<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 sec. 240.14a-11(c) or sec. 240.14a-12
BAKER HUGHES INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) 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:
- --------------------------------------------------------------------------------
<PAGE> 2
BAKER HUGHES INCORPORATED
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JANUARY 28, 1998
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 28, 1998, 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. Approval of Long Term Incentive Plan.
3. Stockholder Proposal No. 1 on Implementation of the MacBride
Principles in Northern Ireland.
4. 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 3, 1997 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, 1997
===============================================================================
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> 3
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 28, 1998, 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 15, 1997 (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. Furthermore,
the Company has retained ChaseMellon Shareholder Services, L.L.C. to assist in
the solicitation of proxies from stockholders of the Corporation for an
anticipated fee of $6,500 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 THE APPROVAL OF THE LONG
TERM INCENTIVE PLAN 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 169,318,406 shares were issued and outstanding at the
close of business on December 3, 1997. 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 the Long Term Incentive Plan and
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.
There were no holders of the Common Stock known to the Corporation to own
beneficially 5% or more of the Common Stock on September 30, 1997.
2
<PAGE> 4
ELECTION OF DIRECTORS
Four Class I 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 2001, with the exception of Mr. Maher, whose
term will expire at the 1999 Annual Meeting of Stockholders in accordance with
the tenure provisions of the Corporation's Bylaws. Mr. Jack S. Blanton, a Class
I director, will not be standing for reelection to the Board of Directors, and
will retire as a director at the Annual Meeting of Stockholders to be held
January 28, 1998, in accordance with the age requirements of the Corporation's
Bylaws.
The following table sets forth for Mr. Blanton and 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 has agreed to
serve if elected.
<TABLE>
<CAPTION>
DIRECTOR
NOMINEES PRINCIPAL OCCUPATION AGE SINCE CLASS
-------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
JACK S. BLANTON Chairman of Houston Endowment, Inc.; President 70 1989 I
of Eddy Refining Company (petroleum 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.
JOHN F. MAHER Retired President and Chief Executive Officer 54 1989 I
of Great Western Financial Corporation
(financial services). Mr. Maher was President
of Great Western Financial Corporation from
1986-1997, Chief Executive Officer from
1995-1997 and Chief Operating Officer from
1986-1995. He was a Managing Director of
Lehman Brothers Kuhn Loeb from 1979 to 1986.
Mr. Maher is a director of the Big Brothers of
Greater Los Angeles. He is also a member of
the National Board of Trustees of the Boys &
Girls Clubs of America, a member of the Board
of Trustees of the Cate School and Trout
Unlimited, a member of the California Business
Roundtable and Overseer, Huntington Library,
Art Collections and Gardens.
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
DIRECTOR
NOMINEES PRINCIPAL OCCUPATION AGE SINCE CLASS
-------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
H. JOHN RILEY, JR. Chairman of Cooper Industries, Inc. 57 1997 1
(diversified manufacturer) since 1996,
President since 1992, and Chief Executive
Officer since 1995. He was Executive Vice
President, Operations of Cooper 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
Chairman of Central Houston, Inc. and a member
of The Business Roundtable. Mr. Riley also
serves as a director of the Manufacturers
Alliance for Productivity and Innovation, The
Greater Houston Partnership, the Museum of
Fine Arts, Houston, Junior Achievement, Inc.
and The Business Committee for the Arts.
CHARLES L. WATSON Chairman and Chief Executive Officer of NGC 47 -- I
Corporation (diversified energy) since 1996.
He was Chairman of Natural Gas Clearing House
from 1989 to 1995, Chief Executive Officer
from 1985 to 1995 and President from 1985 to
1989. Mr. Watson serves on the National
Petroleum Council, and is a member of the
Board of Directors of the Independent
Producers Association of America and the
Interstate Natural Gas Association of America.
He is also a founding member of the Natural
Gas Council.
MAX P. WATSON, JR. Chairman of BMC Software, Inc. (computer 52 -- I
systems management software) since 1992 and
President and Chief Executive Officer since
1990. He was Chief Operating Officer of BMC
Software, Inc. from 1989 to 1990. Mr. Watson
is a trustee of the Museum of Fine Arts,
Houston.
</TABLE>
4
<PAGE> 6
INFORMATION CONCERNING CLASS II AND III 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 II and Class III director expires at the 1999 and 2000 Annual
Meeting of Stockholders, respectively, with the exception of Mr. Trauscht who
will retire at the 1998 Annual Meeting of Stockholders 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. The Nominating
Committee of the Board of Directors is currently in the process of identifying
an appropriate candidate to fill the vacancy that will be created by Mr.
Trauscht's retirement, and the remaining Class II directors will elect a new
Class II director to fill such vacancy as soon as that individual is identified.
<TABLE>
<CAPTION>
DIRECTOR
DIRECTORS PRINCIPAL OCCUPATION AGE SINCE CLASS
--------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
LESTER M. ALBERTHAL, JR. Chairman of the Board of EDS (information 53 1990 II
technology service) since 1989 and Chief
Executive Officer since 1986. Mr. Alberthal
serves on the Executive Advisory 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 University, the
Board of Trustees of the Cooper Institute for
Aerobics Research, 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
President's Advisory Committee for Trade
Policy and Negotiation, a member of the
President's National Security
Telecommunications Advisory Committee, and the
World Economic Forum. Mr. Alberthal serves as
Co-Chairman of the Global Information
Infrastructure Commission and is also a member
of the Board of the Center for Strategic and
International Studies in Washington, D.C.
VICTOR G. BEGHINI Vice Chairman -- Marathon Group, USX 63 1992 III
Corporation since 1990 and
President -- Marathon Oil Company (oil and gas
exploration) since 1987. Mr. Beghini joined
Marathon in 1956. He was Vice
President -- Supply & Transportation from
1978-1984, President of Marathon Petroleum
Company from 1984 to 1985, Senior Vice
President -- Domestic Exploration and
Production for Marathon Oil Company from 1985
to 1986, and Senior Vice
President -- Worldwide Production from 1986 to
1987. Mr. Beghini is a director of USX
Corporation, Pitt-DesMoines, Inc., the
American Petroleum Institute, a member of the
National Petroleum Council and the Sam Houston
Council of the Boy Scouts of America.
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
DIRECTOR
DIRECTORS PRINCIPAL OCCUPATION AGE SINCE CLASS
--------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
EUNICE M. FILTER Vice President and Secretary of Xerox 57 1992 III
Corporation (office equipment) since 1984, and
Treasurer since 1990. President and Chief
Executive Officer of Xerox Credit Corp. since
1995. She was Director of Investor Relations
of Xerox Corporation from 1979 to 1984. Ms.
Filter is a member of the National Investor
Relations Institute, the American Society of
Corporate Secretaries, the Financial Women's
Association of New York, the Financial
Executives Institute and the National
Association of Corporate Treasurers. She is
also a director of Briggs & Stratton
Corporation, Xerox Canada Inc. and a member of
the Board of Trustees of Wells College.
JOE B. FOSTER Chairman of the Board and Chief Executive 63 1990 II
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 Chairman of the National
Petroleum Council and a member of the Offshore
Committee of the Independent Petroleum
Association of America. Mr. Foster is also a
director of New Jersey Resources Corporation.
RICHARD D. KINDER Chairman and Chief Executive Officer of Kinder 53 1994 II
Morgan Energy Partners, L.P. (diversified
energy) since 1997. President and Chief
Operating Officer of Enron Corp. from 1990
through 1996. Mr. Kinder is a director of
Transocean Offshore Inc. and USA Waste
Services, Inc. He is also a trustee of the
Museum of Fine Arts, Houston, and is past
Chairman of the Interstate Natural Gas
Association of America.
MAX L. LUKENS Chairman of the Board since January 1997, 49 1996 III
President since October 1995 and Chief
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
Operations from 1993-1995; Executive Vice
President from 1994-1995 and Chief Operating
Officer 1995-1996. Mr. Lukens serves on the
Board of Directors of Sonat, Inc. and
Transocean Offshore, Inc.
</TABLE>
6
<PAGE> 8
<TABLE>
<CAPTION>
DIRECTOR
DIRECTORS PRINCIPAL OCCUPATION AGE SINCE CLASS
--------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
JAMES F. MCCALL Executive Director of the American Society of 63 1996 III
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 Chairman of the
Board of Enterprise Bancorp Inc. and
Enterprise Federal Savings Bank. He is also a
member of the Board of Directors of the
American Refugee Committee.
DONALD C. TRAUSCHT Chairman of BW Capital Corporation since 1996. 64 1988 II
Chairman and Chief Executive Officer of Borg-
Warner Security Corporation (diversified
services) from 1993 to 1995. Chairman and
Chief Executive Officer of Borg-Warner
Corporation 1991 to 1993. Vice
President -- Finance and Strategy from 1987 to
1991. Vice President -- Corporate 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, ESCO Electronics Corporation,
Thiokol Corporation, IMO Industries Inc. and
Bluebird Corporation.
</TABLE>
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
During fiscal year 1997 the Board of Directors held ten meetings. During
fiscal year 1997, 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, the 1993 Stock Option Plan for grants made in 1993 through 1997,
and the Long Term Incentive Plan, for grants to be made in 1998 and thereafter
(subject to stockholder approval at the 1998 Annual Meeting of Stockholders),
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), McCall and Riley, held two meetings during fiscal year 1997. 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
7
<PAGE> 9
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.
The Compensation Committee, which is comprised of Messrs. Maher (Chairman),
Blanton, Kinder, Riley and Trauscht, held four meetings during fiscal year 1997.
