<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
BAKER HUGHES INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
BAKER HUGHES INCORPORATED
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
BAKER HUGHES INCORPORATED
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JANUARY 22, 1997
The Annual Meeting of the Stockholders of Baker Hughes Incorporated (the
"Company") will be held at the offices of the Company, 3900 Essex Lane, Suite
210, Houston, Texas on Wednesday, January 22, 1997, at 11:00 a.m., for the
purpose of considering and voting on:
1. Election of four directors to serve for a three year term.
2. Stockholder Proposal No. 1 on Implementation of the MacBride Principles
in Northern Ireland.
3. Such other business as may properly come before the meeting and any
reconvened meeting after an adjournment thereof.
The Board of Directors has fixed December 4, 1996 as the record date for
determining the stockholders of the Company entitled to notice of and to vote
at the meeting and any reconvened meeting after an adjournment thereof, and
only holders of Common Stock of the Company of record at the close of business
on that date will be entitled to notice of and to vote at that meeting or a
reconvened meeting after an adjournment.
By order of the Board of Directors,
Linda J. Smith
Secretary
Houston, Texas
December 10, 1996
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN
YOUR PROXY AS PROMPTLY AS POSSIBLE. AN ENVELOPE, WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THIS PURPOSE.
<PAGE>
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Baker Hughes Incorporated, a Delaware
corporation (hereinafter called the "Corporation," the "Company" or "Baker
Hughes"), to be voted at the Annual Meeting of Stockholders on Wednesday,
January 22, 1997, and at any and all reconvened meetings after adjournments
thereof. Baker Hughes was formed as a result of the combination of Baker
International Corporation ("Baker") and Hughes Tool Company ("Hughes") on
April 3, 1987.
Solicitation of proxies by mail is expected to commence on or about December
13, 1996 (the approximate date that this Proxy Statement and accompanying
proxy were first sent to security holders), and the cost thereof will be borne
by the Corporation. In addition to solicitation by mail, certain of the
directors, officers and regular employees of the Corporation may, without
extra compensation, solicit proxies by telephone, telegraph and personal
interview. Arrangements will be made with brokerage houses, custodians,
nominees and other fiduciaries to send proxy material to their principals, and
they will be reimbursed by the Corporation for postage and clerical expenses.
Futhermore, the Company has retained Morrow & Co. to assist in the
solicitation of proxies from stockholders of the Corporation for an
anticipated fee of $7,500 plus out-of-pocket expenses.
SHARES AS TO WHICH PROXIES HAVE BEEN EXECUTED WILL BE VOTED AS SPECIFIED IN
THE PROXIES. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE
ELECTION OF NOMINEES LISTED HEREIN AS DIRECTORS AND AGAINST STOCKHOLDER
PROPOSAL NO. 1.
Proxies may be revoked at any time prior to the exercise thereof by filing
with the Secretary, at the Corporation's executive offices, a written
revocation or a duly executed proxy bearing a later date. The executive
offices of the Corporation are located at 3900 Essex Lane, Houston, Texas
77027-5177. For a period of at least ten days prior to the Annual Meeting of
Stockholders, a complete list of stockholders entitled to vote at the Annual
Meeting will be available for inspection by stockholders of record during
ordinary business hours for proper purposes at the Corporation's executive
offices.
VOTING SECURITIES
The securities of the Corporation entitled to be voted at the Annual Meeting
consist of shares of its Common Stock, $1 par value per share (the "Common
Stock"), of which 145,149,834 shares were issued and outstanding at the close
of business on December 4, 1996. Only stockholders of record at the close of
business on that date will be entitled to vote at the meeting. Each share of
Common Stock entitles the holder thereof to one vote on each matter to be
considered at the meeting.
Assuming a quorum is present with respect to the election of directors, the
four nominees receiving the greatest number of votes cast by the holders of
the Common Stock will be elected as directors. There will be no cumulative
voting in the election of directors. Assuming a quorum is present at the
Annual Meeting, the affirmative vote of the holders of a majority of the
shares of Common Stock having voting power present in person or represented by
proxy and entitled to vote on the matter is required for approval of
Stockholder Proposal No. 1. Under Delaware law, abstentions are treated as
present and entitled to vote and thus will be counted in determining whether a
quorum is present and will have the effect of a vote against a matter. Shares
held by brokers or nominees as to which instructions have not been received
from the beneficial owners or persons entitled to vote and as to which the
broker or nominee does not have discretionary power to vote on a particular
matter (e.g. broker non-votes) will be considered present for quorum purposes
but not considered entitled to vote on that matter. Accordingly, broker non-
votes will not have any impact on the vote on a matter.
<PAGE>
The following information relates to the holders of the Common Stock known
to the Corporation on September 30, 1996 to own beneficially 5% or more of the
Common Stock. For the purposes of this Proxy Statement beneficial ownership of
securities is defined in accordance with the rules of the Securities and
Exchange Commission (the "SEC") to mean generally the power to vote or dispose
of securities, regardless of any economic interest therein.
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES PERCENT
---------------- ------ -------
<S> <C> <C>
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109................................ 20,264,718* 14.0
</TABLE>
- --------
* This number includes shares beneficially owned by certain subsidiaries or
affiliates of FMR Corp.
2
<PAGE>
ELECTION OF DIRECTORS
Four Class III directors will be elected at the Annual Meeting of
Stockholders to serve for a three year term expiring at the Annual Meeting of
Stockholders to be held in January 2000. After over 40 years of dedicated
service to the Corporation, Mr. James D. Woods, a Class III director, will not
be standing for reelection to the Board of Directors, and will retire as
Chairman of the Board and as a director at the Annual Meeting of Stockholders
to be held January 22, 1997.
The following table sets forth for each nominee for election as a director
his name, all positions with the Corporation held by him, his principal
occupation, age, year in which he first became a director of the Corporation
or its predecessors and class. Each nominee director is at present a director
of the Corporation, and has agreed to continue to serve if elected.
<TABLE>
<CAPTION>
DIRECTOR
NOMINEES PRINCIPAL OCCUPATION AGE SINCE CLASS
-------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
VICTOR G. BEGHINI Vice Chairman--Marathon Group, USX Cor- 62 1992 III
poration since 1990 and President--Mara-
thon Oil Company (oil and gas explora-
tion) since 1987. Mr. Beghini joined
Marathon in 1956. He was Vice Presi-
dent--Supply & Transportation from 1978-
1984, President of Marathon Petroleum
Company from 1984 to 1985, Senior Vice
President--Domestic Exploration and Pro-
duction for Marathon Oil Company from
1985 to 1986, and Senior Vice Presi-
dent--Worldwide Production from 1986 to
1987. Mr. Beghini is a director of USX
Corporation, the American Petroleum In-
stitute, a member of the National Petro-
leum Council, and the Sam Houston Coun-
cil of the Boy Scouts of America.
EUNICE M. FILTER Vice President and Secretary of Xerox 56 1992 III
Corporation (office equipment) since
1984, and Treasurer since 1990. Presi-
dent and Chief Executive Officer of Xe-
rox Credit Corp. since 1995. She was Di-
rector of Investor Relations of Xerox
Corporation from 1979 to 1984. Ms. Fil-
ter is a member of the National Investor
Relations Institute, the American Soci-
ety of Corporate Secretaries, the Finan-
cial Women's Association of New York,
the Financial Executives Institute and
the National Association of Corporate
Treasurers. She is also a director of
Xerox Canada Inc. and a member of the
Board of Trustees of Wells College.
