed under the “golden parachute” rules on payments and benefits received in connection with the merger. The gross-up payment would make Mr. Fitzgerald whole for excise taxes (and for all taxes on the gross-up payment) in respect of payments and benefits received pursuant to all plans, agreements and arrangements of Grant Prideco (including for example, acceleration of vesting of equity awards). Assuming the effective time of the merger was March 15, 2008 and Mr. Fitzgerald’s employment were to have terminated under one of the circumstances described above, Grant Prideco estimates that Mr. Fitzgerald would have been entitled to a lump-sum cash payment equal to approximately $3,521,828 and to other benefits with an estimated value of approximately $36,000.

 

The definition of “good reason” in Mr. Fitzgerald’s employment agreement includes:

 

 

Change of Control Agreements with Other Executive Officers

 

In addition to the agreements with Messrs. McShane and Fitzgerald, Grant Prideco entered into a change of control agreement with each of its other executive officers, Messrs. Black, Boane, Breihan, Deane, Kneen and Choyce. Under these agreements, the executives will be provided with certain benefits if there is both a change of control of Grant Prideco and the executive is subsequently terminated for any reason other than for “cause” or elects to terminate his employment for “good reason” within two years after a change of control. Under these agreements, if there is a change of control of Grant Prideco, and the executive is terminated for “cause” or “good reason”, the executive would be entitled to the following benefits: (a) two times the sum of (i) his current annual base compensation and (ii) his highest annual bonus paid during the three years prior to the year of termination; (b) an annual incentive payment equal to the highest annual bonus paid to him during the three years prior to the year of termination (or if greater, the most recently earned, but not yet paid fiscal year bonus) (prorated to the date of termination); (c) two times the amount that was credited on the executive’s behalf as the employer matching contribution under Grant Prideco’s 401(k) Plan, the EDC Plan and NQDC Plan for the prior 12-month period, grossed up for any taxes owed on this amount; (d) all welfare benefits would be maintained after termination for a period of two years provided the executive makes his required contribution; (e) an amount equal to two times the total amount of all fringe benefits received by the executive on an annualized basis; and (f) an additional amount (a “gross-up” payment) in respect of excise taxes that may be imposed under the “golden parachute” rules on payments and benefits received in connection with the merger. The gross-up payment would make the officer whole for excise taxes (and for all taxes on the gross-up payment) in respect of payments and benefits received pursuant to all plans, agreements and arrangements of Grant Prideco (including for example, acceleration of vesting of equity awards).

The definition of “good reason” in the executives’ change of control agreements includes:

 

 

Assuming the effective time of the merger was March 15, 2008 and each executive officer’s employment were to have terminated under one of the circumstances described above, Grant Prideco estimates that such executive officer would have been entitled to a lump-sum cash payment and to other benefits with estimated values as follows:

 

 

Grant Prideco, Inc.’s Supplemental Executive Retirement Plan

 

Michael McShane is also a beneficiary of Grant Prideco’s Supplemental Executive Retirement Plan (the “SRP”). If Mr. McShane incurs a separation from service in connection with the merger, he will receive an accelerated distribution of the actuarial equivalent of his early retirement benefit under the SRP, calculated as if he had worked for Grant Prideco for an additional three years and he was three years older. The estimated value of this benefit is $12,469,919, calculated assuming that the effective time of the merger occurred on January 15, 2008 and Mr. McShane incurs a separation from service at such time. Such benefit would be paid in the form of a lump sum payment on the date of Mr. McShane’s separation from service (or six months following his separation from service if required under Section 409A of the Internal Revenue Code).

 

Indemnification and Directors’ and Officers’ Insurance

 

Under the merger agreement, National Oilwell Varco and NOV Sub have agreed to indemnify each present and former director and officer of Grant Prideco and its subsidiaries to the fullest extent permitted under Delaware law for all acts or omissions prior to the merger by such individuals in such capacities. National Oilwell Varco has also agreed to provide, for six years after the merger, directors’ and officers’ liability insurance in respect of acts or omissions occurring prior to the merger covering each person currently covered by the directors’ and officers’ liability insurance policy of Grant Prideco on terms and in amounts no less favorable than those of the policies of Grant Prideco, provided that National Oilwell Varco will not be required to pay an annual premium for the insurance in excess of 300% of the premium for the 2007 fiscal year. If such insurance cannot be obtained, or can only be obtained at an annual premium in excess of the maximum premium, National Oilwell Varco will obtain the most advantageous policy of insurance obtainable for an annual premium equal to the maximum premium. If so requested by Grant Prideco, National Oilwell Varco will provide this insurance by purchasing a “tail” directors’ and officers’ liability insurance policy for Grant Prideco and its directors and officers if such a policy is available.

 

Appraisal Rights

 

Holders of shares of common stock of Grant Prideco will be entitled to demand an appraisal of their shares under Section 262 of the Delaware General Corporation Law, or DGCL. If appraisal rights are exercised, shares of common stock of Grant Prideco outstanding immediately prior to the effective time of the merger and held by a holder who has not voted in favor of, or consented in writing to, the adoption of the merger agreement and who has delivered a written demand for appraisal of such shares in accordance with Section 262 of the DGCL will not be converted into the right to receive the merger consideration, unless and until the dissenting holder fails to perfect or

effectively withdraws or otherwise loses his or her right to appraisal and payment under the DGCL. If, after the effective time of the merger, a dissenting stockholder fails to perfect or otherwise waives, or withdraws or loses his or her right to appraisal, or a court determines that such holder is not entitled to relief under the DGCL, then such holder or holders (as the case may be) shall forfeit such rights and his or her shares of common stock of Grant Prideco will be treated as if they had been converted as of the effective time of the merger into the right to receive the merger consideration without interest thereon, upon surrender of the certificate or certificates that formerly evidenced such shares.

 

The following discussion is not a complete statement of appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262 of the DGCL, which explains the procedures and requirements for exercising statutory appraisal rights and which is attached as Annex C to this proxy statement/prospectus and incorporated herein by reference. All references in Section 262 of the DGCL and in this summary to a “stockholder” are to the record holder of the shares of common stock of Grant Prideco as to which appraisal rights are asserted. Stockholders intending to exercise appraisal rights should carefully review Annex C. This proxy statement/prospectus constitutes notice to stockholders of Grant Prideco concerning the availability of appraisal rights under Section 262 of the DGCL.

 

A stockholder of Grant Prideco who wishes to exercise appraisal rights should carefully review the following discussion and Annex C to this proxy statement/prospectus, because failure to comply timely and fully with the procedures required by Section 262 of the DGCL will result in the loss of appraisal rights.