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 and Ms. Filter, held two meetings during fiscal year
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, 1997, 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. Maher who attended 62.5% of such meetings.
8
<PAGE> 10
SECURITY OWNERSHIP OF MANAGEMENT
Set forth below is certain information with respect to beneficial ownership
of the Common Stock as of December 3, 1997 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
WHICH ARE OR WILL BECOME TOTAL
SHARES OWNED EXERCISABLE OR CONVERTIBLE BENEFICIAL % OF
NAME AS OF 12/3/97 PRIOR TO 2/1/98 OWNERSHIP CLASS(1)
---- -------------- ------------------------------ ---------- --------
<S> <C> <C> <C> <C>
Lester M. Alberthal, Jr. ............ 9,530 6,000 15,530 --
Victor G. Beghini.................... 3,000 16,369 19,369 --
Jack S. Blanton...................... 9,000 6,000 15,000 --
Eunice M. Filter..................... 2,000 5,000 7,000 --
Joe B. Foster........................ 3,000 6,000 9,000 --
Richard D. Kinder.................... 4,000 5,000 9,000 --
John F. Maher........................ 5,843(2) 6,000 11,843 --
James F. McCall...................... 325 3,000 3,325 --
H. John Riley, Jr.................... 1,000 2,000 3,000 --
Donald C. Trauscht................... 5,075 1,000 6,075 --
Charles L. Watson.................... 0 0 0 --
Max P. Watson, Jr.................... 0 0 0 --
Max L. Lukens........................ 147,969(3) 239,752 387,721 --
Eric L. Mattson...................... 74,253(4) 138,173 212,426 --
Andrew J. Szescila................... 39,106(5) 69,405 108,511
George S. Finley..................... 33,849(6) 40,727 74,576 --
Jabian P. Trahan..................... 25,468(7) 84,314 109,782 --
All directors and executive officers
as a group (27 persons)............ 556,066(8) 1,007,097 1,563,163 --
</TABLE>
- ---------------
(1) No percent of class is shown for holdings of less than 1%.
(2) Includes 553 shares held as custodian for Mr. Maher's minor children.
(3) Includes shares awarded pursuant to the Company's 1995 Stock Award Plan. See
Footnotes (1) and (3) to Summary Compensation Table.
(4) Includes shares awarded pursuant to the Company's 1995 Stock Award Plan. See
Footnotes (1) and (4) to Summary Compensation Table. Also includes 1,180
shares held indirectly by wife.
(5) Includes shares awarded pursuant to the Company's 1995 Stock Award Plan. See
Footnotes (1) and (5) to Summary Compensation Table.
(6) Includes shares awarded pursuant to the Company's 1995 Stock Award Plan. See
Footnotes (1) and (6) to Summary Compensation Table.
(7) Includes shares awarded pursuant to the Company's 1995 Stock Award Plan. See
Footnotes (1) and (7) to Summary Compensation Table.
(8) Includes 218,608 shares awarded pursuant to the Company's 1995 Stock Award
Plan. See Footnote (1) to Summary Compensation Table.
9
<PAGE> 11
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 Securities and
Exchange Commission (the "SEC"), the New York Stock Exchange and the Pacific
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, with the
exception of the following:
Mr. G. S. Finley, Senior Vice President and Chief Administrative Officer,
filed a Form 4 with the SEC on April 11, 1997, which was due on April 10, 1997,
reporting the exercise of a Baker Hughes stock option on March 24, 1997, in the
amount of 10,808 shares of common stock and subsequent same-day sale of 8,485
shares of common stock. Mr. M. G. Dick, Vice President and President, Baker
Hughes Process Equipment Company, filed a Form 4 with the SEC on March 3, 1997,
which was due on February 10, 1997, reporting the exercise of a Baker Hughes
stock option on January 31, 1997, in the amount of 4,716 shares of common stock
and subsequent same-day sale of 4,716 shares of common stock. Mr. A. J.
Szescila, Senior Vice President and President, Baker Hughes Oilfield Operations,
inadvertently failed to report the exercise of a Baker Hughes stock option on
October 8, 1996, in the amount of 5,922 shares of common stock, and subsequent
same-day sale of 5,922 shares of common stock. This exercise was reported on Mr.
Szescila's Form 5 for the fiscal year ended September 30, 1997.
10
<PAGE> 12
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, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------------- --------------------------------
AWARDS PAYOUTS
---------------------- -------
RESTRICTED STOCK
OTHER ANNUAL STOCK OPTIONS LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS(1) (SHARES) PAYOUTS COMPENSATION(2)
--------------------------- ---- -------- -------- ------------ ---------- -------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
M. L. Lukens, Chairman of the 1997 $721,539 $942,500 -- $ -- 100,694 -- $74,193
Board, President and Chief 1996 572,115 586,500 -- -- 117,197 -- 59,804
Executive Officer 1995 490,462 412,500 -- 1,460,937(3) 68,705 -- 51,596
E. L. Mattson, Senior Vice 1997 364,135 367,500 -- -- 36,458 -- 38,209
President and Chief 1996 346,153 267,750 -- -- 41,401 -- 34,791
Financial Officer 1995 324,996 219,375 -- 558,360(4) 42,483 -- 28,526
A.J. Szescila, Senior Vice 1997 266,742 290,902 -- -- 25,808 -- 27,818
President and President, 1996 245,265 168,476 -- -- 29,496 -- 25,554
Baker Hughes Oilfield 1995 232,793 138,928 -- 315,000(5) 21,996 -- 23,124
Operations
G. S. Finley, Senior Vice 1997 276,538 252,000 -- -- 27,291 -- 28,702
President and Chief 1996 261,140 200,430 -- -- 33,375 -- 25,075
Administrative Officer 1995 215,404 130,380 -- 251,928(6) 21,437 -- 20,736
J. P. Trahan, Vice President 1997 292,115 228,285 -- -- 28,125 -- 30,421
and President, Baker 1996 255,058 206,550 -- -- 32,313 -- 27,062
Hughes Solutions 1995 245,757 171,219 -- 142,974(7) 25,024 -- 25,658
</TABLE>
- ---------------
(1) 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 $43.8125 per share of
the Common Stock on the New York Stock Exchange on September 30, 1997.
(2) All Other Compensation includes Company contributions to the Thrift Plan,
Supplemental Retirement Plan and life insurance premiums. Amounts for fiscal
year 1997 for the persons named above are as follows:
<TABLE>
<CAPTION>
LUKENS MATTSON SZESCILA FINLEY TRAHAN
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Thrift Plan Contributions........... $ 8,046 $7,858 $ 9,312 $ 7,858 $12,412
Supplemental Retirement Plan
Contributions..................... 43,517 18,938 10,520 12,477 9,443
Life Insurance Premiums............. 22,630 11,413 7,986 8,367 8,566
</TABLE>
(3) 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, 1997, Mr. Lukens held 81,059 shares of restricted stock,
valued at $3,551,397.
(4) 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, 1997, Mr. Mattson held 31,020 shares of restricted
stock, valued at $1,359,064.
11
<PAGE> 13
(5) Mr. Szescila was awarded 17,500 shares of Common Stock, valued at $315,000,
on February 1, 1995, pursuant to the Award Plan. See Footnote (1) above. At
September 30, 1997, Mr. Szescila held 17,500 shares of restricted stock,
valued at $766,719.
(6) 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, 1997, Mr. Finley held 13,996 shares of restricted
stock, valued at $613,200.
(7) 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, 1997, Mr. Trahan held 7,943 shares of restricted stock, valued
at $348,003.
STOCK OPTIONS GRANTED DURING 1997
The following table sets forth certain information regarding stock options
granted during fiscal year 1997 to the persons named in the Summary Compensation
Table above. The theoretical values on date of grant of stock options granted in
1997 shown below are presented pursuant to SEC rules and are calculated using
the 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>
M. L. Lukens.................... 100,694 11.4% $36.00 10/23/2006 $1,647,857
E. L. Mattson................... 36,458 4.1% 36.00 10/23/2006 596,635
A. J. Szescila.................. 25,808 2.9% 36.00 10/23/2006 422,348
G. S. Finley.................... 27,291 3.0% 36.00 10/23/2006 446,617
J. P. Trahan.................... 28,125 3.1% 36.00 10/23/2006 460,266
</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. 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 25%, a dividend yield of 1.3%, a 6.123% risk free rate of return and a
ten-year option term.
12
<PAGE> 14
AGGREGATED OPTION EXERCISES DURING 1997
AND OPTION VALUES AT SEPTEMBER 30, 1997
The following table sets forth certain information regarding options
exercised during fiscal year 1997 by persons named in the Summary Compensation
Table and options held by such persons at September 30, 1997. The values of
unexercised in-the-money stock options at September 30, 1997 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, 1997
-------------------------- ---------------------------------------------------------
VALUE OF UNEXERCISED IN-THE-
NUMBER OF OPTIONS MONEY OPTIONS
------------------------- -----------------------------
SHARES ACQUIRED VALUE NOT NOT
NAME ON EXERCISE REALIZED EXERCISABLE EXERCISABLE EXERCISABLE EXERCISABLE
---- --------------- -------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
M. L. Lukens.......... -- $ -- 142,600(1) 186,696 $2,689,192 $3,191,593
E. L. Mattson......... 10,233 128,424 98,421(2) 75,252 2,060,466 1,341,489
A. J. Szescila........ 40,523 675,909 36,481 50,819 766,794 887,230
G. S. Finley.......... 10,808 194,796 11,874 54,179 197,282 948,811
J. P. Trahan.......... 14,646 264,330 54,213 56,063 1,136,612 983,215
</TABLE>
- ---------------
(1) Includes 19,578 shares exercisable upon conversion of convertible
debentures.