MAX L. LUKENS President since October 1995 and Chief 48 1996 III
Executive Officer of the Company since
October 1996. Mr. Lukens joined Baker in
1981. He was Vice President and Chief
Financial Officer of the Company from
1984-1989; Senior Vice President of the
Company from 1987-1994; President, Baker
Hughes Production Tools from 1989-1993;
President, Baker Hughes Oilfield Opera-
tions from 1993-1995; Executive Vice
President from 1994-1995 and Chief Oper-
ating Officer 1995-1996. Mr. Lukens
serves on the Board of Directors of
Sonat, Inc. and Transocean Offshore,
Inc.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NOMINEES PRINCIPAL OCCUPATION AGE SINCE CLASS
-------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
JAMES F. MCCALL Executive Director of the American Soci- 62 1996 III
ety of Military Comptrollers since 1991.
Lieutenant General and Comptroller of
U.S. Army from 1988 until 1991. Retired
1991. General McCall was commissioned as
2nd Lieutenant of Infantry in 1958 and
was selected into the Army's
Comptroller/Financial Management career
field in 1970. General McCall is also
Chairman of the Board of Enterprise
Bancorp Inc. and Enterprise Federal Sav-
ings Bank.
JAMES D. WOODS Chairman of the Board of the Corpora- 65 1979 III
tion. Mr. Woods joined Baker in 1955 and
was Executive Vice President of Baker
from 1982 to 1985, President and Chief
Operating Officer of Baker from 1986 to
1987, President of the Corporation from
1987 to 1995, and Chief Executive Offi-
cer of the Corporation from January 1987
to October 1996. He is a director of
Wynn's International, Inc., Varco Inter-
national, Inc., and The Kroger Co. Mr.
Woods also serves on the Board of Trust-
ees of Herman Hospital. After over
40 years of dedicated service to the
Corporation, Mr. Woods will be retiring
as a director and Chairman of the Board
at the Annual Meeting of Stockholders to
be held January 22, 1997.
</TABLE>
INFORMATION CONCERNING CLASS I AND II DIRECTORS
The following table sets forth certain information for those directors whose
present terms will continue after the Annual Meeting of Stockholders. The term
of each Class I and Class II director expires at the 1998 and 1999 Annual
Meeting of Stockholders, respectively, with the exception of Mr. Conger and
Mr. Trauscht, who will retire at the 1997 Annual Meeting of Stockholders, and
the 1998 Annual Meeting of Stockholders, respectively, in accordance with the
tenure provisions of the Corporation's Bylaws.
Pursuant to the Corporation's Bylaws, in case of a vacancy on the Board of
Directors, a majority of the remaining directors of the class in which the
vacancy occurs will be empowered to elect a successor, and the person so
elected will hold office for the remainder of the full term of the director
whose death, retirement, resignation, disqualification or other cause created
the vacancy, and thereafter until the election of a successor director.
<TABLE>
<CAPTION>
DIRECTOR
DIRECTORS PRINCIPAL OCCUPATION AGE SINCE CLASS
--------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
LESTER M. ALBERTHAL, JR. Chairman of the Board of EDS (informa- 52 1990 II
tion technology service) since 1989 and
Chief Executive Officer since 1986. Mr.
Alberthal serves on the Executive Advi-
sory Board of the Center for the Pacific
Rim, the Board of Trustees of Southern
Methodist University, the Executive
Board of the Edwin L. Cox School of
Business at Southern Methodist Universi-
ty, the Board of Trustees of the Cooper
Institute for Aerobics Research, the
Board of Directors of Dallas Medical Re-
source, the Board of Directors of the
Better Business Bureau of Dallas, the
Jason Foundation for Education and the
State Fair of Texas. He is Chairman of
the United States Trade Representative's
Investment and Services Policy Advi-
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
DIRECTORS PRINCIPAL OCCUPATION AGE SINCE CLASS
--------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
sory Committee, a member of the Presi-
dent's National Security Telecommunica-
tions Advisory Committee, and the World
Economic Forum. Mr. Alberthal serves as
Co-Chairman of the Global Information
Infrastructure Commission and also a
member of the Board of the Center for
Strategic and International Studies in
Washington, D.C.
JACK S. BLANTON Chairman of Houston Endowment, Inc.; 69 1989 I
President of Eddy Refining Company (pe-
troleum products) and past Chairman of
the Board of Regents of The University
of Texas System. Former Chairman of the
Board and Chief Executive Officer of
Scurlock Oil Company from 1983 to 1988.
President of Scurlock Oil Company from
1958 to 1983. Mr. Blanton serves on the
Board of Directors of Texas Commerce
Bank, Inc., SBC Corporation, Ashland,
Inc., Burlington Northern Santa Fe,
Inc., Texas Medical Center, Inc., Pogo
Producing Company and The Methodist
Health Care System.
HARRY M. CONGER Chairman of the Board of Homestake Min- 66 1987 I
ing Company (mining) since 1982, and
Chief Executive Officer from 1978 to
1996. He was President of Homestake Min-
ing Company from 1977 to 1986. Mr.
Conger is a director of CalMat Company,
Pacific Gas & Electric Company and ASA
Limited, is past Chairman of the Ameri-
can Mining Congress and is on the Board
of Trustees of the California Institute
of Technology.
JOE B. FOSTER Chairman of the Board and Chief Execu- 62 1990 II
tive Officer of Newfield Exploration
Company (oil and gas exploration) since
1989. Executive Vice President of
Tenneco Inc. from 1981 to 1988. Director
of Tenneco Inc. from 1983 to 1988. Mr.
Foster is Vice Chairman of the National
Petroleum Council and a member of the
Offshore Committee of the Independent
Petroleum Association of America. He is
Chairman of the Board of the Houston Mu-
seum of Natural Science and past Chair-
man of the Greater Houston YMCA. Mr.
Foster is also a director of New Jersey
Resources Corporation.
RICHARD D. President and Chief Operating Officer of 52 1994 II
KINDER Enron Corp. (diversified energy) since
1990. Mr. Kinder is a director of Enron
Corp., Enron Oil & Gas Company and
Transocean Offshore Inc. He is also a
trustee of the Houston Museum of Fine
Arts and the United Way of the Texas Gulf
Coast, and is past Chairman of the
Interstate Natural Gas Association of
America.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
DIRECTORS PRINCIPAL OCCUPATION AGE SINCE CLASS
--------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
JOHN F. MAHER President since 1986 and Chief Executive 53 1989 I
Officer of Great Western Financial Cor-
poration (financial services) since
1995. Chief Operating Officer of Great
Western Financial Corporation from 1986-
1995. He was a Managing Director of Leh-
man Brothers Kuhn Loeb from 1979 to
1986. Mr. Maher is a director of Great
Western Financial Corporation and the
Big Brothers of Greater Los Angeles. He
is also National Trustee of the National
Board of Boys & Girls Clubs of America,
a member of the California Business
Roundtable and Overseer, Huntington Li-
brary, Art Collections and Gardens.
DANA G. MEAD Chairman and Chief Executive Officer of 60 1994 I
Tenneco Inc. (diversified industrial)
since May of 1994. President and Chief
Executive Officer of Tenneco Inc. from
February 1994 through May 1994. Presi-
dent and Chief Operating Officer of
Tenneco Inc. from March 1992. Executive
Vice President and Director of Interna-
tional Paper from 1989 to 1992. Senior
Vice President of International Paper
from 1986 to 1989. Mr. Mead is a direc-
tor of Tenneco Inc., Case Corporation,
Alco Standard Corporation, and Textron
Inc. He is past Chairman of the National
Association of Manufacturers. He is a
member of the President's Commission on
White House Fellowships and a Trustee-
at-Large for the Association of Gradu-
ates, U.S. Military Academy, West Point.
Mr. Mead is also a member of the Massa-
chusetts Institute of Technology Corpo-
ration and a member of MIT's Political
Science Visiting Committee, the American
Society of Corporate Executives, the
Council on Foreign Relations, the Coun-
cil for Excellence in Government, the
Business Roundtable and the Business
Council.