 

Under the DGCL, stockholders of Grant Prideco who do not wish to accept the merger consideration have the right, subject to compliance with the requirements summarized below, to demand an appraisal by the Delaware Court of Chancery of the “fair value” of their shares of common stock of Grant Prideco and to be paid in cash such amount in lieu of the merger consideration that they would otherwise be entitled to receive if the merger is consummated. For this purpose, the fair value of shares of common stock of Grant Prideco will be their fair value, excluding any element of value arising from the consummation or expectation of consummation of the merger as determined by that court. Unless that court determines otherwise for good cause shown, interest from the effective date of the merger through the date of payment of the judgment shall accrue at 5% over the Federal Reserve discount rate. Stockholders who desire to exercise their appraisal rights must satisfy all of the conditions of Section 262 of the DGCL, including:

 

 

 

Neither voting (in person or by proxy) against, abstaining from voting on or failing to vote on the proposal to adopt the merger agreement will constitute a written demand for appraisal within the meaning of Section 262 of the DGCL. The written demand for appraisal must be in addition to and separate from any proxy or vote.

 

A demand for appraisal must be executed by or on behalf of the stockholder of record, fully and correctly, as the name of such stockholder appears on the stock certificate. If the shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, this demand must be executed by or for the fiduciary. If the shares are owned by or for more than one person, as in a joint tenancy or tenancy in common, such demand must be executed by or for all joint owners. An authorized agent, including an agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record. However, the agent must identify the record owner and expressly disclose the fact that, in exercising the demand, he is acting as agent for the record owner. A person having a beneficial interest in the common stock of Grant Prideco held of record in the name of another person, such as a broker or nominee, must act promptly to cause the record holder to follow the steps summarized herein in a timely manner to perfect whatever appraisal rights the beneficial owners may have. Notwithstanding the foregoing, a person who is the beneficial owner of shares held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition or request from National Oilwell Varco the statement described below.

 

A stockholder who elects to exercise appraisal rights should mail or deliver his, her or its written demand to the principal executive offices of Grant Prideco at 400 North Sam Houston Parkway East, Suite 900, Houston, Texas 77060, Attention: Corporate Secretary. The written demand for appraisal should state the name and mailing address of the stockholder, the number of shares of common stock of Grant Prideco owned by the stockholder and must reasonably inform Grant Prideco that the stockholder intends thereby to demand appraisal of his, her or its shares of common stock of Grant Prideco. Within ten days after the effective date of the merger, National Oilwell Varco will provide notice of the effective date of the merger to all stockholders of Grant Prideco who have complied with Section 262 of the DGCL and have not voted for the merger. A record holder, such as a broker, fiduciary, depositary or other nominee, who holds shares of common stock of Grant Prideco as a nominee for others, may exercise appraisal rights with respect to the shares held for all or less than all beneficial owners of shares as to which such person is the record owner. In such case, the written demand must set forth the number of shares covered by such demand. Where the number of shares is not expressly stated, the demand will be presumed to cover all shares of common stock of Grant Prideco outstanding in the name of such record owner.

 

Within 120 days after the effective date of the merger (but not thereafter), any stockholder who has satisfied the requirements of Section 262 of the DGCL may deliver to National Oilwell Varco a written demand for a statement listing the aggregate number of shares not voted in favor of the merger and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. National Oilwell Varco must mail such written statement to the stockholder within ten days after the request of the stockholder is received by National Oilwell Varco or within ten days after the latest date for delivery of a demand for appraisal under Section 262 of the DGCL, whichever is later. Upon the filing of a petition in the Court of Chancery of the State of Delaware within

120 days after the effective date of the merger as set forth above by a stockholder demanding a determination of the fair value of the common stock of Grant Prideco, service of a copy of the petition must be made upon National Oilwell Varco. National Oilwell Varco must then, within 20 days after service, file in the office of the Register in Chancery in which the petition was filed, a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached with National Oilwell Varco. If National Oilwell Varco files a petition, the petition must be accompanied by the duly verified list. The Register in Chancery, if so ordered by the court, will give notice of the time and place fixed for the hearing of such petition by registered or certified mail to National Oilwell Varco and to the stockholders shown on the list at the addresses therein stated, and notice also will be given by publishing a notice at least one week before the day of the hearing in a newspaper of general circulation published in the City of Wilmington, Delaware, or such publication as the court deems advisable. The court must approve the forms of the notices by mail and by publication, and National Oilwell Varco must bear the costs of the notices.

 

At the hearing on the petition, the Court of Chancery of the State of Delaware will determine which stockholders have become entitled to appraisal rights. The court may require the stockholders who have demanded an appraisal for their shares (and who hold stock represented by certificates) to submit their stock certificates to the Register in Chancery for notation of the pendency of the appraisal proceedings and the Court of Chancery of the State of Delaware may dismiss the proceedings as to any stockholder that fails to comply with such direction.

 

After determining which stockholders are entitled to appraisal rights, the court will appraise the shares owned by these stockholders, determining the “fair value” of such shares, exclusive of any element of value arising from the accomplishment or expectation the merger, together with interest to be paid, if any, upon the amount determined to be the fair value. In determining such fair value, the court shall take into account all relevant factors. Unless the court determines otherwise for good cause shown, interest from the effective date of the merger through the date of payment of the judgment shall accrue at 5% over the Federal Reserve discount rate. Stockholders of Grant Prideco considering seeking appraisal of their shares should note that the fair value of their shares determined under Section 262 of the DGCL could be more than, the same as or less than the consideration they would receive pursuant to the merger agreement if they did not seek appraisal of their shares.

 

The costs of the appraisal proceeding (which do not include attorney’s fees or the fees or expenses of experts) may be determined by the court and taxed against the parties as the court deems equitable under the circumstances. Upon application of a stockholder who has perfected appraisal rights, the court may order that all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney’s fees and the fees and expenses of experts, be charged pro rata against the value of all shares entitled to appraisal.

 

If a stockholder demands appraisal rights in compliance with the requirements of Section 262 of the DGCL, then, after the effective time of the merger, such stockholder will not be entitled to: (i) vote such stockholder’s shares of common stock of Grant Prideco for any purpose; (ii) receive payment of dividends or other distributions on such stockholder’s shares that are payable to stockholders of record at a date after the effective time of the merger; or (iii) receive payment of any consideration provided for in the merger agreement. A stockholder may withdraw his, her or its demand for appraisal rights by a writing withdrawing his, her or its demand for appraisal and accepting the merger consideration at any time within 60 days after the effective time of the merger, or at any time thereafter with written approval from National Oilwell Varco. Notwithstanding the foregoing, no appraisal proceeding in the Delaware Court of Chancery shall be dismissed as to any stockholder without the approval of the court, and such approval may be conditioned upon such terms as the court deems just. Subject to the foregoing, if any stockholder of Grant Prideco withdraws his, her or its demand for appraisal rights, then his, her or its shares of common stock of Grant Prideco will be automatically converted into the right to receive the merger consideration, without interest.