(2) Includes 8,433 shares exercisable upon conversion of convertible debentures.
EMPLOYMENT AND SEVERANCE AGREEMENTS
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'
13
<PAGE> 15
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. To the extent any
provision of the Lukens Employment Agreement is covered by a provision of the
Severance Agreement described below, the Lukens Employment Agreement provision
so covered is superseded by the relevant portion of the Severance Agreement.
In addition to the employment agreement described above, the Corporation
also has severance agreements with Max L. Lukens, Eric L. Mattson, Andrew J.
Szescila, G. S. Finley and Jabian P. Trahan (each an "Officer")(the "Severance
Agreements"), which provide for payment of certain benefits to the Officers as a
result of termination of employment following or in connection with a change in
control of the Corporation ("Change in Control"). The initial term of the
Severance Agreements expires on December 31, 1999. Beginning on January 1, 1998,
and on each successive January 1 thereafter (the "Extension Date"), the term of
the Severance Agreements is automatically renewed for an additional year, unless
notice of nonextension has been given by September 30 prior to such Extension
Date. The term is automatically extended for twenty-four months following a
Change in Control. Pursuant to the Severance Agreements, severance benefits are
paid to the Officer following a Change in Control (i) unless (x) the Officer
resigns without Good Reason (as defined in the Severance Agreements), (y) the
Officer is terminated by the Corporation for Cause (as defined in the Severance
Agreements), or (z) the Officer is terminated by reason of death or disability,
or (ii) in certain circumstances, if the Officer voluntarily terminates his
employment during the one-month period following the first anniversary of the
Change in Control. Provided the Officer meets the criteria for payment of
severance benefits following a Change in Control as described above, he will
receive the following benefits: (a) a lump sum payment equal to three times the
sum of the Officer's annual base salary in effect on the date of termination of
employment or, if higher, his annual base salary in effect immediately prior to
the event or circumstance constituting Good Reason; (b) a lump sum payment equal
to three times the sum of the average annual bonus earned by the Officer during
the three fiscal years ending immediately prior to the fiscal year in which
termination of employment occurs or, if higher, immediately prior to the fiscal
year in which occurs the event or circumstance constituting Good Reason;
provided, that if the Officer has not participated in an annual bonus plan of
the Company for the entirety of such three year period, then the average bonus
will be calculated using such lesser number of bonuses as have been earned; (c)
continuation of life, disability, accident and health insurance benefits and all
perquisites for an additional three years; (d) a lump sum payment equal to the
sum of (i) any unpaid incentive compensation which has been allocated or awarded
to the Officer for a complete fiscal year or other measuring period preceding
the date of termination under the Corporation's Annual Incentive Compensation
Plan and which, as of the date of termination, is contingent only upon the
continued employment of the Officer to a subsequent date, and (ii) a pro rata
portion to the date of termination of the aggregate value of all contingent
incentive compensation awards to the Officer for all then uncompleted periods
under the Corporation's Annual Incentive Compensation Plan; provided however
that if such termination of employment occurs during the same year in which the
Change of Control occurs, the pro rata bonus payment referred to in clause (ii)
above shall be offset by any payments received under the Corporation's Annual
Incentive Compensation Plan in connection with such Change in Control; (e) a
lump sum payment equal to the present value of the benefits the Officer would
have received had he continued to participate in the Corporation's thrift and
supplemental retirement plans for an additional three years, assuming for this
purpose that (i) the Officer's compensation during such three-year period
remained at the levels used for calculating the severance payment described in
paragraph (a) and (b) above, and (ii) the Officer's contributions to such plans
remained at the levels in effect as of the date of the Change in Control or the
date of termination, whichever is greater; (f) eligibility for the Corporation's
retiree
14
<PAGE> 16
medical program if the Officer would have become entitled to participate in such
program had he or she remained employed for an additional three years; (g)
outplacement services for a period of three years or, if earlier, until
acceptance by the Officer of an offer of employment; (h) an additional amount (a
"gross-up" payment) in respect of excise taxes which may be imposed under the
"golden parachute" rules on payments and benefits received in connection with
the Change in Control; the gross-up payment would make the Officer whole for
such excise taxes (and for all taxes on the gross-up payment) in respect of
payments and benefits received pursuant to all the Corporation's plans,
agreements and arrangements (including for example, acceleration of equity
awards). In addition to the above, the Severance Agreements provide for full
vesting of all stock options and other equity incentive awards upon the
occurrence of a Change in Control. A "Change in Control" is deemed to occur if
(i) any person becomes the owner of 20% of the Corporation's voting securities;
(ii) a change in the majority of the membership of the Board occurs without
approval of two-thirds of the directors who either were directors at the
beginning of the period, or whose election was previously so approved; (iii)
there is consummated a merger or consolidation of the Corporation or a
subsidiary thereof with another company in which the Corporation's stockholders
do not continue to hold at least 65% of the voting securities of the surviving
entity (excepting certain recapitalizations of the Corporation); or (iv) there
occurs a liquidation of the Corporation or a sale or other disposition of all or
substantially all of the Corporation's assets. The Severance Agreements
supersede any other agreements and representations made by the Officer or the
Corporation setting forth the terms and conditions of the Officer's employment
with the Corporation only in the event that the Officer's employment with the
Corporation is terminated in connection with a Change in Control by the Company
other than for Cause (as defined therein) or by the Officer other than for Good
Reason (as defined therein).
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 practices. 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> 17
- 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, as well as options and stock appreciation rights granted, and shares
awarded in respect of the exercise of a stock option, pursuant to the Long Term
Incentive Plan, which is being presented to the stockholders in this Proxy
Statement. The 1995 Employee Annual Incentive Compensation Plan produces
performance-based compensation within the meaning of Section 162(m); thus the
payments under the plan will remain deductible by the Company. To the extent
stock awards under the 1995 Stock Award Plan and the Long Term Incentive Plan
produce 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
16
<PAGE> 18
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.
The base salary for Mr. Max L. Lukens (Chief Executive Officer of the
Company during fiscal year 1997 and Chairman of the Board) was last reviewed at
the October 1996 meeting of the Compensation Committee, at which time he was
promoted to Chief Executive Officer and an increase of 26.1% of his base salary
was approved. In setting Mr. Lukens' base salary for fiscal year 1997, the
Compensation Committee reviewed the compensation of Chief Executive Officers in
a group of comparative companies, as well as the Company's positive financial
performance during fiscal year 1996 (during which time Mr. Lukens served as
President and Chief Operating Officer of the Company) with respect to revenue
growth, expense control, net income and earnings per share.
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, return on shareholder investment or
other financial objectives for the year. Where executives have strategic
business unit responsibilities, a portion of the goal may be based on financial
performance measures that support strategic business unit performance. This
portion varies with the position of each individual and the particular
objectives of the Company. 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
require above-average performance from each of the executives.
Based on the Company's fiscal year 1997 financial performance,
predetermined bonus objectives, as set by the Compensation Committee, were
achieved by each of the named executive officers. For fiscal year 1997, Mr.
Lukens earned an annual bonus in the amount of $942,500.
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.
17
<PAGE> 19
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.
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.
On October 22, 1997, the Compensation Committee and the Company's Board of
Directors approved the 1998 Special Employee Stock Option Plan, pursuant to
which the Compensation Committee granted a nonqualified stock option for 100
shares of Common Stock of the Company to each member of a broad-based group of
U.S. and non-U.S. employees of the Company, which group did not include the
Company's executives. Each such option was granted at fair market value on the
date of grant, for a ten year term, with vesting on the date three years from
the date of grant provided such grantee was still an employee of the Company on
such date. The Compensation Committee believes that the 1998 Special Employee
Stock Option Plan and the grant of stock options thereunder will focus all the
Company's employees on the creation of stockholder value and encourage equity
ownership in the Company by the Company's employees.
In fiscal year 1997, Mr. Lukens received options to purchase 100,694 shares
of Common Stock. The option granted to Mr. Lukens in fiscal year 1997 was based
on a multiple of five times his base salary and represented approximately 11.4%
of the total options granted to employees of the Company during the 1997 fiscal
year. 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. Lukens. 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
Richard D. Kinder
H. J. Riley, Jr.
Donald C. Trauscht
18
<PAGE> 20
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
<TABLE>
<CAPTION>
S&P OIL WELL
MEASUREMENT PERIOD EQUIPMENT AND
(FISCAL YEAR COVERED) BAKER HUGHES S&P 500 SERVICE
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 102.57 112.94 104.70
1994 83.26 117.14 90.59
1995 93.22 151.86 108.63
1996 141.20 182.63 145.62
1997 206.10 255.31 267.17
</TABLE>
* Total return assumes reinvestment of dividends on a quarterly basis.
The comparison of total return on investment (change in year-end stock
price plus reinvested dividends) assumes that $100 was invested on September 30,
1992 in Baker Hughes Common Stock, the S&P 500 Index and the S&P Oil Well
Equipment and Service Industry Group.