H. JOHN RILEY, JR. Chairman of Cooper Industries, Inc. (di- 56 * I
versified manufacturer) since 1996,
President since 1992, and Chief Execu-
tive Officer since 1995. He was Execu-
tive Vice President, Operations of Coo-
per Industries, Inc. from 1982 to 1992,
and Chief Operating Officer from 1992 to
1995. Mr. Riley is a director of Wyman-
Gordon Company, the Houston Symphony,
and The Houston Forum. He is a director
and Chairman of Junior Achievement of
Southeast Texas and Central Houston,
Inc. Mr. Riley is also a Trustee of the
Manufacturers' Alliance for Productivity
Improvement and a member of The Business
Roundtable.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
DIRECTORS PRINCIPAL OCCUPATION AGE SINCE CLASS
--------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
DONALD C. TRAUSCHT Chairman of BW Capital Corporation since 63 1988 II
1996. Chairman and Chief Executive Offi-
cer of Borg-Warner Security Corporation
(diversified services) from 1993 to
1995. Chairman and Chief Executive Offi-
cer of Borg-Warner Corporation 1991.
Vice President--Finance and Strategy
from 1987 to 1991. Vice President--Cor-
porate Planning from 1982 to 1987. Mr.
Trauscht joined Borg-Warner in 1967. He
serves as a member of the Boards of
Borg-Warner Security Corporation, Borg-
Warner Automotive, Inc., ESCO Electron-
ics Corporation, Thiokol Corporation,
IMO Industries Inc. and Bluebird Corpo-
ration.
</TABLE>
- --------
* Mr. Riley is a nominee to fill the vacancy created by the retirement of Mr.
Conger from the Board at the Company's Annual Meeting of Stockholders to be
held January 22, 1997, due to the term limitation contained in the
Company's Bylaws. In accordance with the Company's Bylaws, the remaining
Class I directors will vote on his election prior to the Company's Annual
Meeting of Stockholders to be held January 22, 1997.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
During fiscal year 1996 the Board of Directors held six meetings. During
fiscal year 1996, each non-employee director was paid a monthly retainer of
$2,500, an attendance fee of $2,000 for the first meeting of the Board or any
of its committees attended in any one day and $1,000 for each additional
meeting attended in the same day. Committee chairmen received an additional
fifty percent of the meeting fee. In addition, each non-employee Director is
entitled to retirement benefits in the amount of the annual retainer for
service on the Board at the rate in effect on December 31 of the year
preceding the year of retirement therefrom for a period of up to ten years.
Each non-employee director is allowed to defer from 1% to 100% of his or her
annual retainer, meeting fees or retirement income in accordance with the
Company's Director Compensation Deferral Plan. Directors who are employees of
Baker Hughes are not paid any fees or additional remuneration for service as
members of the Board or any of its committees and are not entitled to the
retirement benefits mentioned above. Pursuant to the Corporation's Restated
1987 Stock Option Plan, for grants made prior to 1993, and the 1993 Stock
Option Plan for grants made in 1993 and thereafter, each non-employee director
is granted a nonqualified option to purchase 2,000 shares of the Common Stock
effective upon his initial election to the Board of Directors. The stock
option plans also provide for an annual grant of a nonqualified option to
purchase 1,000 shares of the Common Stock, on the fourth Wednesday of October
each year after the initial grant until expiration of the plans to each person
who is a non-employee director on such date.
The Board of Directors has, in addition to other committees, an Audit/Ethics
Committee, Compensation Committee and a Nominating Committee.
The Audit/Ethics Committee, which is comprised of Messrs. Beghini
(Chairman), Foster, McCall and Mead, held two meetings during fiscal year
1996. The functions performed by the Audit/Ethics Committee include: reviewing
the scope and results of the annual audit and other matters with the
independent accountants, internal auditors and management; reviewing the
independence of the independent accountants and internal auditors; reviewing
actions by management on the independent and internal auditors'
recommendations; and meeting with management, the internal auditors and the
independent accountants to review the effectiveness of Baker Hughes' system of
internal controls and internal audit procedures. To promote independence of
the audit, the Committee consults separately and jointly with the independent
accountants, the internal auditors and management. In addition, the Committee
monitors the Standards of Conduct for the Corporation's employees, coordinates
compliance and reviews and investigates non-compliance matters.
7
<PAGE>
The Compensation Committee, which is comprised of Messrs. Maher (Chairman),
Blanton, Conger, Kinder and Trauscht, held three meetings during fiscal year
1996. The functions performed by the Compensation Committee include: reviewing
Baker Hughes' executive salary and bonus structure; reviewing Baker Hughes'
stock option and convertible debenture plans (and making grants thereunder),
employee retirement income plans, employee thrift plan and employee stock
purchase plan; recommending directors' fees; setting bonus goals; approving
salary and bonus awards to key executives; and recommending incentive
compensation and stock award plans for approval by stockholders.
The Nominating Committee, which is comprised of Messrs. Alberthal
(Chairman), Maher, McCall, Mead and Ms. Filter, held no meetings during fiscal
year 1996 due to the rescheduling of their regular meeting to October, 1997.
The functions performed by the Nominating Committee include: selecting
candidates to fill vacancies on the Board of Directors; reviewing the
structure and composition of the Board; and considering qualifications
requisite for continuing Board service. The Board of Directors may increase
its size during any year up to a maximum of 16 members. If the Board of
Directors increases its number of members during the year, the vacancy or
vacancies created shall be filled with new member(s) elected by majority vote
of the members in the class of directors where such increase is occurring. The
Committee also considers nominees recommended by stockholders, provided such
notice is received at the principal executive offices of the Corporation not
less than 30 days nor more than 60 days prior to the Annual Meeting of
Stockholders. Stockholders desiring to make such recommendations should submit
the candidate's name, together with biographical information and his or her
written consent to nomination to: Chairman, Nominating Committee of the Board
of Directors of Baker Hughes Incorporated, P.O. Box 4740, Houston, Texas
77210-4740.
During the fiscal year ended September 30, 1996, each director attended at
least 75% of the aggregate number of meetings of the Corporation's Board of
Directors and respective Committees on which he or she served with the
exception of Mr. Kinder who attended 70% of such meetings, and Mr. Mead who
attended 62.5% of such meetings.
8
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
Set forth below is certain information with respect to beneficial ownership
of the Common Stock as of December 4, 1996 by each director, nominee director,
the five most highly compensated executive officers and by directors and
executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------
SHARES SUBJECT TO
OPTIONS/CONVERTIBLE DEBENTURES
SHARES OWNED WHICH ARE OR WILL BECOME TOTAL
AS OF EXERCISABLE OR CONVERTIBLE BENEFICIAL % OF
NAME 12/4/96 PRIOR TO 2/4/97 OWNERSHIP CLASS(1)
---- ------------ ------------------------------ ---------- --------
<S> <C> <C> <C> <C>
Lester M. Alberthal,
Jr. ................... 6,530 8,000 14,530 --
Victor G. Beghini....... 3,000 8,935 11,935 --
Jack S. Blanton......... 8,000 6,000 14,000 --
Harry M. Conger......... 3,555(2) 6,000 9,555 --
Eunice M. Filter........ 2,000 6,000 8,000 --
Joe B. Foster........... 2,000 8,000 10,000 --
Richard D. Kinder....... 2,000 4,000 6,000 --
John F. Maher........... 5,649(3) 6,000 11,649 --
James F. McCall......... 325 2,000 2,325 --
Dana G. Mead............ 1,000 4,000 5,000 --
H. John Riley, Jr....... 0 0 0 --
Donald C. Trauscht...... 4,064 3,000 7,064 --
James D. Woods.......... 156,369 102,885 259,254 --
Max L. Lukens........... 147,118(4) 142,500 289,618 --
Eric L. Mattson......... 73,402(5) 98,321 171,723 --
George S. Finley ....... 30,996(6) 22,582 53,578 --
Jabian P. Trahan........ 18,198(7) 68,759 86,957 --
All directors and
executive officers as a
group (26 persons)..... 658,299(8) 844,075 1,502,374 1.0
</TABLE>
- --------
(1) No percent of class is shown for holdings of less than 1%.