 

Any stockholder wishing to exercise appraisal rights is urged to consult legal counsel before attempting to exercise appraisal rights. Failure to comply strictly with all of the procedures set forth in Section 262 of the DGCL may result in the loss of the statutory appraisal rights of a stockholder.

Regulatory Approvals Required for the Merger

 

The merger is subject to review by the Antitrust Division of the U.S. Department of Justice and the U.S. Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, National Oilwell Varco and Grant Prideco are required to make pre-merger notification filings and to await the expiration or early termination of the statutory waiting period prior to completing the merger. On February 6, 2008, National Oilwell Varco and Grant Prideco each refiled a Premerger Notification and Report Form with the Antitrust Division of the U.S. Department of Justice and the U.S. Federal Trade Commission. On March 6, 2008, the parties received early termination of the waiting period from the Department of Justice and the Federal Trade Commission.

 

The merger is also subject to antitrust review by government authorities in a number of foreign jurisdictions in which one or both companies have a significant market presence to require filings. As of the date of this proxy statement, the parties have made the necessary antitrust filings in some, but not all of, these jurisdictions. National Oilwell Varco and Grant Prideco continue to work with the governmental authorities in these jurisdictions regarding the proposed merger between the companies. If one or more of these foreign approvals are not obtained prior to the special meeting of stockholders of Grant Prideco, National Oilwell Varco and Grant Prideco may elect to proceed with the merger subject to certain restrictions on the combination of the operations of the companies in certain jurisdictions until such approvals could be obtained.

 

While National Oilwell Varco and Grant Prideco expect to resolve matters related to the antitrust review of the Department of Justice and foreign authorities and to receive regulatory clearance, we cannot assure you that the Department of Justice or the antitrust authorities in other jurisdictions will give regulatory clearance to complete the merger at all or without restrictions or conditions that would have a materially adverse effect on the combined company if the merger is completed. These restrictions and conditions could include the grant of a complete or partial license, divestiture, spin-off or the holding separate of assets or businesses. Under the terms of the merger agreement, neither National Oilwell Varco nor Grant Prideco is required to commit to any divestitures, licenses or hold separate or similar arrangements with respect to its assets or conduct of business arrangements if such divestiture, license, holding separate or arrangement is not conditioned upon the consummation of the merger or would have a material adverse effect on National Oilwell Varco or Grant Prideco. In this case, either National Oilwell Varco or Grant Prideco may refuse to complete the merger if any such restrictions or conditions are required by governmental authorities as a condition to approving the merger. No additional stockholder approval is expected to be required or sought for any decision by National Oilwell Varco or Grant Prideco, after the special meeting of Grant Prideco, to agree to any terms and conditions necessary to resolve any regulatory objections to the merger, and stockholder approval will not be sought unless additional stockholder approval is required to approve the terms and conditions under applicable law.

 

In addition, during or after any statutory waiting periods (as applicable) and clearance of the merger, and even after completion of the merger, either the Antitrust Division of the U.S. Department of Justice, the U.S. Federal Trade Commission or foreign governmental authorities could challenge the consummated merger under the antitrust laws. Also, in some jurisdictions, a competitor, customer or other third party could initiate a private action under the antitrust laws challenging or seeking to enjoin the merger, before or after it is completed. National Oilwell Varco and Grant Prideco cannot be sure that a challenge to the merger will not be made or that, if a challenge is made, National Oilwell Varco and Grant Prideco will prevail.

 

Accounting Treatment

 

In accordance with accounting principles generally accepted in the United States, National Oilwell Varco will account for the merger using the purchase method of accounting. Under this method of accounting, National Oilwell Varco will record the market value (based on an average of the closing prices of the common stock of National Oilwell Varco for a range of trading days from two days before and after December 17, 2007, the announcement date) of its common stock issued in the merger, the fair value of options to purchase shares of common stock of National Oilwell Varco issued in exchange for the options to purchase shares of common stock of Grant Prideco and the amount of direct transaction costs associated with the merger as the estimated purchase price of acquiring Grant Prideco. National Oilwell Varco will allocate the estimated purchase price to the net tangible and

intangible assets (amortizable and indefinite lived) acquired based on their respective fair values at the date of the completion of the merger. Any excess of the estimated purchase price over the fair value of net assets acquired will be accounted for as goodwill.

 

Amortizable intangible assets, currently estimated at $2,833.0 million, will generally be amortized over useful lives, which range from 10 to 30 years. Identified intangibles include tradenames valued at $752.0 million, which are considered indefinite lived. In accordance with the Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” goodwill resulting from the business combination currently estimated at $2,670.7 million, and indefinite-lived intangibles will not be amortized but instead will be tested for impairment at least annually (more frequently if certain indicators are present). The foregoing preliminary amounts are subject to change based upon the final number of shares of common stock of National Oilwell Varco issued at the time of closing and the final valuation of the identified assets and liabilities of Grant Prideco.

 

In the event that the management of National Oilwell Varco determines that the value of goodwill has become impaired, the combined company will incur an accounting charge for the amount of impairment during the fiscal quarter in which the determination is made. The amounts listed in the above paragraph are only preliminary estimates, however, actual amounts may differ from these estimates.

 

Listing of the Common Stock of National Oilwell Varco

 

It is a condition to the merger that the shares of common stock of National Oilwell Varco to be issued in the merger be approved for listing on the New York Stock Exchange, subject to official notice of issuance. In addition, National Oilwell Varco will use reasonable best efforts to cause the shares of common stock of National Oilwell Varco to be issued upon the exercise of converted stock options to be approved for listing on the New York Stock Exchange.

 

Following the merger, National Oilwell Varco’s name will continue to be National Oilwell Varco, Inc. and its trading symbol on the New York Stock Exchange will continue to be “NOV”.

 

Delisting and Deregistration of the Common Stock of Grant Prideco

 

If the merger is completed, the common stock of Grant Prideco will be delisted from the New York Stock Exchange and deregistered under the Securities Exchange Act of 1934, and Grant Prideco will no longer file periodic reports with the SEC.