19
<PAGE> 21
PROPOSAL TO APPROVE THE LONG TERM INCENTIVE PLAN
The Board of Directors adopted the Long Term Incentive Plan (the "Plan") on
October 22, 1997, to be effective January 28, 1998, subject to stockholder
approval. The Plan is intended to reward certain corporate officers and key
employees by enabling them to acquire shares of Company common stock (the
"Common Stock") and receive other compensation based on the Common Stock. The
Plan is also designed to attract and retain key employees and qualified
nonemployee directors, and to stimulate the active interest of those persons in
the development and financial success of the Company.
A copy of the Plan is attached as Exhibit A to this Proxy Statement. The
principal features of the Plan are described below.
GENERAL
The Plan provides for the grant of awards in the form of stock options,
stock appreciation rights and stock awards to employees of the Corporation and
its subsidiaries ("Employee Awards"), and for the grant of stock options to
nonemployee directors of the Corporation ("Director Options"). There is
available for issuance under the Plan 6,000,000 shares of Common Stock plus the
number of shares of Common Stock that have been reserved for issuance under the
Company's 1991 and 1993 Employee Stock Bonus Plans but are from time to time no
longer needed to be reserved under those plans because there are no longer any
eligible options in respect of which awards are made under those plans (subject
to adjustments in the event of stock dividends, stock splits and certain other
events). If any award granted under the Plan is forfeited or terminated, expires
unexercised, is settled in cash in lieu of Common Stock or in a manner such that
all or some of the shares covered by an award are not issued or are exchanged
for awards that do not involve Common Stock, the shares subject to such award
will again become available for the purposes of the Plan. Based on the closing
price of the Common Stock on the New York Stock Exchange on October 21, 1997,
the aggregate market value of the 6,000,000 shares subject to the Plan is
$286,875,000.
ADMINISTRATION
The Plan is administered by the Compensation Committee (the "Committee") of
the Board of Directors of the Corporation. With respect to Employee Awards, the
Committee interprets the Plan, adopts such rules, regulations and guidelines for
carrying out the Plan as it may deem necessary or proper and corrects any defect
or supplies any omission or reconciles any inconsistency therein or in any award
granted thereunder. The Committee determines the type or types of Employee
Awards to be made under the Plan, designates the employees who are to be the
recipients of the awards, and designates the terms, conditions and limitations
of each such award.
AWARDS TO EMPLOYEES
Employee Awards granted under the Plan may be in the form of stock awards,
stock appreciation rights and nonqualified and incentive stock options. No
employee may be granted an award in the form of a stock option or stock
appreciation right that is exercisable for more than 500,000 shares of Common
Stock, during any fiscal year. No more than 700,000 shares of Common Stock may
be awarded as stock awards that are not stock options or stock appreciation
rights (not including the stock awards described in the following sentence). No
more than 900,000 shares of Common Stock may be awarded in respect of the
exercise of a stock option on a basis of not more than one share of Common Stock
for each five shares of Common Stock acquired pursuant to an option exercise.
The term of an employee stock option shall not exceed ten years, and once
granted, an option may not be repriced or exchanged for an option having a lower
price.
AWARDS TO NONEMPLOYEE DIRECTORS
Effective October 23, 1997, subject to stockholder approval of the Plan,
each nonemployee director shall automatically be granted an option that provides
for the purchase of 2,000 shares of Common Stock, on the date of his or her
first appointment or election to the Board of Directors. In addition, commencing
October 28, 1998, and on the fourth Wednesday of each October thereafter, each
nonemployee director will automatically
20
<PAGE> 22
be granted an option that provides for the purchase of 1,000 shares of Common
Stock. The options granted to nonemployee directors will have a term of seven
years from the date of grant, and will vest and become exercisable on the first
anniversary of the date of grant. In addition, the purchase price of each share
of Common Stock subject to the grant of a Director Option will be equal to the
fair market value of the Common Stock on the date of grant. If a nonemployee
director ceases to be a director of the Corporation within one year following
the grant of a Direction Option, (i) the option will immediately terminate, but
only if the termination occurs prior to a Change in Control (as defined in the
Plan), or after the second anniversary of a Change in Control; or (ii) at the
expiration of three years after the nonemployee director's directorship is
terminated if the termination occurs within two years following a Change in
Control. If a nonemployee director is removed from the Board of Directors for
Cause (other than disability or removal in accordance with the provisions of the
Corporation's Bylaws), the option will immediately terminate. If a nonemployee
director dies while a director of the Corporation, the option may be exercised
in full within one year after the date of the nonemployee director's death (if
otherwise within the option period), but not thereafter. If a nonemployee
director resigns or is removed from the Board of Directors because of disability
or in accordance with the provisions of the Corporation's Bylaws, the option may
be exercised in full within three years after the date of resignation or removal
(if otherwise within the option period), but not thereafter. If a nonemployee
director ceases to be a director of the Corporation for any reason other than
the reasons specified in the preceding sentences, the option may be exercised in
full within three months after the date of the termination of the nonemployee
director's directorship (if otherwise within the option period), but not
thereafter.
PAYMENT OF AWARDS
Payment of awards to employees may be made in the form of cash or Common
Stock, or a combination of cash and Common Stock, and may include such
restrictions as the Committee determines, including, in the case of Common
Stock, restrictions on transfer and forfeiture provisions. Amounts payable to
employees with respect to an award may be deferred and paid either in the form
of installments or as a lump-sum payment, with the approval of the Committee.
Rights to dividends may be extended to, and made part of, an Employee Award
consisting of shares of Common Stock or units denominated in shares of Common
Stock, subject to such terms, conditions and restrictions as the Committee may
establish.
EXERCISE OF STOCK OPTIONS
The price at which shares of Common Stock may be purchased under a stock
option shall be paid in full at the time of exercise in cash or, if elected by
the optionee, the optionee may purchase such shares by means of tendering Common
Stock or surrendering another award or combination of awards, valued at fair
market value on the date of exercise. The Committee will determine acceptable
methods for employees to tender Common Stock or other awards, provided that any
Common Stock that is or was the subject of an award may be so tendered only if
it has been held for six months. The Committee may also permit the exercise or
purchase of such awards by use of the proceeds to be received from the sale of
Common Stock issuable pursuant to an award.
AMENDMENT AND TERMINATION
The Board of Directors may amend, modify, suspend or terminate the Plan for
the purpose of meeting or addressing any change in legal requirements or for any
other purpose permitted by law, except that no amendment or alteration that
would adversely affect the rights of any participant under any award previously
granted to such participant shall be made without the consent of the participant
or to the extent stockholder approval is otherwise required by applicable legal
requirements.
CHANGE IN CONTROL
In the event of a Change in Control (as defined in the Plan), all awards
granted pursuant to the Plan will become fully vested and, if applicable,
immediately exercisable. All outstanding stock options held by an employee will
become fully vested and exercisable as of the effective date of termination of
such employee's employment if (i) the employee's employment is terminated by the
Corporation without Cause (as defined in
21
<PAGE> 23
the Plan) prior to a Change in Control and the termination was at the request or
direction of a person who has entered into an agreement with the Corporation the
consummation of which would constitute a Change in Control, (ii) the employee
terminates his or her employment for Good Reason (as defined in the Plan) prior
to a Change in Control and the circumstance or event which constitutes Good
Reason occurs at the request or direction of the person described in Clause (i)
or (iii) the employee's employment is terminated by the Corporation without
Cause or by the employee for Good Reason and the termination or the circumstance
or event which constitutes Good Reason is otherwise in connection with a Change
in Control.
FEDERAL INCOME TAX CONSEQUENCES
Non-Qualified Stock Options. As a general rule, no federal income tax is
imposed on the optionee upon the grant of a non-qualified stock option, and the
Corporation is not entitled to a tax deduction by reason of the grant. Upon
exercise, the optionee will be treated as receiving compensation taxable as
ordinary income equal to the excess of the fair market value of the stock on the
date of exercise over the option price. Also, upon exercise, the Corporation may
claim a deduction in the same amount as income recognized by the optionee, as
long as federal income tax withholding requirements are satisfied. Upon
subsequent disposition of the stock received, the difference between the amount
realized on the disposition and the basis of the stock (exercise price plus any
ordinary income recognized) should qualify as long-term or short-term capital
gain, depending on the holding period.
Incentive Stock Options. The incentive stock options are intended to
constitute "incentive stock options" within the meaning of Section 422(b) of the
Internal Revenue Code of 1986, as amended, and are subject to special federal
income tax treatment. No federal income tax is imposed on the optionee upon the
grant of an incentive stock option, and no federal income tax is imposed on the
exercise if the optionee does not dispose of stock acquired pursuant to the
exercise within two years of the date the option was granted and within the one-
year period beginning on the date the option was exercised (collectively
referred to as a "disqualifying disposition"). However, the optionee must
include the difference between the exercise price and the fair market value of
the Common Stock on the date of exercise in alternative minimum taxable income.
If there is not a disqualifying disposition, the Corporation would not be
entitled to any deduction for federal income tax purposes in connection with the
grant or exercise of the option or the disposition of the stock so acquired. If
there is a disqualifying disposition, the Corporation would be entitled to a
deduction for federal income tax purposes. If the optionee exercises an
incentive stock option and there is a disqualifying disposition, and the amount
realized is less than the fair market value on the exercise date, only the
difference between the amount realized and the adjusted basis of the stock will
be included in taxable income. Upon disposition of the stock received from
exercising an incentive stock option other than in a disqualifying disposition,
the difference between the amount realized and the exercise price should
constitute a long-term capital gain or loss.