(2) Shares held indirectly by the Conger Family Trust.
(3) Includes 553 shares held as custodian for Mr. Maher's minor children.
(4) Includes shares awarded pursuant to the Company's 1995 Stock Award Plan.
See Footnotes (1) and (7) to Summary Compensation Table.
(5) Includes shares awarded pursuant to the Company's 1995 Stock Award Plan.
See Footnotes (1) and (8) to Summary Compensation Table. Also includes
1,180 shares held indirectly by wife.
(6) Includes shares awarded pursuant to the Company's 1995 Stock Award Plan.
See Footnotes (1) and (9) to Summary Compensation Table.
(7) Includes shares awarded pursuant to the Company's 1995 Stock Award Plan.
See Footnotes (1) and (10) to Summary Compensation Table.
(8) Includes 210,608 shares awarded pursuant to the Company's 1995 Stock Award
Plan. See Footnote (1) to Summary Compensation Table.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires executive officers and directors, and persons who
beneficially own more than 10% of the Corporation's stock, to file initial
reports of ownership and reports of changes in ownership with the SEC, the New
York Stock Exchange and the Pacific Stock Exchange. Executive officers,
directors and greater than ten percent beneficial owners are required by SEC
regulations to furnish the Corporation with copies of all Section 16(a) forms
they file.
Based solely on a review of the copies of such forms furnished to the
Corporation and written representations from the executive officers and
directors, the Corporation believes that all Section 16(a) filing requirements
applicable to its executive officers and directors were complied with.
9
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by the Company and its
subsidiaries to each of the five most highly compensated executive officers of
the Company for services rendered to the Company for the fiscal years ended
September 30, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------- ----------------------------------
AWARDS PAYOUTS
----------------------- -------
RESTRICTED STOCK
NAME AND PRINCIPAL OTHER ANNUAL STOCK OPTIONS LTIP ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARDS(1) (SHARES) PAYOUTS COMPENSATION(2)
- ------------------ ---- -------- -------- ------------ ---------- -------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. D. Woods, Chairman of
the 1996 $812,254 $902,233 -- $ -- -- -- $111,879
Board and Chief
Executive 1995 786,763 769,178 -- 906,250(3) 384,789(4) -- 110,908
Officer 1994 767,315 622,636 -- 294,375(5) 148,037(6) -- 93,196
M. L. Lukens, President 1996 572,115 586,500 -- -- 117,197 -- 59,804
and Chief Operating 1995 490,462 412,500 -- 1,460,937(7) 68,705 -- 51,596
Officer 1994 426,770 297,752 -- -- 41,814 -- 37,834
E. L. Mattson, Senior
Vice 1996 346,153 267,750 -- -- 41,401 -- 34,791
President and Chief
Financial 1995 324,996 219,375 -- 558,360(8) 42,483 -- 28,526
Officer 1994 246,852 180,766 -- -- 21,370 -- 20,132
G. S. Finley, Senior
Vice 1996 261,140 200,430 -- -- 33,375 -- 25,075
President and Chief 1995 215,404 130,380 -- 251,928(9) 21,437 -- 20,736
Administrative Officer 1994 187,867 111,570 -- -- 18,842 -- 15,000
J. P. Trahan, Vice 1996 255,058 206,550 -- -- 32,313 -- 27,062
President
and President, Baker 1995 245,757 171,219 -- 142,974(10) 25,024 -- 25,658
Hughes INTEQ 1994 232,599 110,463 -- -- 20,936 -- 22,479
</TABLE>
- --------
(1) With the exception of Mr. Woods, the named executive officers received a
one-time restricted stock award matching their stock ownership as of
January 31, 1995, pursuant to the Company's 1995 Stock Award Plan (the
"Award Plan"). The awards were made to encourage additional stock
ownership and assist the executives in reaching the minimum stock
ownership requirements adopted by the Company. The matched shares vest
upon the retirement of the executive or certain other events. The
executives receive a cash payment equivalent to the Company's ordinary
dividend payment on the awards on a quarterly basis. The value of
restricted stock awards is based upon the closing stock price of $30.375
per share of the Common Stock on the New York Stock Exchange on September
30, 1996.
(2) All Other Compensation includes Company contributions to the Thrift Plan,
Supplemental Retirement Plan and life insurance premiums. Amounts for
fiscal year 1996 for the persons named above are as follows:
<TABLE>
<CAPTION>
WOODS LUKENS MATTSON FINLEY TRAHAN
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Thrift Plan Contributions........... $12,283 $ 7,783 $ 7,033 $ 7,033 $11,250
Supplemental Retirement Plan
Contributions...................... 72,725 33,935 17,029 10,524 7,774
Life Insurance Premiums............. 26,871 18,086 10,729 7,518 8,038
</TABLE>
(3) Mr. Woods was awarded 50,000 shares of the Common Stock, valued at
$906,250, on January 25, 1995, pursuant to the Award Plan. The award vests
upon Mr. Woods retirement from the Company. Mr. Woods has full rights to
receive dividends on the award. At September 30, 1996, Mr. Woods held
55,000 shares of restricted stock, valued at $1,670,625.
(4) Includes 49,789 shares which could be acquired upon conversion of
convertible debentures, originally issued on October 26, 1988 pursuant to
the Company's 1987 Convertible Debenture Plan (the "1988 Debentures"). The
original maturity date of the 1988 Debentures was October 26, 1995. The
maturity date was extended until April 26, 1996 by action taken by the
Compensation Committee of the Board of Directors on August 25, 1995.
10
<PAGE>
(5) On December 1, 1993, Mr. Woods was awarded 15,000 shares of the Common
Stock, valued at $294,375. The award vests over a three-year period, with
5,000 shares vesting on each anniversary date of the date of the award in
each of 1994, 1995 and 1996. Mr. Woods has full rights to receive
dividends on the award.
(6) Includes 48,509 shares which could be acquired upon conversion of
convertible debentures, originally issued on October 30, 1987 pursuant to
the Company's 1987 Convertible Debenture Plan (the "1987 Debentures"). The
original maturity date of the 1987 Debentures was October 30, 1994. The
maturity date was extended until March 31, 1995 by action taken by the
Compensation Committee of the Board of Directors on July 27, 1994.
(7) Mr. Lukens was awarded 15,000 shares of the Common Stock, valued at
$271,875 on January 25, 1995, pursuant to the Award Plan. The award vests
on October 26, 1999, provided Mr. Lukens remains in the employ of the
Company. Mr. Lukens has full rights to receive dividends on the award. Mr.
Lukens was also awarded 66,059 shares of the Common Stock, valued at
$1,189,062, on February 1, 1995, pursuant to the Award Plan. See Footnote
(1) above. At September 30, 1996, Mr. Lukens held 81,059 shares of
restricted stock, valued at $2,462,167.
(8) Mr. Mattson was awarded 31,020 shares of the Common Stock, valued at
$558,360, on February 1, 1995, pursuant to the Award Plan. See Footnote
(1) above. At September 30, 1996, Mr. Mattson held 31,020 shares of
restricted stock, valued at $942,233.
(9) Mr. Finley was awarded 13,996 shares of the Common Stock, valued at
$251,928, on February 1, 1995, pursuant to the Award Plan. See Footnote
(1) above. At September 30, 1996, Mr. Finley held 13,996 shares of
restricted stock, valued at $425,129.
(10) Mr. Trahan was awarded 7,943 shares of the Common Stock, valued at
$142,974, on February 1, 1995, pursuant to the Award Plan. See Footnote
(1) above. At September 30, 1996, Mr. Trahan held 7,943 shares of
restricted stock, valued at $241,269.