 

Restrictions on Sales of Shares of the Common Stock of National Oilwell Varco Received in the Merger

 

The shares of common stock of National Oilwell Varco issued in the merger will not be subject to any restrictions on transfer arising under the Securities Act of 1933. This proxy statement/prospectus does not cover resales of the common stock of National Oilwell Varco received by any person upon competition of the merger and no person is authorized to make any use of this proxy statement/prospectus in connection with any such resale.

 

The following summary describes certain material provisions of the merger agreement. A copy of the merger agreement is attached to this proxy statement/prospectus as Annex A and is incorporated by reference into this proxy statement/prospectus. While the discussion below summarizes many of the material provisions of the merger agreement, it may not contain all of the information about the merger agreement that is important to you. We encourage you to read the merger agreement in its entirety for a more complete description of the terms and conditions of the merger.

 

General

 

The merger agreement provides that Grant Prideco will be merged with and into NOV Sub, Inc., a wholly-owned subsidiary of National Oilwell Varco, at the effective time of the merger. NOV Sub will continue as the surviving corporation in accordance with the Delaware General Corporation Law, or DGCL, and will remain as a wholly owned subsidiary of National Oilwell Varco. Based on the number of outstanding shares of common stock of Grant Prideco on the record date and the number of outstanding shares of common stock of National Oilwell Varco on December 17, 2007, we anticipate that stockholders of Grant Prideco will own approximately 14% of the outstanding shares of common stock of National Oilwell Varco following the merger. At the effective time of the merger, all the property, rights, privileges, powers and franchises of Grant Prideco and NOV Sub before the merger will vest in the surviving corporation, and all debts, liabilities and duties of Grant Prideco and NOV Sub before the merger will become the debts, liabilities and duties of the surviving corporation.

 

The merger will be completed after all conditions in the merger agreement are met or waived and National Oilwell Varco and Grant Prideco file a certificate of merger with the Secretary of State of the State of Delaware. The merger agreement provides that the closing of the merger will take place 10:00 a.m., Houston time, on a date specified by National Oilwell Varco and Grant Prideco but not later than the second business day after satisfaction or waiver of the conditions to the merger unless the companies otherwise agree.

 

Conversion of Shares

 

The merger agreement provides that each issued and outstanding share of the common stock of Grant Prideco, other than shares owned by Grant Prideco, National Oilwell Varco or NOV Sub, and other than shares held by stockholders effecting their appraisal rights, will be converted into the right to receive 0.4498 of a share of National Oilwell Varco’s common stock, which we refer to as the exchange ratio, and $23.20 of cash consideration. However, if prior to the merger, the outstanding shares of the common stocks of Grant Prideco or National Oilwell Varco are changed into a different number of shares or a different class, by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the exchange ratio and cash consideration will be adjusted accordingly.

 

Each share of the outstanding common stock of National Oilwell Varco will be unaffected by the merger and will remain outstanding.

 

No fractional shares of the common stock of National Oilwell Varco will be issued in the merger. Each holder of common stock of Grant Prideco who would have otherwise been entitled to receive a fraction of a share of the common stock of National Oilwell Varco will receive cash in lieu of a fractional share of the common stock of National Oilwell Varco. The amount of cash will be equal to the relevant fraction times the average of the last reported sales price of the common stock of National Oilwell Varco on the New York Stock Exchange Composite Transactions Tape on each of the ten consecutive trading days immediately preceding the date of the effective time of the merger.

 

Procedure for the Exchange of Stock Certificates

 

Exchange of Stock Certificates

 

National Oilwell Varco and Grant Prideco have designated American Stock Transfer & Trust Company to serve as exchange agent for the exchange of certificates representing shares of the common stock of Grant Prideco for both certificates representing shares of the common stock of National Oilwell Varco and checks representing the

cash component for each share of Grant Prideco’s common stock as well as the cash payment in lieu of fractional shares. Promptly after the merger is completed, the exchange agent will mail transmittal forms and exchange instructions to each holder of record of shares of the common stock of Grant Prideco. After receiving the transmittal form, each holder of certificates formerly representing shares of Grant Prideco’s common stock will be able to surrender the certificates to the exchange agent and receive certificates evidencing the appropriate number of whole shares of National Oilwell Varco’s common stock as well as the cash consideration and cash in lieu of fractional shares. After the merger, each certificate formerly representing shares of the common stock of Grant Prideco, until surrendered and exchanged, will be deemed, for all purposes, to evidence only the right to receive a certificate representing the number of whole shares of National Oilwell Varco’s common stock that the holder’s shares of Grant Prideco’s common stock were converted to in the merger, along with the cash consideration for each share of the common stock of Grant Prideco and cash in lieu of fractional shares, if any. For purposes of determining quorums at stockholders’ meetings and the stockholders entitled to notice of, and to vote at, meetings of stockholders, holders of unsurrendered certificates of shares of Grant Prideco’s common stock will be considered to be record holders of the shares of National Oilwell Varco’s common stock represented by their certificates of shares of Grant Prideco’s common stock.

 

Dividends and Distributions

 

The holder of an unexchanged certificate of shares of Grant Prideco’s common stock will not be entitled to receive any dividends or other distributions otherwise payable by National Oilwell Varco until the certificate has been exchanged. Subject to applicable laws, following surrender of a certificate of shares of Grant Prideco’s common stock by the holder, National Oilwell Varco will pay the holder any accrued and unpaid dividends and distributions that have become payable between the effective time of the merger and the time the certificate is surrendered, without interest.

 

Lost Certificates

 

A stockholder must provide an appropriate affidavit to the exchange agent if any certificate of shares of Grant Prideco’s common stock are lost, stolen or destroyed, in order to receive shares of the common stock of National Oilwell Varco, cash consideration, cash in lieu of fractional shares or unpaid dividends and distributions in respect of the lost, stolen or destroyed certificates. In addition, the surviving corporation may require the holder of lost, stolen or destroyed certificates to post a bond as indemnity against any claim that may be made against the surviving corporation or the exchange agent with respect to the certificates.

 

No Liability

 

None of National Oilwell Varco, NOV Sub, or the exchange agent will be liable to any former holder of shares of Grant Prideco’s common stock for shares of National Oilwell Varco’s common stock, or dividends or distributions made with respect to those shares, delivered to a public official under any applicable abandoned property, escheat or similar law.

 

Withholding Right

 

National Oilwell Varco, the surviving corporation or the exchange agent on behalf of the surviving corporation, is entitled to deduct and withhold from the consideration payable to any former holder of shares of common stock of Grant Prideco the amount it is required to deduct and withhold from the consideration under the Internal Revenue Code or any provision of state, local or foreign tax law. Any amounts withheld will be treated as having been paid to the former holder of the common stock of Grant Prideco.