22
<PAGE> 24
The only awards that would have been granted pursuant to the Plan in fiscal
year 1997 if the Plan would have been in effect were the stock options that were
actually granted under the Company's 1993 Stock Option Plan, if such 1993 Stock
Option Plan had not then been in effect. The following table shows certain
information with respect to the grants of such stock options:
NEW PLAN BENEFITS
LONG TERM INCENTIVE PLAN
<TABLE>
<CAPTION>
NO. OF SHARES
NAME AND POSITION GRANTED VALUE(1)
----------------- ------------- ----------
<S> <C> <C>
M.L. Lukens................................................. 100,694 $3,624,984
Chairman of the Board, President
and Chief Executive Officer
E. L. Mattson............................................... 36,458 1,312,488
Senior Vice President and
Chief Financial Officer
A. J. Szescila.............................................. 25,808 929,088
Senior Vice President and President,
Baker Hughes Oilfield Operations
G. S. Finley................................................ 27,291 982,476
Senior Vice President and Chief
Administrative Officer
J. P. Trahan................................................ 28,125 1,012,500
Vice President and President,
Baker Hughes Solutions
All Current Executive Officers as a Group................... 403,868 14,539,248
All Current Directors who are not Executive Officers as a
Group..................................................... 19,175 690,300
All Employees as a Group (excluding Executive Officers)..... 475,653 17,123,508
</TABLE>
- ---------------
(1) Based on $36.00 per share, the closing price of the Corporation's Common
Stock on the New York Stock Exchange on October 22, 1996.
23
<PAGE> 25
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 92,900 shares, 23,520 shares, 295,100 shares and 154,300 shares,
respectively, of the Corporation's Common Stock, and by the Minnesota State
Board of Investment, which holds beneficially 152,019 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.
-- Continued discrimination and worsening employment opportunities have
been cited as contributing to support for a violent solution to Northern
Ireland's problems.
24
<PAGE> 26
-- 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.
A proposal in substantially this form has been submitted to Baker Hughes'
stockholders for their consideration every year for the last ten years, and such
proposal has never received more than 17.4% of the vote in favor of the
proposal. SEC rules require that the proposal be included in this Proxy
Statement again this year since the proposal received more than 10% of the vote
in favor of the proposal last year.
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.
ANNUAL REPORT
The 1997 Annual Report of the Corporation, which includes audited financial
statements for the fiscal year ended September 30, 1997, accompanies this Proxy
Statement; however, that report is not part of the proxy soliciting information.
25
<PAGE> 27
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 1999 Annual
Meeting must be received by the Corporation by August 17, 1998 to be considered
for inclusion in the Proxy Statement and form of proxy relating to the 1999
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.
26
<PAGE> 28
EXHIBIT A
LONG TERM INCENTIVE PLAN
OF
BAKER HUGHES INCORPORATED
1. Plan. This Long Term Incentive Plan of Baker Hughes Incorporated (the
"Plan") was adopted by Baker Hughes Incorporated to reward certain corporate
officers and key employees of Baker Hughes Incorporated by enabling them to
acquire shares of common stock of Baker Hughes Incorporated and receive other
compensation based on such common stock.
2. Objectives. This Plan is designed to attract and retain key employees of
the Company and its Subsidiaries (as hereinafter defined), to attract and retain
qualified directors of the Company, to encourage the sense of proprietorship of
such employees and directors and to stimulate the active interest of such
persons in the development and financial success of the Company and its
Subsidiaries. These objectives are to be accomplished by making Awards (as
hereinafter defined) under this Plan and thereby providing Participants (as
hereinafter defined) with a proprietary interest in the growth and performance
of the Company and its Subsidiaries.
3. Definitions. As used herein, the terms set forth below shall have the
following respective meanings:
"Affiliate" is as defined in Section 16.
"Annual Director Award Date" means, for each year beginning on or
after October 28, 1998, the fourth Wednesday of October of each year.
"Authorized Officer" means the Chairman of the Board or the Chief
Executive Officer of the Company (or any other senior officer of the
Company to whom either of them shall delegate the authority to execute any
Award Agreement).
"Award" means an Employee Award or a Director Award.
"Award Agreement" means any Employee Award Agreement or Director Award
Agreement.
"Beneficial Owner" is as defined in Section 16.
"Board" means the Board of Directors of the Company.
"Cause" is as defined in Section 16.
"Change in Control" is as defined in Section 16.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" means the Compensation Committee of the Board or such
other committee of the Board as is designated by the Board to administer
the Plan; provided, for purposes of Section 16, Committee is as defined
therein.
"Common Stock" means the Common Stock, par value $1.00 per share, of
the Company.
"Company" means Baker Hughes Incorporated, a Delaware corporation.
"Director" means an individual serving as a member of the Board.
"Director Award" means the grant of a Director Option.
"Director Award Agreement" means a written agreement between the
Company and a Participant who is a Nonemployee Director setting forth the
terms, conditions and limitations applicable to a Director Award.
A-1
<PAGE> 29
"Disability" means, with respect to a Nonemployee Director, the
inability to perform the duties of a Director for a continuous period of
more than three months by reason of any medically determinable physical or
mental impairment.
"Dividend Equivalents" means, with respect to shares of Restricted
Stock that are to be issued at the end of the Restriction Period, an amount
equal to all dividends and other distributions (or the economic equivalent
thereof) that are payable to stockholders of record during the Restriction
Period on a like number of shares of Common Stock.
"Employee" means an employee of the Company or any of its Subsidiaries
and an individual who has agreed to become an Employee of the Company or
any of its Subsidiaries and is expected to become such an Employee within
the following six months.
"Employee Award" means the grant of any Option, SAR or Stock Award,
whether granted singly, in combination or in tandem, to a Participant who
is an Employee pursuant to such applicable terms, conditions and
limitations as the Committee may establish in order to fulfill the
objectives of the Plan.
"Employee Award Agreement" means a written agreement between the
Company and a Participant who is an Employee setting forth the terms,
conditions and limitations applicable to an Employee Award.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Fair Market Value" per share of Common Stock shall be determined by
the Committee, based on the composite transactions in Common Stock as
reported by The Wall Street Journal, and shall be equal to the per share
price of the last sale of Common Stock on the trading day prior to the date
on which value is being determined.
"Fiscal Year" shall mean the year commencing October 1 and ending
September 30.
"Good Reason" is as defined in Section 16.
"Incentive Option" means an Option that is intended to comply with the
requirements set forth in Section 422 of the Code.
"Nonemployee Director" has the meaning set forth in paragraph 4(b)
hereof.
"Nonqualified Stock Option" means an Option that is not an Incentive
Option.
"Option" means a right to purchase a specified number of shares of
Common Stock at a specified price.
"Participant" means an Employee or Director to whom an Award has been
made under this Plan.
"Person" is as defined in Section 16.
"Potential Change in Control" is as defined in Section 16.
"Restricted Stock" means any Common Stock that is restricted or
subject to forfeiture provisions.
"Restriction Period" means a period of time beginning as of the date
upon which an Award of Restricted Stock is made pursuant to this Plan and
ending as of the date upon which the Common Stock subject to such Award is
no longer restricted or subject to forfeiture provisions.
"SAR" means a right to receive a payment, in cash or Common Stock,
equal to the excess of the Fair Market Value or other specified valuation
of a specified number of shares of Common Stock on the date the right is
exercised over a specified strike price, in each case, as determined by the
Committee.
"Stock Award" means an award in the form of shares of Common Stock or
units denominated in shares of Common Stock.
"Subsidiary" means (i) in the case of a corporation, any corporation
of which the Company directly or indirectly owns shares representing more
than 50% of the combined voting power of the shares of all classes or
series of capital stock of such corporation which have the right to vote
generally on matters
A-2
<PAGE> 30
submitted to a vote of the stockholders of such corporation and (ii) in the
case of a partnership or other business entity not organized as a
corporation, any such business entity of which the Company directly or
indirectly owns more than 50% of the voting capital or profits interests
(whether in the form of partnership interests, membership interests or
otherwise).
4. Eligibility.
(a) Employees. Key Employees eligible for Employee Awards under this
Plan are those who hold positions of responsibility and whose performance,
in the judgment of the Committee, can have a significant effect on the
success of the Company and its Subsidiaries.
(b) Directors. Directors eligible for Director Awards under this Plan
are those who are not employees of the Company or any of its Subsidiaries
("Nonemployee Directors").
5. Common Stock Available for Awards. Subject to the provisions of Section
15 hereof, there shall be available for Awards under this Plan granted wholly or
partly in Common Stock (including rights or options that may be exercised for or
settled in Common Stock) an aggregate of (a) 6,000,000 shares of Common Stock
plus (b) the number of shares of Common Stock that have been reserved for
issuance under the Company's 1991 and 1993 Employee Stock Bonus Plan but are
from time to time no longer needed to be reserved under such plans because there
are no longer any eligible options in respect of which awards are made under
such plans, all of which shall be available for Incentive Options or
Nonqualified Stock Options. The number of shares of Common Stock that are the
subject of Awards under this Plan, that are forfeited or terminated, expire
unexercised, are settled in cash in lieu of Common Stock or in a manner such
that all or some of the shares covered by an Award are not issued to a
Participant or are exchanged for Awards that do not involve Common Stock, shall
again immediately become available for Awards hereunder. The Committee may from
time to time adopt and observe such procedures concerning the counting of shares
against the Plan maximum as it may deem appropriate. The Board and the
appropriate officers of the Company shall from time to time take whatever
actions are necessary to file any required documents with governmental
authorities, stock exchanges and transaction reporting systems to ensure that
shares of Common Stock are available for issuance pursuant to Awards.