11
<PAGE>
STOCK OPTIONS GRANTED DURING 1996
The following table sets forth certain information regarding stock options
granted during fiscal year 1996 to the persons named in the Summary
Compensation Table above. The theoretical values on date of grant of stock
options granted in 1996 shown below are presented pursuant to SEC rules and
are calculated under a modified Black-Scholes Model for pricing options. The
theoretical values of options trading in the stock markets do not necessarily
bear a relationship to the compensation cost to the Corporation or potential
gain realized by an executive. The actual amount, if any, realized upon
exercise of stock options will depend upon the market price of the Common
Stock relative to the exercise price per share of the stock option at the time
the stock option is exercised. There is no assurance that the theoretical
values of stock options reflected in this table actually will be realized.
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS OPTIONS GRANTED EXERCISE EXPIRATION GRANT DATE
NAME GRANTED(1) TO EMPLOYEES PRICE DATE THEORETICAL VALUE(2)
---- ---------- --------------- -------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
J. D. Woods............. -- -- $ -- -- $ --
M. L. Lukens............ 117,197 10.4% 19.625 10/25/2005 1,954,612
E. L. Mattson........... 41,401 3.7% 19.625 10/25/2005 690,486
G. S. Finley............ 33,375 3.0% 19.625 10/25/2005 556,628
J. P. Trahan............ 32,313 2.9% 19.625 10/25/2005 538,916
</TABLE>
- --------
(1) Options vest (i) in 20% increments, with the first 20% vesting on the date
of grant and an additional 20% vesting on each subsequent anniversary
until the fourth anniversary date at which time the option will be fully
vested; and (ii) if the closing price of the Common Stock on the New York
Stock Exchange increases to at least $50.00 per share and thereafter the
closing price of the Common Stock on the New York Stock Exchange averages
$50.00 per share or above for a period of ten consecutive trading days,
any unvested portion of the option shall immediately vest in its entirety.
(2) The theoretical values on grant date are calculated under the Black-
Scholes Model, modified to give effect to non-transferability factors such
as timing, vesting, liquidity and freely-traded status. The Black-Scholes
Model is a mathematical formula used to value options traded on stock
exchanges. This formula considers a number of factors to estimate the
option's theoretical value, including the stock's historical volatility,
dividend rate, exercise period of the option and interest rates. The grant
date theoretical value above assumes a volatility of 22%, a dividend yield
of 1.44%, and a 6.501% risk free rate of return.
12
<PAGE>
AGGREGATED OPTION EXERCISES DURING 1996
AND OPTION VALUES AT SEPTEMBER 30, 1996
The following table sets forth certain information regarding options
exercised during fiscal year 1996 by persons named in the Summary Compensation
Table and options held by such persons at September 30, 1996. The values of
unexercised in-the-money stock options at September 30, 1996 shown below are
presented pursuant to SEC rules. The actual amount, if any, realized upon
exercise of stock options will depend upon the market price of the Common
Stock relative to the exercise price per share of the stock option at the time
the stock option is exercised. There is no assurance that the values of
unexercised in-the-money stock options reflected in this table will be
realized.
<TABLE>
<CAPTION>
OPTION EXERCISES UNEXERCISED OPTIONS AT SEPTEMBER 30, 1996
----------------------------- ------------------------------------------------
VALUE OF UNEXERCISED
NUMBER OF OPTIONS IN-THE-MONEY OPTIONS
------------------------ -----------------------
SHARES ACQUIRED VALUE NOT NOT
NAME ON EXERCISE REALIZED EXERCISABLE EXERCISABLE EXERCISABLE EXERCISABLE
---- --------------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
J. D. Woods............. 480,853(1) $3,980,322 -- 256,870 $ -- $2,718,145
M. L. Lukens............ 98,248(2) 856,289 70,490(3) 158,112 361,145 1,661,129
E. L. Mattson........... -- -- 77,593(4) 69,855 624,101 735,414
G. S. Finley............ 59,012(5) 550,418 -- 49,570 -- 514,073
J. P. Trahan............ -- -- 45,726 51,071 368,776 531,561
</TABLE>
- --------
(1) Includes 155,695 shares acquired upon conversion of convertible
debentures.
(2) Includes 22,297 shares acquired upon conversion of convertible
debentures.
(3) Includes 19,578 shares exercisable upon conversion of convertible
debentures.
(4) Includes 18,666 shares exercisable upon conversion of convertible
debentures.
(5) Includes 13,555 shares acquired upon conversion of convertible
debentures.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Corporation has an employment agreement with James D. Woods (the "Woods
Employment Agreement"), which provides for the continuation of employment of
Mr. Woods until January 31, 1997, and for successive one year periods
thereafter, subject to termination as provided therein. During the term of the
Woods Employment Agreement, Mr. Woods is entitled to receive a base salary,
annual cash bonus based upon achievement of performance goals, long term
incentives and benefits and perquisites that other officers and employees of
the Corporation are entitled to receive, all as established from time to time
by the Board of Directors or the Compensation Committee. Mr. Woods' salary may
be increased (but not decreased) based upon the performance of Mr. Woods
during the year. Upon termination of the employment of Mr. Woods due to his
Disability (as defined in the Woods Employment Agreement) for a period of more
than 90 days in the aggregate during any period of 12 consecutive months, or
reasonable expectation of Disability during such period, Mr. Woods shall be
paid his Consulting Compensation (as defined below) and a portion of his most
recently ascertainable incentive bonus. In the event of the death of Mr. Woods
during the term of the Woods Employment Agreement or during any period in
which Mr. Woods is receiving compensation during his Disability, the
Corporation shall pay to Mr. Woods' beneficiary the Consulting Compensation
and a portion of Mr. Woods' most recently ascertainable incentive bonus. Upon
termination of the Woods Employment Agreement by Mr. Woods for Good Reason (as
defined in the Woods Employment Agreement) or by the Corporation without Cause
(as defined in the Woods Employment Agreement), Mr. Woods is entitled to
receive his then annual base salary and the greater of (a) one-half of his
expected value incentive bonus or (b) Mr. Woods' expected value incentive
bonus multiplied by the percentage amount of expected value incentive bonus a
successor chief executive officer receives for such fiscal year, prorated for
the months applicable (all of the foregoing being subject to adjustment by the
GNP price deflator, and being subject to offset by compensation earned by Mr.
Woods from a subsequent employer, but such offset is limited to 65% of such
base salary and incentive bonus), as well as an immediate vesting of all long
term incentive awards, a cash lump sum payment of the present value
13
<PAGE>
of all accrued benefits under the Corporation's supplemental retirement plan,
and a continuation of Mr. Woods' benefits and perquisites, for the remainder
of the term of the Woods Employment Agreement, in return for Mr. Woods
providing consulting services to the Corporation. If the Woods Employment
Agreement is terminated by Mr. Woods for any reason other than a Good Reason,
Mr. Woods shall only receive his base salary and benefits through the date of
termination, but no annual bonus. If the Woods Employment Agreement is
terminated by the Corporation for Cause, Mr. Woods shall only receive his base
salary, benefits, and a portion of the most recently ascertainable incentive
bonus up to the date of termination. The Woods Employment Agreement also
provides for a five year consulting arrangement between Mr. Woods and the
Corporation beginning on the date of his retirement or the end of the term of
the Woods Employment Agreement. This consulting arrangement provides that Mr.
Woods will consult for the Corporation and receive as compensation therefor
$400,000 per annum (the "Consulting Compensation") but no other employment
benefits except office and secretarial expenses.
The Corporation has an employment agreement with Max L. Lukens (the "Lukens
Employment Agreement"), which provides for the continuation of employment of
Mr. Lukens for a five year period ending December 6, 1999, subject to
termination as provided therein. During the term of the Lukens Employment
Agreement, Mr. Lukens is entitled to receive a base salary, annual cash bonus
based upon achievement of performance goals, long term incentives and benefits
and perquisites that other officers and employees of the Corporation are
entitled to receive, all as established from time to time by the Board of
Directors or the Compensation Committee. Mr. Lukens' salary may be increased
(but not decreased) based upon the performance of Mr. Lukens during the year.