 

Representations and Warranties

 

National Oilwell Varco, NOV Sub, and Grant Prideco have made mutual representations and warranties in the merger agreement relating to the following:

 

 

 

• required consents or approvals;

 

 

In addition, Grant Prideco has made representations and warranties in the merger agreement with respect to the following:

 

 

In addition, National Oilwell Varco has made a representation and warranty in the merger agreement to the effect that it has access to sufficient cash resources to pay the amounts required to be paid under the merger agreement.

Certain Covenants of National Oilwell Varco and Grant Prideco

 

Grant Prideco has agreed that, during the period from the date of the merger agreement until the completion of the merger, except as otherwise consented to in writing by National Oilwell Varco or as contemplated by the merger agreement, Grant Prideco will, and will cause its subsidiaries to:

 

 

 

(a) payments or agreements paid to or entered into with employees, other than executive officers, in the ordinary course of business and following consultation with National Oilwell Varco;

 

(b) as provided under any employee benefit plan of Grant Prideco or any other contractual agreement as in effect on the date of the merger agreement;

 

(c) implementing a severance plan covering up to 30 individuals selected by Grant Prideco, after consultation with National Oilwell Varco, that will remain in effect until at least the six-month anniversary of the merger that will require National Oilwell Varco to pay those individuals the greater of (i) any severance amounts due under the existing severance program of National Oilwell Varco or (ii) six months’ salary and bonus amounts if they are terminated without cause during that period (less any salary paid to such individual during the period);

 

(d) amending Grant Prideco’s deferred compensation plans in order to, among other things, comply with Section 409A of the Internal Revenue Code, provide for full vesting of all benefits issued under those plans, provide that plan participants will receive the merger consideration in exchange for any payments that would have been made in Grant Prideco’s common stock under those plans, and to provide for the funding by means of a “rabbi trust” of all amounts payable under those plans to the extent such amounts are subject to the six-month delay provisions of Section 409A of the Internal Revenue Code;

 

(e) amending Grant Prideco’s change of control agreements with certain executives to provide for funding by means of a “rabbi trust” of all severance amounts payable under those agreements to the extent such amounts are subject to the six-month delay provisions of Section 409A of the Internal Revenue Code; or

 

(f) increasing the salary of each participant in Grant Prideco’s non qualified deferred compensation plans to compensate for the loss of Grant Prideco’s contributions under those plans.

 

 

(a) borrowings pursuant to credit agreements in effect as of the date of the merger agreement or replacement credit agreements on substantially similar terms as Grant Prideco’s credit agreements in effect as of the date of the merger agreement and having aggregate borrowing capacity not to exceed 150% of borrowing capacity under credit agreements existing as of the date of the merger agreement; and

 

(b) seller financings in connection with acquisitions permitted by the merger agreement;

 

 

 

National Oilwell Varco has agreed that, except as otherwise consented to in writing by Grant Prideco or as contemplated by the merger agreement, it will, and will cause its subsidiaries to:

 

 

Also, subject to compliance with applicable law, from the date of the merger agreement to the completion of the merger, each of Grant Prideco and National Oilwell Varco shall confer on a regular and frequent basis with one or more representatives of the other party to report on the general status of ongoing operations.

 

Certain Additional Agreements

 

In addition, National Oilwell Varco and Grant Prideco also have each agreed to use its reasonable best efforts to:

 

 

 

National Oilwell Varco and Grant Prideco also have agreed, among other things:

 

 

However, neither National Oilwell Varco nor Grant Prideco nor any of their subsidiaries are required (i) to divest or hold separate any of their respective businesses, product lines or assets, or to take or agree to take any other action or agree to any limitation, that would reasonably be expected to have a material adverse effect on the financial condition, results of operations or prospects of either National Oilwell Varco or Grant Prideco, or (ii) to agree to or effect any divestiture, hold separate any business or take any other action that is not conditioned on the consummation of the merger.

 

No Solicitation

 

Under the merger agreement, Grant Prideco has agreed not to:

 

 

However, prior to adoption by Grant Prideco’s stockholders of the merger agreement, Grant Prideco’s board of directors may furnish non-public information to, or enter into discussions or negotiations with, any person regarding a bona fide written acquisition proposal, if:

 

 

Grant Prideco’s board of directors also may respond to any tender offer that may be made in order to comply with the requirements of Rule 14e-2 or Rule 14d-9 under the Securities Exchange Act of 1934. However, any withdrawal of, or adverse change in, the recommendation relating to this merger by Grant Prideco’s board or any board committee must be effected in accordance with the terms of the merger agreement. See “— Change of Recommendation.”

 

Grant Prideco is required to notify National Oilwell Varco, orally and in writing, promptly after receipt (and in any event within one business day) of any acquisition proposal or any request for nonpublic information or access to its properties, books or records that could reasonably be expected to lead to an acquisition proposal. The notice must detail the identity of the offeror and the terms and conditions of the proposal, inquiry or contact. Grant Prideco is also required to keep National Oilwell Varco informed on a prompt basis of the status of any material developments relating to any acquisition proposal (in any event within two business days).

 

An “acquisition proposal” is any contract, offer or proposal (whether or not in writing and whether or not delivered to the stockholders of Grant Prideco) with respect to a potential or proposed acquisition transaction, which is:

 

 

Change of Recommendation

 

Neither Grant Prideco’s board of directors nor any committee thereof may withdraw or adversely modify its recommendation that the stockholders of Grant Prideco adopt the merger agreement, except in the case where each of the following is satisfied:

 

 

Stock Options and Employee Benefits

 

Stock Options

 

As of the record date for Grant Prideco’s special meeting of stockholders, Grant Prideco had outstanding options to purchase a total of            shares of the common stock of Grant Prideco. These options were issued under Grant Prideco’s employee and non-employee directors equity participation plans.