6. Administration.
(a) This Plan, as it applies to Participants who are Employees but not
with respect to Participants who are Nonemployee Directors, shall be
administered by the Committee.
(b) Subject to the provisions hereof, insofar as this Plan relates to
the Employee Awards, the Committee shall have full and exclusive power and
authority to administer this Plan and to take all actions that are
specifically contemplated hereby or are necessary or appropriate in
connection with the administration hereof. Insofar as this Plan relates to
Employee Awards, the Committee shall also have full and exclusive power to
interpret this Plan and to adopt such rules, regulations and guidelines for
carrying out this Plan as it may deem necessary or proper, all of which
powers shall be exercised in the best interests of the Company and in
keeping with the objectives of this Plan. Subject to Section 8(b)(v) of
this Plan, the Committee may, in its discretion, provide for the extension
of the exercisability of an Employee Award, accelerate the vesting or
exercisability of an Employee Award, eliminate or make less restrictive any
restrictions contained in an Employee Award, waive any restriction or other
provision of this Plan (insofar as such provision relates to Employee
Awards) or an Employee Award or otherwise amend or modify an Employee Award
in any manner that is either (i) not adverse to the Participant to whom
such Employee Award was granted or (ii) consented to by such Participant.
The Committee may make an award to an individual who it expects to become
an Employee of the Company or any of its Subsidiaries within the next six
months, with such award being subject to the individual's actually becoming
an Employee within such time period, and subject to such other terms and
conditions as may be established by the Committee. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in
this Plan or in any Employee Award in the manner and to the extent the
Committee deems necessary or desirable to further the Plan purposes. Any
decision of the Committee in
A-3
<PAGE> 31
the interpretation and administration of this Plan shall lie within its
sole and absolute discretion and shall be final, conclusive and binding on
all parties concerned.
(c) No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of
Section 7 of this Plan shall be liable for anything done or omitted to be
done by him or her, by any member of the Committee or by any officer of the
Company in connection with the performance of any duties under this Plan,
except for his or her own willful misconduct or as expressly provided by
statute.
7. Delegation of Authority. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish, except that the Committee may not delegate to any person the
authority to grant Awards to, or take other action with respect to, Participants
who are subject to Section 16 of the Exchange Act.
8. Employee Awards.
(a) The Committee shall determine the type or types of Employee Awards
to be made under this Plan and shall designate from time to time the
Employees who are to be the recipients of such Awards. Each Employee Award
may be embodied in an Employee Award Agreement, which shall contain such
terms, conditions and limitations as shall be determined by the Committee
in its sole discretion and shall be signed by an Authorized Officer for and
on behalf of the Company. Employee Awards may consist of those listed in
this paragraph 8(a) hereof and may be granted singly, in combination or in
tandem. Employee Awards may also be made in combination or in tandem with,
or as alternatives to, grants or rights under this Plan or any other
employee plan of the Company or any of its Subsidiaries, including the plan
of any acquired entity. An Employee Award may provide for the grant or
issuance of additional or alternative Employee Awards upon the occurrence
of specified events. All or part of an Employee Award may be subject to
conditions established by the Committee, which may include, but are not
limited to, continuous service with the Company and its Subsidiaries,
achievement of specific business objectives, increases in specified
indices, attainment of specified growth rates and other comparable
measurements of performance. Upon the termination of employment by a
Participant who is an Employee, any unexercised, deferred, unvested or
unpaid Employee Awards shall be treated as set forth in the applicable
Employee Award Agreement.
(i) Option. An Employee Award may be in the form of an Option. An
Option awarded to an Employee pursuant to this Plan may consist of an
Incentive Stock Option or a Nonqualified Option. The price at which
shares of Common Stock may be purchased upon the exercise of an Option
shall not be less than the Fair Market Value of the Common Stock on the
date of grant. Subject to the foregoing provisions, the terms,
conditions and limitations applicable to any Option awarded pursuant to
this Plan, including the term of any Option and the date or dates upon
which it becomes exercisable, shall be determined by the Committee.
(ii) Stock Appreciation Right. An Employee Award may be in the form
of an SAR. The terms, conditions and limitations applicable to any SARs
awarded pursuant to this Plan, including the term of any SARs and the
date or dates upon which they become exercisable, shall be determined by
the Committee.
(iii) Stock Award. An Employee Award may be in the form of a Stock
Award. The terms, conditions and limitations applicable to any Stock
Awards granted pursuant to this Plan shall be determined by the
Committee.
(b) Notwithstanding anything to the contrary contained in this Plan,
the following limitations shall apply to any Employee Awards made
hereunder:
(i) no Participant may be granted, during any Fiscal Year, Employee
Awards consisting of Options or SARs that are exercisable for more than
500,000 shares of Common Stock;
A-4
<PAGE> 32
(ii) no more than 700,000 shares of Common Stock may be awarded as
Stock Awards that are not Options or SARs not including the Stock Awards
in clause (iii) below;
(iii) no more than 900,000 shares may be awarded in respect of the
exercise of a stock option on a basis of not more than one share of
Common Stock for each 5 shares of Common Stock acquired pursuant to an
Option exercise (the limitation set forth in this clause (iii)),
together with the limitations set forth in clauses (i) and (ii) above,
being hereinafter collectively referred to as the "Stock Based Awards
Limitations");
(iv) the term of any Option shall not exceed ten years; and
(v) once granted, an Option may not be repriced or exchanged for an
option having a lower exercise price.
9. Director Awards. Each Nonemployee Director of the Company shall be
granted Director Awards in accordance with this Section 9 and subject to the
applicable terms, conditions and limitations set forth in this Plan and the
applicable Director Award Agreement. Notwithstanding anything to the contrary
contained herein, Director Awards shall not be made in any year in which a
sufficient number of shares of Common Stock are not available to make such
Awards under this Plan.
(a) Director Options. Subject to shareholder approval required for the
Plan in Section 20, effective October 23, 1997, on the date of his or her
first appointment or election to the Board of Directors, a Nonemployee
Director shall automatically be granted a Director Option that provides for
the purchase of 2,000 shares of Common Stock. In addition, on each Annual
Director Award Date, each Nonemployee Director shall automatically be
granted a Director Option that provides for the purchase of 1,000 shares of
Common Stock.
(b) Terms.
(i) Each Director Option shall have a term of seven years from the
date of grant, notwithstanding any earlier termination of the status of
the holder as a Nonemployee Director (the "Option Expiration Date").
(ii) The purchase price of each share of Common Stock subject to a
Director Option shall be equal to the Fair Market Value of the Common
Stock on the date of grant.
(iii) All Director Options shall vest and become exercisable on the
first anniversary of the date of grant.
(iv) a Nonemployee Director's directorship shall be deemed to have
terminated at the close of business on the day preceding the first date
on which he ceases to be a member of the Board of Directors of the
Company for any reason whatsoever (including his death). If a
Nonemployee Director's directorship is terminated for any reason
whatsoever (including his death), each option granted to him under
Section 9 and all of his rights thereunder shall wholly and completely
terminate:
(A) With respect to each option granted within the one-year
period preceding such termination of service:
(1) At the time the Nonemployee Director's directorship is
terminated, if such termination of service occurs prior to a
Change in Control; or
(2) At the time determined under Section 9(b)(iv)(B), if
such termination of service occurs within two years following or
in connection with a Change in Control.
(B) With respect to each option granted prior to the one-year
period preceding such termination:
(1) At the time the Nonemployee Director's directorship is
terminated if his directorship is terminated as a result of his
removal from the Board of Directors for cause
A-5
<PAGE> 33
not defined for Directors (other than disability not defined for
Directors or in accordance with the provision of the Company's
Bylaws regarding automatic termination of directors' terms of
office), if such termination of service occurs prior to a Change
in Control, and 30 days following such termination of service if
such termination occurs within two years following a Change in
Control; or
(2) At the expiration of a period of one year after the
Nonemployee Director's death (but in no event later than the
Option Expiration Date) if the Nonemployee Director's
directorship is terminated by reason of his death. An option
granted to a Nonemployee Director may be exercised by the
Nonemployee Director's estate or by the person or persons who
acquire the right to exercise his option by bequest or
inheritance with respect to any or all of the shares remaining
subject to his option at the time of his death; or
(3) At the expiration of a period of three years after the
Nonemployee Director's directorship is terminated as a result of
such person's resignation or removal from the Board of Directors
of the Company because of disability not defined for Directors or
in accordance with the provisions of the Company's Bylaws
regarding automatic termination of directors' terms of office
(but in no event later than the Option Expiration Date); or
(4) At the expiration of a period of three months after the
Nonemployee Director's directorship is terminated (but in no
event later than the Option Expiration Date) if the Nonemployee
Director's directorship is terminated for any reason other than
the reasons specified above.
(c) Agreements. Any Award of Director Options shall be embodied in a
Director Award Agreement, which shall contain the terms, conditions and
limitations set forth above and shall be signed by an Authorized Officer
for and on behalf of the Company.
10. Payment of Awards.
(a) General. Payment of Employee Awards may be made in the form of
cash or Common Stock, or a combination thereof, and may include such
restrictions as the Committee shall determine, including, in the case of
Common Stock, restrictions on transfer and forfeiture provisions. If
payment of an Employee Award is made in the form of Restricted Stock, the
applicable Award Agreement relating to such shares shall specify whether
they are to be issued at the beginning or end of the Restriction Period. In
the event that shares of Restricted Stock are to be issued at the beginning
of the Restriction Period, the certificates evidencing such shares (to the
extent that such shares are so evidenced) shall contain appropriate legends
and restrictions that describe the terms and conditions of the restrictions
applicable thereto. In the event that shares of Restricted Stock are to be
issued at the end of the Restricted Period, the right to receive such
shares shall be evidenced by book entry registration or in such other
manner as the Committee may determine.