Upon termination of the employment of Mr. Lukens due to his Disability (as
defined in the Lukens Employment Agreement), for a period of more than 90 days
in the aggregate during any period of 12 consecutive months, or reasonable
expectation of such Disability during such period, Mr. Lukens shall be paid
one-half of his then base salary in monthly installments until Mr. Lukens is
no longer Disabled or until December 6, 1999, whichever is the first to occur,
and a portion of his most recently ascertainable incentive bonus. In the event
of the death of Mr. Lukens during the term of the Lukens Employment Agreement
or during any period in which Mr. Lukens is receiving compensation during his
Disability, the Corporation shall pay one-half of Mr. Lukens' then annual base
salary to Mr. Lukens' beneficiary for the remaining term of the Lukens
Employment Agreement or the remaining part of any Disability period, as may be
applicable, and a portion of his most recently ascertainable incentive bonus.
Upon termination of the Lukens Employment Agreement by Mr. Lukens for Good
Reason (as defined in the Lukens Employment Agreement) or by the Corporation
without Cause (as defined in the Lukens Employment Agreement), Mr. Lukens is
entitled to receive his then annual base salary and the greater of (a) one-
half of his expected value incentive bonus or (b) Mr. Lukens' expected value
incentive bonus multiplied by the percentage amount of expected value
incentive bonus an executive officer in a comparable position receives for
such fiscal year, prorated for the months applicable (all of the foregoing
being subject to adjustment by the GNP price deflator, and being subject to
offset by compensation earned by Mr. Lukens from a subsequent employer, but
such offset is limited to 65% of such base salary and incentive bonus), as
well as an immediate vesting of all long term incentive awards, a cash lump
sum payment of the present value of all accrued benefits under the
Corporation's supplemental retirement plan, and a continuation of Mr. Lukens'
benefits and perquisites, for the remainder of the term of the Lukens
Employment Agreement, in return for Mr. Lukens providing consulting services
to the Corporation. In lieu of the foregoing, if Mr. Lukens' employment is
terminated during the last 18 months of the term of the Lukens Employment
Agreement by Mr. Lukens for Good Reason or the Corporation without Cause, and
the severance benefits provided to employees pursuant to the Corporation's
executive severance policy exceed the foregoing, Mr. Lukens will receive the
normal severance benefits. If the Lukens Employment Agreement is terminated by
Mr. Lukens for any reason other than a Good Reason, Mr. Lukens shall only
receive his base salary and benefits through the date of termination, but no
annual bonus. If the Lukens Employment Agreement is terminated by the
Corporation for Cause, Mr. Lukens shall only receive his base salary,
benefits, and a portion of the most recently ascertainable incentive bonus up
to the date of termination.
The Corporation also has employment agreements with Eric L. Mattson and G.
S. Finley (each an "Officer"). Each agreement provides that if the Corporation
terminates the Officer without cause (as defined therein), or if the Officer
terminates his employment for good reason (as defined therein), in each case,
following a change in control, the Officer will be paid, in equal biweekly
installments for a 30-month period, an amount
14
<PAGE>
equal to the sum of (i) two and one-half times his then current base salary
and (ii) two and one-half times the sum of the cash bonuses awarded to him
during the preceding three years divided by three. In addition, the Officer's
participation in all benefit plans will continue for the period during which
payments are made under the employment agreement. Such compensation and
benefits may be offset by up to 65% of any personal service income he
receives. Pursuant to the Officer's agreement with the Corporation, a "change
of control" includes any one of the following events: (a) individuals as of
May 22, 1991, constituting the Board of Directors of the Corporation, cease to
constitute at least 75% of the Board, provided that any person becoming a
director after that date whose election or nomination was approved by a vote
of at least a majority of the then incumbent board (other than an election or
nomination of an individual whose initial assumption of the office is in
connection with an actual or threatened election contest as those terms are
used in Rule 14a-11 promulgated pursuant to the Exchange Act) shall be
considered to be as though that person was a member of the board incumbent on
May 22, 1991; (b) approval of the stockholders of a reorganization, merger or
consolidation with respect to which persons who were stockholders immediately
prior to such a transaction do not immediately thereafter own more than 50% of
the combined voting in the election of directors of the reorganized, merged or
consolidated company's voting securities, or a liquidation or dissolution of
the Corporation or a sale of substantially all of its assets or (c)
determination by the incumbent board of the Corporation that a change of
circumstances has occurred that would be disruptive to the continuing
employment of the Officer. If termination is a result of the death or
disability of the Officer, an amount equal to one-half of the above described
compensation shall be paid to the Officer or his estate.
COMPENSATION COMMITTEE REPORT
TO OUR STOCKHOLDERS
This report is provided in the Proxy Statement, in accordance with SEC
rules, to inform stockholders of the Compensation Committee's compensation
policies for executive officers and the rationale for compensation paid to the
Chief Executive Officer of the Company.
To preserve objectivity in the achievement of its goals, the Compensation
Committee is comprised of five independent, non-employee directors who have no
"interlocking" relationships as defined by the SEC. It is the Compensation
Committee's overall goal to develop executive compensation policies that are
consistent with, and linked to, strategic business objectives and Company
values along with competitive practice. The Compensation Committee approves
the design of, assesses the effectiveness of, and administers executive
compensation programs in support of Company compensation policies. The
Compensation Committee also reviews and approves all salary arrangements and
other remuneration for executives, evaluates executive performance, and
considers related matters.
COMPENSATION PHILOSOPHY
The Company's primary business objective is to maximize stockholder value
over the long term. To accomplish this objective, the Company has developed a
comprehensive business strategy that emphasizes maximizing earnings and stock
price, continuing its leadership in those markets in which the Company
participates, and providing products and services of the highest value.
The following compensation policies are intended to facilitate the
achievement of the Company's business strategies:
. Comprise a significant amount of pay for senior executives in the form of
long-term, at-risk pay to focus management on the long-term interests of
stockholders and balance short-term and long-term business and financial
strategic goals.
. Emphasize variable, at-risk compensation that is dependent upon the level
of success in meeting specified corporate performance goals.
15
<PAGE>
. Encourage a personal proprietary interest to provide executives with a
close identification with the Company and align executives' interests
with those of stockholders.
. Enhance the Company's ability to attract, retain, and encourage the
development of exceptionally knowledgeable and experienced executives
through compensation opportunities.
. Target compensation levels at rates that are reflective of current market
practices to maintain a stable, successful management team.
Competitive market data, including current compensation trends and movements
in the competitive marketplace, is provided by an independent compensation
consultant who also advises the Company with regard to the competitiveness of
its salary levels, incentive compensation awards and various benefit plans.
The data provided compares the Company's compensation practices to a group of
comparative companies. The Company's market for compensation comparison
purposes is comprised of a group of companies who tend to have national and
international business operations and similar sales volumes, market
capitalizations, employment levels, and lines of business. The Compensation
Committee reviews and approves the selection of companies used for
compensation comparison purposes.
The companies chosen for the comparative group used for compensation
comparison purposes generally are not the same companies that comprise the S&P
oilfield services industry index in the Performance Graph included in this
Proxy Statement. The Compensation Committee believes that the Company's most
direct competitors for executive talent are not necessarily all of the
companies that would be included in a published industry index established for
comparing stockholder returns. The formula used by the Compensation Committee
for determining annual incentive bonuses, as discussed below, does however
take into account the S&P oilfield services industry index.
The key elements of the Company's executive compensation are base salary,
annual incentives, long-term compensation, and benefits. These key elements
(other than benefits) are addressed separately below. In determining
compensation, the Compensation Committee considers all elements of an
executive's total compensation package, including severance plans, insurance,
and other benefits.