 

The merger agreement provides that options to purchase shares of common stock of Grant Prideco will be converted into options to purchase shares of common stock of National Oilwell Varco and be assumed by National Oilwell Varco. Each Grant Prideco option so assumed and converted will continue to have the same terms and conditions as set forth in the applicable Grant Prideco plan and any agreements thereunder immediately prior to the effective time of the merger, except that, as of the effective time of the merger, each Grant Prideco option so assumed and converted will be exercisable for a number of whole shares of National Oilwell Varco common stock (rounded down to the nearest whole share) equal to the product of (x) the number of shares of Grant Prideco common stock subject to such option, multiplied by (y) the “Option Exchange Ratio”, with a per share exercise price of National Oilwell Varco common stock equal to the quotient of (a) the per share exercise price of the Grant Prideco option divided by (b) the “Option Exchange Ratio”. For purposes of the merger agreement, the “Option Exchange Ratio” means the sum of (A) the exchange ratio (0.4498 of a share of National Oilwell common stock) and (B) the quotient of (i) the cash consideration per share ($23.20) divided by (ii) the average of the last reported sales price of National Oilwell Varco common stock, as reported on the NYSE Composite Transactions Tape, on each of the ten consecutive trading days immediately preceding the effective time of the merger. Some converted options will become fully vested and exercisable at the effective time of the merger.

 

National Oilwell Varco has agreed to reserve enough shares of common stock of National Oilwell Varco to cover the stock options of Grant Prideco so assumed. The board of directors of Grant Prideco will take any necessary actions to convert the stock options into options to acquire common stock of National Oilwell Varco as described above without the consent of the holders of such awards.

 

As soon as practicable after the merger is completed, National Oilwell Varco will file a registration statement on Form S-8 with respect to the shares of the common stock of National Oilwell Varco subject to the stock options assumed and National Oilwell Varco has agreed to use its reasonable best efforts to maintain the effectiveness of the registration statement for so long as these options remain outstanding.

 

Restricted Stock Grants

 

Grant Prideco has issued shares of its common stock to employees as part of an incentive bonus program. Such shares are subject to vesting or other forfeiture restrictions or repurchase conditions. After the merger, these shares will continue to vest and have the rights and be subject to the conditions as set forth in the benefit plans and related award agreement under Grant Prideco’s stock benefit plans.

 

Stock Purchase Plan

 

Under Grant Prideco’s employee stock purchase plan (ESPP), employees may purchase shares of the common stock of Grant Prideco at a discount through payroll deductions. The stock purchase plan provides for 12-month purchase periods ending on the last trading day on or before the last date of December of each year. At the end of a purchase period, payroll deductions are applied to the purchase of shares of the common stock of Grant Prideco at a price per share equal to 85% of the fair market value of the common stock of Grant Prideco at the beginning or end of the plan period, whichever is lower.

 

The merger agreement provides that each participant’s accumulated payroll deductions will be used to purchase shares of Grant Prideco Common Stock immediately prior to the effective time of the merger in accordance with the terms of the ESPP, and the shares so purchased will be converted into the right to receive the same merger consideration as any other share of common stock of Grant Prideco. Grant Prideco will cause the employee stock purchase plan to terminate at the effective time of the merger, and no further purchase rights will be granted or exercised under the ESPP thereafter.

Executive Deferred Compensation Plan, Foreign Executive Deferred Compensation Plan and Deferred Compensation Plan for Non-Employee Directors

 

In addition, Grant Prideco will terminate the Executive Deferred Compensation Plan, the Foreign Executive Deferred Compensation Plan and the Deferred Compensation Plan for Non-Employee Directors and make accelerated distributions thereunder to the participants in such plans upon the effective time of the merger. Grant Prideco will amend such plans to provide that upon the effective time of the merger (i) the participants in such plans will have fully nonforfeitable interests in their benefits earned under the plans and (ii) each non-monetary unit allocated to a participant’s account under the plans (a non-monetary unit representing a share of Grant Prideco’s common stock) will be converted into the right to receive the same merger consideration as the other holders of Grant Prideco’s common stock upon the effective time of the merger.

 

Director and Officer Indemnification

 

The merger agreement provides that, after the merger, National Oilwell Varco and NOV Sub will indemnify and hold harmless each present and former director and officer of Grant Prideco and its subsidiaries against all liabilities or expenses, including reasonable attorneys’ fees, arising out of any acts or omissions in their capacities as officers or directors before the completion of the merger, including for acts and omissions occurring in connection with the adoption of the merger agreement. This right to indemnification will apply regardless of whether the claim was asserted before or after the merger is completed. National Oilwell Varco’s indemnification obligations will be to the fullest extent permitted under Delaware law and are in addition to any other indemnification rights available to Grant Prideco’s current and former directors and officers.

 

For six years from the effective time, National Oilwell Varco will cause to be maintained in effect for the benefit of Grant Prideco’s directors and officers an insurance and indemnification policy that provides coverage for acts or omissions occurring prior to the effective time covering each such person currently covered by Grant Prideco’s directors’ and officers’ liability insurance policies on terms with respect to coverage and in amounts no less favorable than those of Grant Prideco’s policies in effect on the date of the merger agreement with the same or comparable quality insurance carriers. However, National Oilwell Varco is not required to pay an annual premium for the insurance in excess of 300% of the premium for the 2007 fiscal year and, if the insurance coverage cannot be obtained at all, or can only be obtained at an annual premium in excess of the maximum premium, National Oilwell Varco shall obtain the most advantageous policies of directors’ and officers’ insurance obtainable for an annual premium equal to the maximum premium. If requested by Grant Prideco, National Oilwell Varco will effect such coverage by purchasing a “tail” directors’ and officers’ liability insurance policy for Grant Prideco and its directors and officers if such a policy is available.

 

State Takeover Statutes

 

If any state takeover statute or state law that purports to limit or restrict business combinations or the ability to acquire or vote shares is or may become applicable to the merger, each of Grant Prideco and its board of directors and National Oilwell Varco and its board of directors are to grant such approvals and take such other actions as are necessary so that such transactions may be consummated as promptly as practicable on the terms contemplated by the merger agreement and otherwise act to eliminate or minimize the effects of such statute or law on the merger agreement.