(b) Deferral. With the approval of the Committee, amounts payable in
respect of Employee Awards may be deferred and paid either in the form of
installments or as a lump-sum payment. The Committee may permit selected
Participants to elect to defer payments of some or all types of Employee
Awards in accordance with procedures established by the Committee. Any
deferred payment of an Employee Award, whether elected by the Participant
or specified by the Award Agreement or by the Committee, may be forfeited
if and to the extent that the Award Agreement so provides.
(c) Dividends and Interest. Rights to dividends or Dividend
Equivalents may be extended to and made part of any Employee Award
consisting of shares of Common Stock or units denominated in shares of
Common Stock, subject to such terms, conditions and restrictions as the
Committee may establish. The Committee may also establish rules and
procedures for the crediting of interest on deferred cash payments and
Dividend Equivalents for Employee Awards consisting of shares of Common
Stock or units denominated in shares of Common Stock.
A-6
<PAGE> 34
11. Stock Option Exercise. The price at which shares of Common Stock may be
purchased under an Option shall be paid in full at the time of exercise in cash
or, if elected by the optionee, the optionee may purchase such shares by means
of tendering Common Stock or surrendering another Award, including Restricted
Stock or Director Restricted Stock, valued at Fair Market Value on the date of
exercise, or any combination thereof. The Committee shall determine acceptable
methods for Participants to tender Common Stock or other Awards; provided that
any Common Stock that is or was the subject of an Award may be so tendered only
if it has been held by the Participant for six months. An Award Agreement
evidencing an option may, in the discretion of the Committee, provide for a
"cashless exercise" of an Option by establishing procedures whereby the
optionee, by a properly executed written notice, directs (1) an immediate sale
or margin loan respecting all or a part of the shares of Common Stock to which
he is entitled upon exercise pursuant to an extension of credit by the Company
to the optionee of the option price, (2) the delivery of the shares of Common
Stock from the Company directly to a brokerage firm and (3) the delivery of the
option price from sale or margin loan proceeds from the brokerage firm directly
to the Company. Unless otherwise provided in the applicable Award Agreement, in
the event shares of Restricted Stock are tendered as consideration for the
exercise of an Option, a number of the shares issued upon the exercise of the
Option, equal to the number of shares of Restricted Stock used as consideration
therefor, shall be subject to the same restrictions as the Restricted Stock so
submitted as well as any additional restrictions that may be imposed by the
Committee.
12. Taxes. The Company shall have the right to deduct applicable taxes from
any Employee Award payment and withhold, at the time of delivery or vesting of
cash or shares of Common Stock under this Plan, an appropriate amount of cash or
number of shares of Common Stock or a combination thereof for payment of taxes
required by law or to take such other action as may be necessary in the opinion
of the Company to satisfy all obligations for withholding of such taxes. The
Committee may also permit withholding to be satisfied by the transfer to the
Company of shares of Common Stock theretofore owned by the holder of the
Employee Award with respect to which withholding is required. If shares of
Common Stock are used to satisfy tax withholding, such shares shall be valued
based on the Fair Market Value when the tax withholding is required to be made.
The Committee may provide for loans, on either a short term or demand basis,
from the Company to a Participant who is an Employee to permit the payment of
taxes required by law.
13. Amendment, Modification, Suspension or Termination. The Board may
amend, modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law, except that no amendment or alteration that would adversely affect the
rights of any Participant under any Award previously granted to such Participant
shall be made without the consent of such Participant or to the extent
stockholder approval is otherwise required by applicable legal requirements.
14. Assignability. Unless otherwise determined by the Committee and
provided in the Award Agreement, no Award or any other benefit under this Plan
shall be assignable or otherwise transferable except by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act,
or the rules thereunder. The Committee may prescribe and include in applicable
Award Agreements other restrictions on transfer. Any attempted assignment of an
Award or any other benefit under this Plan in violation of this Section 14 shall
be null and void.
15. Adjustments.
(a) The existence of outstanding Awards shall not affect in any manner
the right or power of the Company or its stockholders to make or authorize
any or all adjustments, recapitalizations, reorganizations or other changes
in the capital stock of the Company or its business or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred
or prior preference stock (whether or not such issue is prior to, on a
parity with or junior to the Common Stock) or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding of any
kind, whether or not of a character similar to that of the acts or
proceedings enumerated above.
A-7
<PAGE> 35
(b) In the event of any subdivision or consolidation of outstanding
shares of Common Stock, declaration of a dividend payable in shares of
Common Stock or other stock split, then, (i) the number of shares of Common
Stock reserved under this Plan, (ii) the number of shares of Common Stock
covered by outstanding Awards in the form of Common Stock or units
denominated in Common Stock, (iii) the exercise or other price in respect
of such Awards, (iv) the appropriate Fair Market Value and other price
determinations for such Awards, (v) the number of shares of Common Stock
covered by Director Options automatically granted pursuant to Section 9
hereof and (vi) the Stock Based Awards Limitations shall each be
proportionately adjusted by the Board to reflect such transaction. In the
event of any other recapitalization or capital reorganization of the
Company, any consolidation or merger of the Company with another
corporation or entity, the adoption by the Company of any plan of exchange
affecting the Common Stock or any distribution to holders of Common Stock
of securities or property (other than normal cash dividends or dividends
payable in Common Stock), the Board shall make appropriate adjustments to
(i) the number of shares of Common Stock covered by Awards in the form of
Common Stock or units denominated in Common Stock, (ii) the exercise or
other price in respect of such Awards, (iii) the appropriate Fair Market
Value and other price determinations for such Awards, (iv) the number of
shares of Common Stock covered by Director Options automatically granted
pursuant to Section 9 hereof and (v) the Stock Based Awards Limitations to
give effect to such transaction shall each be proportionately adjusted by
the Board to reflect such transaction; provided that such adjustments shall
only be such as are necessary to maintain the proportionate interest of the
holders of the Awards and preserve, without exceeding, the value of such
Awards. In the event of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation, the Board
shall be authorized to issue or assume Awards by means of substitution of
new Awards, as appropriate, for previously issued Awards or to assume
previously issued Awards as part of such adjustment.
16. Change in Control.
(a) Notwithstanding any provision of the Plan to the contrary other
than the last paragraph of this Section 16, in the event of an occurrence
of a Change in Control, all Awards granted pursuant to this Plan shall
become fully vested and, if either an Option or SAR or similar Award,
immediately exercisable.
(b) Notwithstanding any provision of the Plan to the contrary, all
outstanding options held by an Employee shall become fully vested and
exercisable as of the effective date of termination of such Employee's
employment if (i) such Employee's employment is terminated by the Company
without Cause prior to a Change in Control (whether or not a Change in
Control ever occurs) and such termination was at the request or direction
of a Person who has entered into an agreement with the Company the
consummation of which would constitute a Change in Control, (ii) such
Employee terminates his or her employment for Good Reason prior to a Change
in Control (whether or not a Change in Control ever occurs) and the
circumstance or event which constitutes Good Reason occurs at the request
or direction of the Person described in clause (i), or (iii) such
Employee's employment is terminated by the Company without Cause or by the
Employee for Good Reason and such termination or the circumstance or event
which constitutes Good Reason is otherwise in connection with or in
anticipation of a Change in Control (whether or not a Change in Control
ever occurs).
(c) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(d) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
promulgated under the Exchange Act.
(e) "Cause" for termination by the Company of the Employee's
employment shall mean (i) the willful and continued failure by the Employee
to substantially perform the Employee's duties with the Company (other than
any such failure resulting from the Employee's incapacity due to physical
or mental illness or any such actual or anticipated failure after the
issuance of a notice of termination for Good Reason by the Employee) after
a written demand for substantial performance is delivered to the Employee
by the Committee, which demand specifically identifies the manner in which
the Committee
A-8
<PAGE> 36
believes that the Employee has not substantially performed the Employee's
duties, or (ii) the willful engaging by the Employee in conduct which is
demonstrably and materially injurious to the Company or its subsidiaries,
monetarily or otherwise. For purposes of clauses (i) and (ii) of this
definition, (x) no act, or failure to act, on the Employee's part shall be
deemed "willful" unless done, or omitted to be done, by the Employee not in
good faith and without reasonable belief that the Employee's act, or
failure to act, was in the best interest of the Company and (y) in the
event of a dispute concerning the application of this provision, no claim
by the Company that Cause exists shall be given effect unless the Company
establishes to the Committee by clear and convincing evidence that Cause
exists.