In 1993, the Internal Revenue Service adopted Section 162(m) of the Internal
Revenue Code of 1986, as amended. Section 162(m) places a limit of $1,000,000
on the amount of compensation that may be deducted by the Company in any year
with respect to the Company's Chief Executive Officer and its four other
highest paid executive officers. Certain performance-based compensation and
certain other compensation that has been approved by stockholders is not
subject to the deduction limit. The Company has qualified certain compensation
paid to executive officers for deductibility under Section 162(m), including
compensation expense related to options granted pursuant to the Company's 1993
Stock Option Plan and shares awarded pursuant to the 1993 Employee Stock Bonus
Plan. The 1995 Employee Annual Incentive Compensation Plan produces
performance-based compensation within the meaning of Section 162(m); thus the
provisions of Section 162(m) do not apply. To the extent the 1995 Stock Award
Plan produces compensation payable to the applicable executive officers, it
will be subject to the limitation requirements for deductibility of Section
162(m). The Company may from time to time pay compensation to its executive
officers that may not be deductible.
BASE SALARIES
The Compensation Committee regularly reviews each executive's base salary.
Base salaries are targeted at median levels for public companies of Baker
Hughes' relative size. Base salaries for executives are initially determined
by evaluating executives' levels of responsibility, prior experience, breadth
of knowledge, as well as internal equity issues and external pay practices.
Increases to base salaries are driven primarily by individual performance.
Individual performance is evaluated based on sustained levels of individual
contribution to the Company. When evaluating individual performance, the
Compensation Committee considers the executive's efforts in promoting Company
values; continuing educational and management training; improving product
quality; developing relationships with customers, suppliers and employees;
demonstrating leadership abilities among coworkers; and other goals.
16
<PAGE>
The base salary for Mr. James D. Woods (Chief Executive Officer of the
Company during fiscal year 1996 and Chairman of the Board) was last reviewed
at the October 1994 meeting of the Compensation Committee, at which time an
increase of 1.8% of his base salary was approved. It was the intent of the
Committee that Mr. Woods' salary would remain at that level until his
retirement, subject to adjustment to the extent his salary grade rate range
was adjusted by the Compensation Committee. In October 1995, Mr. Woods' salary
grade rate range was increased by 3.5% by the Compensation Committee, taking
into account two years of historic and anticipated economic growth and market
salary movement. Thus, his base salary was adjusted accordingly.
ANNUAL INCENTIVES
The annual incentive plan promotes the Company's pay-for-performance
philosophy by providing executives with direct financial incentives in the
form of annual cash bonuses to achieve corporate, business unit and individual
performance goals. Annual bonus opportunities allow the Company to communicate
specific goals that are of primary importance during the coming year and
motivate executives to achieve these goals.
Each year, the Compensation Committee establishes specific goals relating to
each executive's bonus opportunity. Eligible executives are assigned
threshold, target, and maximum bonus levels based on a percentage of base
salary. The percentages have been established based on bonus practices and
opportunities within companies comparable to Baker Hughes' size and/or
industry. Executives earn bonuses to the extent to which preestablished goals
are achieved.
Corporate goals are determined each year by the Compensation Committee and
are based upon financial objectives of the Company deemed appropriate by the
Compensation Committee. These objectives may include earnings per share,
profit after tax, return on net capital employed, or other financial
objectives for the year. Where executives have strategic business unit
responsibilities, a portion of the goal is based on financial performance
measures that support strategic business unit performance. This portion varies
with the position of each individual. However, no bonus is paid unless
predetermined threshold performance levels are reached.
An alternative bonus calculation is also made each year. This calculation
determines the Company's total stockholder return versus a group of peers.
Under this approach, no more than one-half a normal bonus can be paid. The
higher of the financial or alternative bonus is paid in any given year. This
feature provides motivation and reward to executives for superior performance
in the market, even when economic circumstances outside the control of the
executive render the Company's financial plans unachievable.
Target bonus awards are set at a market level (discussed previously).
Targets are considered by the Compensation Committee to be achievable, but to
require above-average performance from each of the executives.
Based on the Company's fiscal year 1996 financial performance, predetermined
bonus objectives, as set by the Compensation Committee, were achieved by each
of the named executive officers. For fiscal year 1996, Mr. Woods earned an
annual bonus in the amount of $902,233.
LONG-TERM INCENTIVES
In keeping with the Company's commitment to provide a total compensation
package that favors at-risk components of pay, long-term incentives comprise
the largest portion of an executive's total compensation package. The
Compensation Committee's objective is to provide executives with long-term
incentive award opportunities that are on par with grants made within the
Company's industry and are reflective of prior performance.
Long-term incentive award guidelines have been developed based on the same
method used as establishing bonus award guidelines. Practices of comparable
companies have been adapted for use at Baker Hughes. The actual percent
granted varies by position within the Company.
17
<PAGE>
Long-term incentives are provided pursuant to the Company's stock option
plan. Stock options are granted at an option price not less than the fair
market value of the Common Stock on the date of grant. Accordingly, stock
options have value only if the stock price appreciates from the date the
options are granted. This design focuses executives on the creation of
stockholder value over the long term and encourages equity ownership in the
Company.
In fiscal year 1995, Mr. Woods received options to purchase 335,000 shares
of Common Stock. In making this grant to Mr. Woods, it was the intent of the
Compensation Committee to not only provide him with his options for fiscal
year 1995, but also for the ensuing years until his retirement, subject to the
discretion of the Board of Directors. Accordingly, Mr. Woods was granted no
stock options in fiscal year 1996. The Compensation Committee determines each
year the total amount of options that will be made available to the Company's
executives, as well as the multiple on base salary that will be used for each
group of executives who will be receiving options, including Mr. Woods. These
amounts vary each year and are based upon what the Compensation Committee
believes is appropriate taking into account the executive's total compensation
package and the desire of the Compensation Committee to create stockholder
value, to encourage equity ownership by the Company's executives, to provide
an appropriate link to the interests of the stockholders, and to provide long-
term incentive award opportunities on par with the Company's industry.
SUMMARY
The Compensation Committee believes that the compensation program for the
executives of the Company is comparable with the compensation programs
provided by comparable companies and serves the best interests of the
stockholders of the Company. The Compensation Committee also believes that
annual performance pay is appropriately linked to individual performance,
annual financial performance of the Company, and stockholder value.
John F. Maher (Chairman)
Jack S. Blanton
Harry M. Conger
Richard D. Kinder
Donald C. Trauscht
18
<PAGE>
CORPORATE PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the
Corporation's cumulative total stockholder return on its Common Stock
(assuming reinvestment of dividends at date of payment into Common Stock) with
the cumulative total return on the published Standard & Poor's 500 Stock Index
and the cumulative total return on Standard & Poor's Oil Well Equipment and
Service Industry Group over the preceding five year period. The following
graph is presented pursuant to SEC rules. The Corporation believes that while
total stockholder return is an important corporate performance indicator, it
is subject to the vagaries of the market. In addition to the creation of
stockholder value, the Corporation's executive compensation program is based
on financial and strategic results, and the other factors set forth and
discussed above in "Compensation Committee Report".
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
BAKER HUGHES INCORPORATED; S&P 500; AND S&P OIL WELL EQUIPMENT & SERVICE
LOGO
Graph appears here
*Total return assumes reinvestment of dividends on a quarterly basis.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Baker Hughes............................ 100 97.66 100.17 81.32 91.04 137.90
S&P 500................................. 100 111.00 125.36 130.02 168.56 202.72
S&P Oil Well Equipment and Service...... 100 108.73 108.60 93.96 112.68 150.44
</TABLE>
The comparison of total return on investment (change in year-end stock price
plus reinvested dividends) assumes that $100 was invested on September 30,
1991 in Baker Hughes Common Stock, the S&P 500 Index and the S&P Oil Well
Equipment and Service Industry Group.