 

Conditions to the Merger

 

Joint Conditions to the Merger

 

The merger agreement provides that the obligations of National Oilwell Varco and Grant Prideco to effect the merger are subject to the satisfaction or waiver of the following conditions:

 

 

 

 

National Oilwell Varco’s and NOV Sub’s Conditions to the Merger

 

In addition, the merger agreement provides that National Oilwell Varco’s and NOV Sub’s obligations to effect the merger are subject to the satisfaction or waiver of the following conditions:

 

 

 

 

Grant Prideco’s Conditions to the Merger

 

In addition, the merger agreement provides that Grant Prideco’s obligation to effect the merger is subject to the satisfaction or waiver of the following conditions:

 

 

 

 

 

Material Adverse Effect Definition

 

Certain representations and warranties of National Oilwell Varco and Grant Prideco, and certain other provisions in the merger agreement, are qualified by references to a “material adverse effect”. For purposes of the merger agreement, a “material adverse effect” on a person means a material adverse effect on (i) the business, assets, liabilities or obligations, financial condition or results of operations of such person and its subsidiaries, taken as a whole, (ii) the ability of such person to perform its obligations under the merger agreement or (iii) the ability of such person to consummate the merger. However, a “material adverse effect” does not include changes or conditions relating to:

 

 

Termination; Termination Fees and Expenses

 

Termination of the Merger Agreement

 

The merger agreement may be terminated at any time prior to the completion of the merger, before or after adoption of the merger agreement by the stockholders of Grant Prideco:

 

 

 

(a) the merger is not consummated on or before August 31, 2008;

 

(b) the stockholder approval of Grant Prideco has not been obtained at a meeting of such stockholders at which the merger agreement is voted upon; or

 

(c) a court or other governmental entity has issued an order, decree or ruling that cannot be appealed and that prohibits the completion of the merger;

 

 

(a) the Grant Prideco board of directors withdraws or modifies its recommendation of the merger;

 

(b) the Grant Prideco board of directors recommends an acquisition transaction other than the merger to stockholders of Grant Prideco; or

 

(c) Grant Prideco has breached a representation, warranty, covenant or agreement contained in the merger agreement, which has not been cured within 10 business days after receiving written notice of the breach.

 

 

(a) National Oilwell Varco has breached a representation, warranty, covenant or agreement contained in the merger agreement, which has not been cured within 10 business days after receiving written notice of the breach; or

 

(b) prior to the receipt of approval of stockholders of Grant Prideco, Grant Prideco receives a superior proposal, its board of directors determines to approve and enter into an agreement relating to such superior proposal, Grant Prideco gives National Oilwell Varco four business days’ prior written notice of its intention to terminate the merger agreement, such acquisition proposal continues to constitute a superior proposal after taking into account any revised proposal made by National Oilwell Varco during such period of time and Grant Prideco’s board of directors determines in good faith, following receipt of advice of its outside legal counsel, that the failure to accept such superior proposal would be inconsistent with its fiduciary duties under applicable law; provided, however, that such termination will not be effective until such time as payment of the termination fee shall have been made by Grant Prideco; provided, further, that Grant Prideco’s right to terminate the merger agreement shall not be available if it breached the no solicitation provision of the merger agreement in any material respect in connection with such superior proposal.

 

“Superior proposal” means any bona fide written proposal made by a third party to acquire substantially all the equity securities or assets of Grant Prideco (including substantially all of the assets of Grant Prideco’s subsidiaries), pursuant to a tender or exchange offer, a merger, a consolidation, a liquidation or dissolution, a recapitalization, a sale of all or substantially all of its and its subsidiaries’ assets or otherwise, on terms which the board of directors of Grant Prideco determines in good faith, after consultation with Grant Prideco’s outside legal counsel and financial advisors and after taking into account all material legal, financial, strategic, regulatory and other aspects of such proposal and the party making such proposal, (i) to be more favorable from a financial point of view to the holders of Grant Prideco’s common stock than the merger agreement, taking into account all the terms and conditions of the merger agreement (including any proposal by National Oilwell Varco to amend the terms of the merger or the merger agreement) and (ii) is reasonably likely to be consummated.

 

If the merger agreement is terminated by either National Oilwell Varco or Grant Prideco as provided above, the merger agreement will become void and National Oilwell Varco, Grant Prideco and NOV Sub will not have any continuing liabilities or obligations under the merger agreement, except for:

 

 

 

Termination Fee

 

Grant Prideco will be required to pay a termination fee of $185.0 million if:

 

 

Grant Prideco’s payment of the $185.0 million termination fee is the sole and exclusive remedy of National Oilwell Varco and NOV Sub with respect to the matters giving rise to the payment obligation. Notwithstanding the foregoing sentence, nothing shall relieve Grant Prideco from liability for any knowing or willful misrepresentation or inaccuracy in any of its representations or warranties contained in the merger agreement or any knowing or willful breach of any of its covenants or agreements contained in the merger agreement.

 

Obligation to Pay Expenses

 

The merger agreement provides that, except as set forth below, whether or not the merger is completed, each party will pay its own expenses, except that National Oilwell Varco or NOV Sub and Grant Prideco will each pay one-half of the expenses incurred in filing, printing and mailing this proxy statement/prospectus, including Securities and Exchange Commission filing fees.

 

National Oilwell Varco has agreed to reimburse Grant Prideco for up to $5.0 million in merger-related expenses incurred by Grant Prideco prior to the termination of the merger agreement where Grant Prideco terminates the merger agreement because National Oilwell Varco or NOV Sub has breached a representation, warranty, covenant or agreement contained in the merger agreement, which has not been cured within 10 business days after receiving written notice of the breach.

 

Grant Prideco has agreed to reimburse National Oilwell Varco for up to $5.0 million in merger-related expenses incurred by National Oilwell Varco prior to termination of the merger agreement where National Oilwell Varco terminates the merger agreement because Grant Prideco has breached a representation, warranty, covenant or agreement contained in the merger agreement, which has not been cured within 10 business days after receiving written notice of the breach.

 

These expense reimbursements must be made within one business day after the happening of the event giving rise to the payment obligation.

 

In addition, if a party fails to promptly pay the other party an amount due, such failing party shall pay the costs and expenses of such other party (including reasonable legal fees and expenses) in connection with any action, including the filing of any lawsuit or legal action, taken to collect payment, together with interest on the amount of the payment, at the prime rate of Citibank, N.A. in effect on the date such payment was required to be made.

Amendment and Waiver

 

The merger agreement may be amended at any time by action taken by the boards of directors of National Oilwell Varco, NOV Sub and Grant Prideco, before or after adoption of the merger agreement by Grant Prideco’s stockholders. However, once the merger agreement is so adopted by the stockholders, no change can be made where further stockholder approval is required by law. National Oilwell Varco and Grant Prideco also may extend the time for performance of the obligations or other acts of the other, may waive inaccuracies in the representations or warranties contained in the merger agreement and may waive compliance with any agreements or conditions contained in the merger agreement.

 

Directors

 

The certificate of incorporation of National Oilwell Varco divides the board of directors of National Oilwell Varco into three classes. At each annual meeting, National Oilwell Varco stockholders elect the members of one of the three classes. Immediately following the merger, the board of directors of National Oilwell Varco is expected to continue to consist of the following eight members:

 

Merrill A. “Pete” Miller, Jr. has served as Chairman of National Oilwell Varco since July 22, 2005 and previously served as Chairman from May 2002 through March 11, 2005; he has served as a director of National Oilwell Varco (and its predecessor, National Oilwell) since May 2001. From November 2000 through March 11, 2005, he served as the Chief Operating Officer of National Oilwell. Mr. Miller has served as President since November 2000 and as Chief Executive Officer since May 2001, as well as in various senior executive positions with National Oilwell since February 1996. Mr. Miller also serves as a director of Chesapeake Energy Corporation, a company engaged in the development, acquisition, production, exploration and marketing of onshore oil and natural gas properties in the United States.