(f) A "Change in Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall have occurred:
(1) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company or its affiliates) representing 20% or more of
the combined voting power of the Company's then outstanding securities,
excluding any Person who becomes such a Beneficial Owner in connection
with a transaction described in clause (i) of paragraph (3) below; or
(2) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on
the date hereof, constitute the Board of Directors of the Company and
any new director (other than a director whose initial assumption of
office is in connection with an actual or threatened election contest
relating to the election of directors of the Company) whose appointment
or election by the Board of Directors of the Company or nomination for
election by the Company's stockholders was approved or recommended by a
vote of at least two-thirds ( 2/3) of the directors then still in office
who either were directors on the date hereof or whose appointment,
election or nomination for election was previously so approved or
recommended; or
(3) there is consummated a merger or consolidation of the Company
or any direct or indirect subsidiary of the Company with any other
corporation, other than (i) a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting securities of
the surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any subsidiary of the Company,
at least 65% of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company (not
including in the securities Beneficially Owned by such Person any
securities acquired directly from the Company or its Affiliates other
than in connection with the acquisition by the Company or its Affiliates
of a business) representing 20% or more of the combined voting power of
the Company's then outstanding securities; or
(4) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the Company's
assets to an entity, at least 65% of the combined voting power of the
voting securities of which are owned by stockholders of the Company in
substantially the same proportions as their ownership of the Company
immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred by virtue of the consummation of any transaction
or series of integrated transactions immediately following which the
record holders of the common stock of the Company immediately prior to
such transaction or series of transactions continue to have
substantially the same proportionate ownership in an entity which owns
all or substantially all of the assets of the Company immediately
following such transaction or series of transactions.
A-9
<PAGE> 37
(g) "Committee" shall mean (i) the individuals (not fewer than three
in number) who, on the date six months before a Change in Control,
constitute the Compensation Committee of the Board of Directors of the
Company, plus (ii) in the event that fewer than three individuals are
available from the group specified in clause (i) above for any reason, such
individuals as may be appointed by the individual or individuals so
available (including for this purpose any individual or individuals
previously so appointed under this clause (ii)); provided, however, that
the maximum number of individuals constituting the Committee shall not
exceed six (6).
(h) "Good Reason" for termination by the Employee of the Employee's
employment shall mean the occurrence (without the Employee's express
written consent) after any Change in Control, or prior to a Change in
Control under the circumstances described in clauses (ii) and (iii) of
Section 16(b) hereof (treating all references in paragraphs (1) through (7)
below to a "Change in Control" as references to a "Potential Change in
Control"), of any one of the following acts by the Company, or failures by
the Company to act, unless, in the case of any act or failure to act
described in paragraph (1), (5), (6) or (7) below, such act or failure to
act is corrected prior to the effective date of the Employee's termination
for Good Reason;
(1) the assignment to the Employee of any duties inconsistent with
the status of the Employee's position with the Company or a substantial
adverse alteration in the nature or status of the Employee's
responsibilities from those in effect immediately prior to the Change in
Control;
(2) a reduction by the Company in the Employee's annual base salary
as in effect on the date hereof or as the same may be increased from
time to time except for across-the-board salary reductions similarly
affecting all individuals having a similar level of authority and
responsibility with the Company and all individuals having a similar
level of authority and responsibility with any Person in control of the
Company;
(3) the relocation of the Employee's principal place of employment
to a location more than 50 miles from the Employee's principal place of
employment immediately prior to the Change in Control or the Company's
requiring the Employee to be based anywhere other than such principal
place of employment (or permitted relocation thereof) except for
required travel on the Company's business to an extent substantially
consistent with the Employee's present business travel obligations;
(4) the failure by the Company to pay to the Employee any portion
of the Employee's current compensation except pursuant to an
across-the-board compensation deferral similarly affecting all
individuals having a similar level of authority and responsibility with
the Company and all individuals having a similar level of authority and
responsibility with any Person in control of the Company, or to pay to
the Employee any portion of an installment of deferred compensation
under any deferred compensation program of the Company, within seven (7)
days of the date such compensation is due;
(5) the failure by the Company to continue in effect any
compensation plan in which the Employee participates immediately prior
to the Change in Control which is material to the Employee's total
compensation, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan,
or the failure by the Company to continue the Employee's participation
therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount or timing of
payment of benefits provided and the level of the Employee's
participation relative to other participants, as existed immediately
prior to the Change in Control;
(6) the failure by the Company to continue to provide the Employee
with benefits substantially similar to those enjoyed by the Employee
under any of the Company's pension, savings, life insurance, medical,
health and accident, or disability plans in which the Employee was
participating immediately prior to the Change in Control (except for
across the board changes similarly affecting all individuals having a
similar level of authority and responsibility with the Company and all
individuals having a similar level of authority and responsibility with
any Person in control of the
A-10
<PAGE> 38
Company), the taking of any other action by the Company which would
directly or indirectly materially reduce any of such benefits or deprive
the Employee of any material fringe benefit or perquisite enjoyed by the
Employee at the time of the Change in Control, or the failure by the
Company to provide the Employee with the number of paid vacation days to
which the Employee is entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in
effect at the time of the Change in Control; or
(7) if the Employee is party to an individual employment,
severance, or similar agreement with the Company, any purported
termination of the Employee's employment which is not effected pursuant
to the notice of termination or other procedures specified therein
satisfying the requirements thereof; for purposes of this Plan, no such
purported termination shall be effective.
The Employee's right to terminate the Employee's employment for
Good Reason shall not be affected by the Employee's incapacity due to
physical or mental illness. The Employee's continued employment shall
not constitute consent to, or a waiver of rights with respect to, any
act or failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good
Reason, any claim by the Employee that Good Reason exists shall be
presumed to be correct unless the Company establishes to the Committee
by clear and convincing evidence that Good Reason does not exist.
(i) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(j) A "Potential Change in Control" shall be deemed to have occurred
if the event set forth in any one of the following paragraphs shall have
occurred:
(1) the Company enters into an agreement, the consummation of which
would result in the occurrence of a Change in Control;
(2) the Company or any Person publicly announces an intention to
take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(3) any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 15% or more of
either the then outstanding shares of common stock of the Company or the
combined voting power of the Company's then outstanding securities (not
including in the securities Beneficially Owned by such Person any
securities acquired directly from the Company or its affiliates); or
(4) the Board of Directors of the Company adopts a resolution to
the effect that, for purposes of this Plan, a Potential Change in
Control has occurred.
In the event that the Company is party to a transaction which is
otherwise intended to qualify for "pooling of interests" accounting
treatment, such transaction constitutes a Change in Control within the
meaning of the Plan and individuals who satisfy the requirements in clauses
(i) and (ii) below constitute at least two-thirds ( 2/3) of the number of
directors of the entity surviving such transaction or any parent thereof:
individuals who (i) immediately prior to such transaction constitute the
Board of Directors of the Company and (ii) on the date hereof constitute
the Board of Directors of the Company and any new director (other than a
director whose initial assumption of office is in connection with an actual
or threatened election contest relating to the election of directors of the
Company) whose appointment or election by the Board of Directors of the
Company or nomination for election by the Company's stockholders was
approved or recommended, by a vote of at least two-thirds ( 2/3) of the
directors then still in office who either were directors on the date hereof
or whose appointment, election or nomination for election was previously so
approved or recommended then this Section 16 and other Plan provisions
A-11
<PAGE> 39
concerning a Change in Control shall, to the extent practicable, be
interpreted so as to permit such accounting treatment, and to the extent
that the application of this sentence does not preserve the availability of
such accounting treatment, then, to the extent that any provision or
combination of provisions of this Section 16 and other Plan provisions
concerning a Change in Control disqualifies the transaction as a "pooling"
transaction (including, if applicable, all provisions of the Plan relating
to a Change in Control), the Board of Directors of the Company shall amend
such provision or provisions if and to the extent necessary (including
declaring such provision or provisions to be null and void as of the date
hereof) so that such transaction may be accounted for as a "pooling of
interests." All determinations with respect to this paragraph shall be made
by the Company, based upon the advice of the accounting firm whose opinion
with respect to "pooling of interests" is required as a condition to the
consummation of such transaction.
17. Restrictions. No Common Stock or other form of payment shall be issued
with respect to any Award unless the Company shall be satisfied based on the
advice of its counsel that such issuance will be in compliance with applicable
federal and state securities laws. Certificates evidencing shares of Common
Stock delivered under this Plan (to the extent that such shares are so
evidenced) may be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any securities exchange
or transaction reporting system upon which the Common Stock is then listed or to
which it is admitted for quotation and any applicable federal or state
securities law. The Committee may cause a legend or legends to be placed upon
such certificates (if any) to make appropriate reference to such restrictions.
18. Unfunded Plan. Insofar as it provides for Awards of cash, Common Stock
or rights thereto, this Plan shall be unfunded. Although bookkeeping accounts
may be established with respect to Participants who are entitled to cash, Common
Stock or rights thereto under this Plan, any such accounts shall be used merely
as a bookkeeping convenience. The Company shall not be required to segregate any
assets that may at any time be represented by cash, Common Stock or rights
thereto, nor shall this Plan be construed as providing for such segregation, nor
shall the Company, the Board or the Committee be deemed to be a trustee of any
cash, Common Stock or rights thereto to be granted under this Plan. Any
liability or obligation of the Company to any Participant with respect to an
Award of cash, Common Stock or rights thereto under this Plan shall be based
solely upon any contractual obligations that may be created by this Plan and any
Award Agreement, and no such liability or obligation of the Company shall be
deemed to be secured by any pledge or other encumbrance on any property of the
Company. Neither the Company nor the Board nor the Committee shall be required
to give any security or bond for the performance of any obligation that may be
created by this Plan.
19. Governing Law. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by mandatory provisions of
the Code or the securities laws of the United States, shall be governed by and
construed in accordance with the laws of the State of Texas.
20. Effectiveness. The Plan as established by resolution of the Board shall
be effective as set forth herein as of October 23, 1997 but only if the Plan is
approved by the shareholders of the Company on or before January 28, 1998.
A-12
<PAGE> 40
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
AND PROXY STATEMENT
JANUARY 28, 1998
BAKER HUGHES INCORPORATED
3900 ESSEX LANE
HOUSTON, TEXAS