19
<PAGE>
STOCKHOLDER PROPOSAL NO. 1 ON
IMPLEMENTATION OF THE MACBRIDE PRINCIPLES IN NORTHERN IRELAND
The following proposal was submitted to Baker Hughes by New York City
Comptroller Alan G. Hevesi on behalf of the New York City Police Pension Fund,
the New York City Fire Department Pension Fund, the New York City Employees'
Retirement System, and the New York City Teachers' Retirement System, which
hold beneficially 105,400 shares, 25,820 shares, 332,700 shares and 150,100
shares, respectively, of the Corporation's Common Stock, and by the Minnesota
State Board of Investment, which holds beneficially 231,120 shares of the
Corporation's Common Stock, and is included in this Proxy Statement in
compliance with SEC rules and regulations.
"WHEREAS, Baker Hughes Incorporated operates a wholly-owned subsidiary in
Northern Ireland, the Hughes Tool Company Ltd.;
WHEREAS, the on-going peace process in Northern Ireland encourages us to
search for non-violent means for establishing justice and equality;
WHEREAS, Dr. Sean MacBride, founder of Amnesty International and Nobel Peace
laureate, has proposed several equal opportunity employment principles to
serve as guidelines for corporations in Northern Ireland. These include:
1. Increasing the representation of individuals from underrepresented
religious groups in the workforce including managerial, supervisory,
administrative, clerical and technical jobs.
2. Adequate security for the protection of minority employees both at the
workplace and while traveling to and from work.
3. The banning of provocative religious or political emblems from the
workplace.
4. All job openings should be publicly advertised and special recruitment
efforts should be made to attract applicants from underrepresented
religious groups.
5. Layoff, recall and termination procedures should not in practice, favor
particular religious groupings.
6. The abolition of job reservations, apprenticeship restrictions, and
differential employment criteria, which discriminate on the basis of
religion or ethnic origin.
7. The development of training programs that will prepare substantial
numbers of current minority employees for skilled jobs, including the
expansion of existing programs and the creation of new programs to
train, upgrade and improve the skills of minority employees.
8. The establishment of procedures to assess, identify and actively recruit
minority employees with potential for further advancement.
9. The appointment of a senior management staff member to oversee the
company's affirmative action efforts and the setting up of timetables to
carry out affirmative action principles.
RESOLVED, Stockholders request the Board of Directors to:
1. Make all possible lawful efforts to implement and/or increase activity
on each of the nine MacBride Principles."
PROPONENT'S STATEMENT IN SUPPORT OF PROPOSAL
"--We believe that our Company benefits by hiring from the widest available
talent pool. An employee's ability to do the job should be the primary
consideration in hiring and promotion decisions.
20
<PAGE>
--Continued discrimination and worsening employment opportunities have been
cited as contributing to support for a violent solution to Northern Ireland's
problems.
--Implementation of the MacBride Principles by Baker Hughes will demonstrate
its concern for human rights and equality of opportunity in its international
operations.
Please vote your proxy FOR these concerns."
STATEMENT OF THE BOARD OF DIRECTORS AND
MANAGEMENT IN OPPOSITION TO PROPOSAL NO. 1
Baker Hughes has a long standing policy of being an equal opportunity
employer worldwide. This policy requires managers to conduct their employment
practices in a manner that does not discriminate on the basis of race, color,
religion, sex, national origin, age, handicap or veteran's status. Baker
Hughes' operating unit in Northern Ireland, now known as Hughes Christensen
Company, a division of Baker Hughes Limited ("HCC"), has subscribed to this
policy.
In addition, HCC has signed a Declaration of Principle and Intent under the
Northern Ireland Fair Employment Act of 1989 (the "Northern Ireland Fair
Employment Act") indicating its commitment to be an equal opportunity
employer. The Northern Ireland Fair Employment Act has as its purposes the
promotion of equal opportunity and the elimination of discrimination in
employment for persons of different religious and political beliefs.
HCC also continues to cooperate fully with the Fair Employment Commission
for Northern Ireland, and has recently agreed to enter into a voluntary
agreement with the Fair Employment Commission to adopt and implement an
affirmative action program to ensure fair participation of the Roman Catholic
community in HCC's workforce in Northern Ireland.
Your Board of Directors believes HCC's employment policies and practices
ensure that HCC does not discriminate in its employment practices and that
HCC's hiring and promotion practices do not make it more difficult for persons
of a given religious belief to obtain employment or advancement.
The MacBride Principles and the Northern Ireland Fair Employment Act both
seek to eliminate employment discrimination in Northern Ireland. By adopting
the MacBride Principles, HCC would become unnecessarily accountable to two
sets of similar but not identical fair employment guidelines. For these
reasons, your Board of Directors believes that implementation of the MacBride
Principles would be burdensome, superfluous and unnecessary, particularly in
light of HCC's own policies, its compliance with the requirements of the
Northern Ireland Fair Employment Act and its cooperation with the Fair
Employment Commission.
Your Board of Directors has determined that HCC's policies on equal
employment opportunity are entirely consistent with Baker Hughes' obligations
and goals to act as an ethical and responsible member of the business
community. Your Board of Directors does not believe that endorsement of the
MacBride Principles is necessary, appropriate, or in the best interest of
Baker Hughes, its subsidiaries or affiliates, or their respective employees.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Your Board of Directors recommends a vote AGAINST approval of Stockholder
Proposal No. 1 on implementation of the MacBride Principles in Northern
Ireland.
21
<PAGE>
ANNUAL REPORT
The 1996 Annual Report of the Corporation, which includes audited financial
statements for the fiscal year ended September 30, 1996, accompanies this
Proxy Statement; however, that report is not part of the proxy soliciting
information.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, the Corporation's independent certified public
accountants, have advised the Corporation that they will have representatives
attending the Annual Meeting prepared to answer appropriate questions, and
those representatives will be given an opportunity to make a statement at the
meeting if they desire to do so.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting must be received by the Corporation by August 15, 1997 to be
considered for inclusion in the Proxy Statement and form of proxy relating to
the 1998 Annual Meeting.
OTHER MATTERS
The Board of Directors knows of no other matter to be presented at the
Annual Meeting. If any additional matter should be presented properly, it is
intended that the enclosed proxy will be voted in accordance with the
discretion of the persons named in the proxy.
22
<PAGE>
LOGO
[LOGO OF BAKER HUGHES APPEARS HERE]
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
AND PROXY STATEMENT
JANUARY 22, 1997
BAKER HUGHES INCORPORATED
3900 ESSEX LANE
HOUSTON, TEXAS
<PAGE>
BAKER HUGHES INCORPORATED
P.O. BOX 4740, HOUSTON, TX 77210-4740
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints J. D. Woods and L. O'Donnell, III as Proxies,
each with the power to appoint a substitute, and hereby authorizes them to
represent and to vote as designated below, all the shares of common stock of
Baker Hughes Incorporated held of record by the undersigned on December 4,
1996, at the Annual Meeting of Stockholders to be held on January 22, 1997 or
any reconvened meeting after an adjournment thereof.
The Board of Directors favors a
vote FOR Election of V. G.
Beghini, E. M. Filter, M. L.
Lukens and J. F. McCall as Class
III Directors.
P
R
O
X
Y
COMMENTS: (change of address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(OVER)
7667
[X] Please mark your votes as in this example.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES AND AGAINST STOCKHOLDER PROPOSAL NO. 1.
FOR
1. FOR all nominees [_]
WITHHELD
WITHHELD from all nominees [_]
FOR AGAINST ABSTAIN
2. Stockholder Proposal No. 1 [_] [_] [_]
[_] Change of Address/
Comments on Reverse
side
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------
Please sign name(s) exactly as printed hereon. In signing as attorney, adminis-
trator, guardian or trustee, please give title as such.
PLEASE MARK, SIGN AND DATE BELOW AND RETURN PROMPTLY.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) DATE