 

Greg L. Armstrong has been a director of National Oilwell Varco since March 2005. Mr. Armstrong served as a director of Varco from May 20, 2004 until its merger with the Company on March 11, 2005. Since 1998, he has served as Chairman and Chief Executive Officer of Plains All American GP LLC, the general partner and controlling entity of Plains All American Pipeline, L.P., a publicly traded master limited partnership engaged in the business of marketing, gathering, transporting, terminalling and storing crude oil. Mr. Armstrong is a member of the National Petroleum Council and a member of the board of directors of BreitBurn Energy Partners.

 

Robert E. Beauchamp has been a director of National Oilwell Varco (and its predecessor, National Oilwell) since August 2002. Since 1988, he has served in various capacities at BMC Software, Inc., a leading provider of enterprise management solutions, most recently as President and Chief Executive Officer and as a director. During his career with BMC, he also served as Senior Vice President of Research & Development, Vice President of Strategic Marketing and Corporate Development and Director of Strategic Marketing.

 

Ben A. Guill has been a director of National Oilwell Varco (and its predecessor, National Oilwell) since 1999. Until April 2007, he served as President of First Reserve Corporation, a corporate manager of private investments focusing on the energy and energy-related sectors, which he joined in September 1998. Prior to joining First Reserve, he was the Managing Director and Co-head of Investment Banking of Simmons & Company International, an investment-banking firm specializing in the oil service industry. Mr. Guill also serves as a director of the general partner of Cheniere Energy Partners, L.P. and as a director of Trico Marine Services, Inc.

 

David D. Harrison has been a director of National Oilwell Varco (and its predecessor, National Oilwell) since August 2003. He served as Executive Vice President and Chief Financial Officer of Pentair, Inc., a diversified manufacturer in water technologies and enclosures businesses from February 2000 until his retirement in February 2007. He also served as Executive Vice President and Chief Financial Officer of Pentair, Inc. from 1994 to 1996. From 1972 through 1994, Mr. Harrison held various domestic and international finance positions with a combination of General Electric and Borg-Warner Chemicals. Mr. Harrison serves as a director of Navistar International Corporation, a holding company whose wholly owned subsidiaries produce International^® brand commercial trucks, MaxxForce brand diesel engines, IC brand school buses and Workhorse brand chassis for motor homes and step vans.

 

Roger L. Jarvis has been a director of National Oilwell Varco (and its predecessor, National Oilwell) since February 2002. Since 2007, Mr. Jarvis has served as Chairman, Chief Executive Officer and President of Common Resources LLC, a privately held oil and gas exploration and production company in the United States. He has served as President, Chief Executive Officer and a director of Spinnaker Exploration Company, a natural gas and oil exploration and production company, since 1996, and served as its Chairman from 1998 until its acquisition by Norsk Hydro ASA in December 2005.

 

Eric L. Mattson has been a director of National Oilwell Varco since March 2005. Mr. Mattson served as a director of Varco (and its predecessor, Tuboscope Inc.) from January 1994 until its merger with National Oilwell on

March 11, 2005. Mr. Mattson has served as Senior Vice President and Chief Financial Officer of VeriCenter, Inc., a private provider of managed hosting services, from 2003 until its acquisition in August 2007. From November 2002 until October 2003, Mr. Mattson worked as an independent consultant. Mr. Mattson was the Chief Financial Officer of Netrail, Inc., a private Internet backbone and broadband service provider, from September 1999 until November 2002. From July 1993 until May 1999, Mr. Mattson served as Senior Vice President and Chief Financial Officer of Baker Hughes Incorporated, a provider of products and services to the oil, gas and process industries.

 

Jeffery A. Smisek has been a director of National Oilwell Varco since March 2005. Mr. Smisek served as a director of Varco (and its predecessor, Tuboscope Inc.) from February 1998 until its merger with National Oilwell on March 11, 2005. Since December 30, 2004, Mr. Smisek has served as President and a director of Continental Airlines, Inc. Mr. Smisek previously served Continental Airlines, Inc. as Executive Vice President from March 2003 until December 2004 and as Executive Vice President — Corporate from May 2001 until March 2003.

 

Executive Officers

 

The following persons are expected to continue to be the executive officers of National Oilwell Varco at the effective time of the merger:

 

See “— Directors” for information about Mr. Miller.

 

Clay C. Williams has served as Senior Vice President and Chief Financial Officer of National Oilwell Varco since March 2005. From January 2003 to March 11, 2005, he served as Vice President and Chief Financial Officer of Varco. From May 2002 until January 2003, Mr. Williams served as Vice President Finance and Corporate Development for Varco. From February 2001 until May 2002, and from February 1997 until February 2000, he served as Vice President — Corporate Development at Varco.

 

Dwight W. Rettig has served as Vice President and General Counsel of National Oilwell Varco (and its predecessor National Oilwell) since February 1999, and from February 1998 to February 1999 as General Counsel of the Distribution Services Group at National Oilwell.

 

Robert Blanchard has served as the Vice President, Corporate Controller and Chief Accounting Officer of National Oilwell Varco since May 2005. He served as Controller of Varco from 1999 and as its Vice President from 2002 until the merger of National Oilwell and Varco.

 

Mark Reese has served as President — Rig Technology for National Oilwell Varco since August 2007. He served as President — Expendable Products from January 2004 to August 2007. Mr. Reese served as President of National Oilwell’s Mission Products Group from August 2000 to January 2004. From May 1997 to August 2000, he was Vice President of Operations for the Distribution Services Group for National Oilwell.

 

Directors and Executive Officers of NOV Sub, Inc.

 

The directors and executive officers of NOV Sub, Inc. immediately prior to the effective time of the merger will continue as the directors and executive officers of such entity as the surviving entity to Grant Prideco after the effective time of the merger.

 

The sole director of NOV Sub is Daniel L. Molinaro. Mr. Molinaro has served as a Vice President of National Oilwell Varco since 2003 and as Treasurer of National Oilwell Varco since 1987. Set forth below is a list of the executive officers of NOV Sub.

 

 

The following tables set forth information regarding the beneficial ownership of: