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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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COMMISSION FILE NUMBER 1-9397
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BAKER HUGHES INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0207995
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
3900 ESSEX LANE, HOUSTON, TEXAS 77027-5177
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713)439-8600
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
PACIFIC EXCHANGE
SWISS EXCHANGE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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At December 3, 1997, the registrant had outstanding 169,318,406 shares of
Common Stock, $1 par value. The aggregate market value of the Common Stock on
such date (based on the closing price on the New York Stock Exchange) held by
nonaffiliates was approximately $7,362,257,083.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Stockholders for 1997 are
incorporated by reference into Parts I and II.
Portions of Registrant's 1997 Proxy Statement for the Annual Meeting of
Stockholders to be held January 28, 1998 are incorporated by reference into
Part III.
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PART I
ITEM 1. BUSINESS
The Company operates in three industry segments, oilfield, chemicals
and process equipment. In addition to these industry segments, the Company
manufactures and sells other products and provides services to industries not
related to either the petroleum, specialty chemical or continuous process
industries. Certain of the Company's operations are conducted through joint
ventures, partnerships or alliances.
The Company is a Delaware corporation that was formed in connection
with the combination of Baker International Corporation ("Baker") and Hughes
Tool Company ("Hughes") consummated on April 3, 1987 (the "Combination"). The
shares of each of Baker and Hughes were publicly traded and registered with the
Securities and Exchange Commission for more than five years. As used herein,
the "Company" refers to Baker Hughes Incorporated and its subsidiaries, unless
the context clearly indicates otherwise.
For additional industry segment information for each of the three
years in the three-year period ended September 30, 1997, see Note 10 of Notes
to Consolidated Financial Statements which Notes are incorporated herein by
reference in Part II, Item 8 ("Notes to Consolidated Financial Statements").
OILFIELD
The Company is a leading provider of downhole tool technologies,
products and services for the worldwide oilfield service industry, which are
critical to drilling, completing and producing oil and gas wells.
The Company manufactures and markets a broad range of roller cutter
bits and fixed cutter diamond bits, ranging upward from 3-3/4 inches in
diameter, which are designed for drilling in specific types of rock formations.
The Company believes that it is the leading worldwide manufacturer of bits and
that its principal competitors in this area are Smith International, Inc.
("Smith"), the Security Division of Dresser Industries, Inc. ("Dresser") and
Reed Tool Company and Hycalog, each operating units of Camco International Inc.
("Camco").
The Company also produces and markets drilling fluids (muds) for oil
and gas well drilling, as well as chemical additives and specialty chemicals,
and provides technical services in connection with their formulation and use.
Drilling fluids, which are usually barite and bentonite combined with other
chemicals in a water, chemical or oil base, are used to clean the bottom of a
hole by removing cuttings and transporting them to the surface, to cool the bit
and drill string, to control formation pressures and to seal porous well
formations. The Company also furnishes on-site, around-the-clock laboratory
analysis and examination of circulated and recovered drilling fluids and
recovered drill cuttings to detect the presence of hydrocarbons and identify
the formations penetrated by the drill bit. The Company's principal competitors
with regard to these products and services are M-I Drilling Fluids, which is
jointly owned by Halliburton Company ("Halliburton") and Smith, and Baroid
Corporation, a subsidiary of Dresser.
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The Company believes that it is a leading supplier of directional and
horizontal drilling services, downhole motors, coring services, subsurface
surveying and measurement-while-drilling services to the oil and gas industry.
The Company's specialized positive displacement downhole motors help operators
to steer wells into pay zones for conventional directional drilling and short,
medium and long-radius horizontal drilling. A full range of
measurement-while-drilling systems provided by the Company use mud-pulse
telemetry to deliver real-time downhole information on the drilling process and
the reservoir. The systems are available for every application, from
directional-only service through wireline-replacement and real-time logging.
With regard to these products and services, the Company competes principally
with Halliburton Energy Services, an operating unit of Halliburton, Sperry-Sun
Drilling Services, a subsidiary of Dresser, and Anadrill, a subsidiary of
Schlumberger Ltd. ("Schlumberger").
After oil and gas wells are drilled, they must be completed and
equipped using production tools, serviced to achieve safety and long-term
productivity, protected against pressure and corrosion damage and stimulated or
repaired during their productive lives. The Company provides a broad range of
production tools and oilfield services to meet many of these needs.
Packers, a major product of the Company, are used to seal the space
between the production tubing and the casing to protect the casing from
reservoir pressures and corrosive formation fluids and also to maintain the
separation of productive zones. The Company believes that it is a leading
worldwide producer of packers and that its principal competitors for sale of
packers are Dresser Oil Tools, an operating unit of Dresser, Halliburton Energy
Services, and Camco Products and Services, a division of Camco.
Liner hanger tools and equipment used to suspend and set springs of
casing pipe in wells are manufactured by the Company. The Company believes that
it is a leading worldwide producer of liner hangers and its primary competitor
is the Nodeco division of Weatherford Enterra, Inc. ("Weatherford").
The Company provides fishing tool services using specialized tools to
locate, dislodge and retrieve twisted off, dropped or damaged pipe, tools or
other objects from the well bore. Major fishing tool competitors are
Weatherford and Smith. The Company also provides inflatable and mechanical
packers that are used in testing the potential of a well during the drilling
phase prior to installation of casing, and under-reamers, which enlarge the
well bore at any point below the surface to form a production cavity.
The Company offers gravel packing, a specialized service that prevents
sand from entering the well bore and reducing productivity, as well as other
sand control services. It also provides tubing conveyed perforating services to
provide paths through the casing and cement sheath in wells so that oil and gas
can enter the well bore from the formation. Major gravel packing competitors
include Dowell, a division of Schlumberger, and Halliburton Energy
Services. Tubing conveyed perforating competitors include the Wireline & Testing
division of Schlumberger, Halliburton Energy Services, Dresser Oil Tools and
Western Atlas Inc. The Company's gravel packing products and services also
compete with frac-pack services provided by pressure pumping companies
including BJ Services Company, Dowell and Halliburton Energy Services.
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Other completion, remedial and production products and services
provided by the Company include control systems for surface and subsurface
safety valves and surface flow lines; and flow regulators and packers used in
secondary recovery waterflood projects. The Company's primary competitors are
Halliburton Energy Services and Camco.
The Company is a leader in oilfield electric submersible pumping
systems ("ESPs"), which help raise oil to the surface. It also provides
variable speed motor controllers and specialty armored power cables. Its major
competition in ESPs is Reda, a division of Camco.
Beginning with reservoir and field evaluation, the Company can help
customers plan and manage individual wells and fields. This approach can
encompass virtually all of the Company's oilfield products and services.
Halliburton, Dresser and Schumberger are the principal competitors with this
capability.
Recent new technology offered by the Company includes downhole
hydrocyclone oil/water separation systems, multi-lateral drilling and
completion systems, coiled tubing drilling systems, remote actuated, downhole
completion tools and rotary closed loop drilling systems.
CHEMICALS
The Company manufactures specialty chemicals for inclusion in the sale
of integrated chemical technology solutions for petroleum production,
transportation and refining. These chemicals include specialty chemicals used
by the production segments of the petroleum industry, as well as industrial
chemicals used in refining, waste water treatment, mineral handling and cooling
and boiler water processes. The principle geographic markets for this segment
include all major oil and gas producing regions of the world. This segment also
provides chemical technology solutions to other industrial markets throughout
the world including petrochemicals, fuel additives, plastics, imaging and
adhesives. The Company believes it is a leader in worldwide specialty oilfield
chemicals and that its primary competitor is the Nalco- Exxon joint venture.
The Company designs and manufactures systems for the treatment of produced
water and its reinjection.
PROCESS EQUIPMENT
The Company provides a broad range of solid/liquid separation
equipment and systems to concentrate product or separate and remove waste
material in the mineral, industrial, pulp and paper and municipal industries.
The Company's product lines include vacuum filters (drum, disc and horizontal
belt), filter presses, belt presses, granular media filters, thickeners,
clarifiers, flotation cells and aeration equipment. The Company's principal
competitors for sales for mineral and industrial applications are Dorr-Oliver,
Outokumpu and Svedala; the Company's principal competitors for sales for
municipal applications are Envirex, a business unit of United States Filter
Corporation ("U.S. Filter"), Walker Process and General Filter; and the
Company's principal competitor for sales for pulp and paper applications is
Ahlstrom.
The Company designs and manufactures process solutions for the
oilfield and refinery markets. These solutions include equipment for the
processing and conditioning of seawater for injection as desalting and primary
and oily-water separation in oil production streams. The Company's products
include fine filters, coarse filters, nutshell filters, flotation units,
hydrocyclones, coalescers, dearation towers, electrochlorinators and
electrostatic desalters. The primary competition in this area is Kvaerner,
Serck Baker and U.S. Filter.
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The Company manufactures a broad range of continuous and batch
centrifuges and specialty filters which are widely used in the environmental,
chemical, minerals and pharmaceutical markets to dewater or classify process
and waste streams. The Company's principal competitors in its continuous
centrifuge product line are Alfa-Laval/Sharples, Tomoe and Flottweg. There are
numerous small and large companies which compete in the batch centrifuge and
filter product lines.
The Company provides parts and service for all of its product lines
through a global network of personnel and facilities strategically located to
serve the customer community.
MARKETING, COMPETITION AND ECONOMIC CONDITIONS
The products of each of the Company's principal industry segments are
marketed primarily through its own sales organizations on a product line basis,
although certain products and services are marketed through supply stores,
independent distributors or sales representatives. Technical and advisory
services are ordinarily provided to assist in the customer's use of the
Company's products and services. Stockpoints and service centers for oilfield
products and services are located in areas of drilling and production activity
throughout the world. The Company markets its oilfield products and services in
nearly all of the oil producing countries. Stockpoints and service centers for
process products and services are located near the Company's customers'
operations, and the Company markets process products and services throughout
the world. In certain foreign areas where direct product sales efforts are not
practicable, the Company utilizes licensees, sales representatives and
distributors.
The products of each of the Company's principal industry segments are
sold in highly competitive markets, and its revenues and earnings can be
affected by changes in competitive prices, fluctuations in the level of
activity in major markets, general economic conditions and governmental
regulation. The Company competes with a large number of companies, a few of
which have greater resources and more extensive and diversified operations than
the Company. The Company believes that the principal competitive factors in the
industries that it serves are product and service quality and availability,
technical proficiency and price.
Further information concerning Marketing, Competition and Economic
Conditions is contained under the caption "Business Environment" in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the 1997 Annual Report to Stockholders and is incorporated
herein by reference.
INTERNATIONAL OPERATIONS
The Company's operations are subject to the risks inherent in doing
business in multiple countries with various legal and political policies. These
risks include war, boycotts, political changes, expropriation, currency
restrictions, taxes and changes in currency exchange rates. Although it is
impossible to predict the likelihood of such occurrences or their effect on the
Company, management believes these risks to be acceptable. However, there can
be no assurance that an occurrence of any one of these events would not have a
material adverse effect on its operations.
RESEARCH AND DEVELOPMENT; PATENTS
At September 30, 1997, the equivalent of approximately 412 full-time
employees were engaged in research and development activities directed
primarily toward improvement of existing products and services, design of
specialized products to meet specific customer needs and development of new
products and processes. For information regarding the amounts of research and
development
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expense for each of the three years in the period ended September 30, 1997, see
Note 12 of Notes to Consolidated Financial Statements.
The Company has followed a policy of seeking patent protection both
inside and outside the United States for products and methods that appear to
have commercial significance. The Company believes its patents and trademarks
to be adequate for the conduct of its business, and while it regards patent and
trademark protection important to its business and future prospects, it
considers its established reputation, the reliability of its products and the
technical skills of its personnel to be more important. The Company
aggressively pursues protection of its patents against patent infringement
worldwide.
BUSINESS DEVELOPMENTS
OILFIELD
Baker Hughes Oilfield Operations consists of five operating divisions:
Baker Hughes INTEQ, Baker Hughes Solutions, Baker Oil Tools, Centrilift and
Hughes Christensen. Business developments over the past five years have
positioned these divisions as leaders in providing products, services and
technologies in the drilling, completion and production processes.
In April 1992, the Company purchased Teleco Oilfield Services
Incorporated, a leading provider of directional measurement-while-drilling
technology. Also, during 1992, the Company combined Baker Service Tools with
Baker Oil Tools, to streamline the Company's ability to market its completion,
remedial and workover products and services.
In 1993, in an effort to create a more efficient operating structure
and to meet the needs of its customers, Baker Hughes INTEQ was formed by
combining five of the Company's oilfield divisions. The formation of Baker
Hughes INTEQ continued the Company's ongoing goal to pursue the directional and
horizontal drilling, measurement-while-drilling, drilling fluids and sand
control completions markets and to combine a full range of technologies into
optimum integrated solutions.
In September 1996, due in part to the growth of its integrated
services business, the Company formed a new division, Baker Hughes Solutions,
specifically devoted to integrated solutions and project management. The
Company also moved the sand control completions business operated by Baker
Hughes INTEQ to Baker Oil Tools to unify the Company's approach within the
completions sector.
In May 1997, the Company and Schlumberger signed agreements covering
the joint development and marketing of the initial phase of Intelligent
Completion Systems ("ICS") to the oilfield service industry. ICS is expected to
provide remote reservoir monitoring and control to improve operation and
enhance hydrocarbon recovery from deepwater and extended-reach horizontal
wells. ICS is one of the major alliances outlined in the Letter of Intent
signed by the Company and Schlumberger in September 1996. In another agreement
between the Company and Schlumberger, Baker Oil Tools became the preferred
supplier of completion technology and services to certain Schlumberger
divisions. Schlumberger is the preferred supplier of coiled tubing services and
downhole monitoring devices to Baker Oil Tools.
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In July 1997, the Company completed the acquisition of Drilex
International Inc. to enhance the ability of the Company to meet the
directional and horizontal drilling and workover needs of U.S. independent
producers.
CHEMICALS
Baker Petrolite Corporation (formerly Baker Performance Chemicals
Incorporated) ("BPC") is the Company's chemicals business unit. In July 1997,
the Company purchased Petrolite Corporation ("Petrolite") to combine it with
BPC. BPC will continue to be a leading provider to the oilfield chemical
market.
In September 1996, BPC purchased BASF AG's oilfield chemical business
to increase BPC's international presence and to provide BPC with access to
BASF's oilfield chemical technology, manufacturing and research capabilities.
PROCESS EQUIPMENT
Baker Hughes Process Equipment Company consists of three operating
divisions: Baker Hughes Process Systems, Bird Machine Company ("Bird") and
EIMCO Process Equipment. These three divisions provide separation technologies
for the petroleum, municipal, continuous process and mining industries.
In March and September of 1994, the operations of EnviroTech
Measurements and Controls and EnviroTech Pumpsystems were sold. In 1996, the
Company purchased Vortoil Separation Systems and Ketema Process Equipment
Company to expand its product lines of liquid/solid and liquid/liquid
separation equipment and increase the size of its process equipment operations.
In July 1997, when the Company acquired Petrolite, it merged the
PETRECO division of Petrolite with Baker Hughes Process Systems, to enhance the
Company's ability to provide its customers complete process solutions. Also in
July 1997, the Company acquired the Environmental Technology Division of Deutz
AG and added that business to Bird. This provides Bird customers increased
options and service, and provides Bird with a strategic presence in Europe.
During the preceding six years, the Company acquired and disposed of
several additional businesses, none of which, individually or in the aggregate,
had a material effect on the Company's results of operations.
EMPLOYEES
At September 30, 1997, the Company had a total of approximately 21,250
employees, as compared to approximately 16,800 employees at September 30, 1996.
Approximately 2,200 employees at September 30, 1997 were represented under
collective bargaining agreements that terminate at various times through 1999.
The Company believes that its relations with its employees are satisfactory.
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EXECUTIVE OFFICERS
The following table shows as of December 3, 1997, the name of each
executive officer of the Company, together with his age and all offices
presently held with the Company.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AGE
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Max L. Lukens 49 President of the Company since October 1995; Chief Executive Officer of the
Company since October 1996; and Chairman of the Board since January 1997.
Employed 1981. Vice President and Chief Financial Officer of Baker, 1984-1987;
Senior Vice President and Chief Financial Officer of the Company, 1987-1989;
President, Baker Hughes Production Tools, 1989-1993; Senior Vice President of
the Company, 1987-1994; Executive Vice President, 1994-1995; President, Baker
Hughes Oilfield Operations, 1993-1995; and Chief Operating Officer of the
Company, 1995-1996.
David H. Barr 48 Vice President of Business Process Development since June 1997. Employed 1972.
Vice President - Production and Technology, Hughes Christensen Company, 1994-
1997; Vice President - Diamond Products, Hughes Christensen Company, 1993-
1994; Vice President - Eastern Hemisphere, Hughes Christensen Company, 1990-
1993; Vice President - North American Operations, Hughes Christensen Company,
1988-1990.
M. Glen Bassett 59 Vice President of the Company since 1995; and President, Baker Petrolite
Corporation since July 1997. Employed 1980. President of Baker Performance
Chemicals Incorporated, 1983-1997.
Joseph F. Brady 51 Vice President of the Company since 1995; and President of Centrilift since
1988. Employed 1981. President, Baker Lift Systems, 1983-1987; and President,
Baker CAC, Inc., 1987-1988.
James E. Braun 38 Vice President of the Company since December 1997; and Controller of the Company
since 1993. Employed 1993. From 1981-1993, Deloitte & Touche LLP; Partner of
Deloitte & Touche LLP from 1991.
Matthew G. Dick 54 Vice President of the Company; and President of Baker Hughes Process Equipment
Company since 1996. Employed 1975. Vice President - Western Hemisphere, Hughes
Christensen Company, 1991-1993; Vice President - Oilfield Tricones, Hughes
Christensen Company, 1993-1994; and Vice President - Eastern Hemisphere, Baker
Hughes INTEQ, 1994-1996.
</TABLE>
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<TABLE>
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George S. Finley 46 Senior Vice President and Chief Administrative Officer of the Company since
1995. Employed 1982. Controller of the Company, 1987-1993; Vice President of
the Company, 1990-1995; and Chief Financial Officer of Baker Hughes Oilfield
Operations, 1993-1995.
Roger P. Herbert 51 Vice President of the Company since 1994; and Vice President-Technology and
Market Development of the Company since 1995. Employed 1988. President,
Baker Hughes Drilling Systems, 1988-1990; President, Baker Hughes MWD,
1990-1991; President, Develco, 1991-1993; and Vice President-Technology
and Market Development, Baker Hughes Oilfield Operations, 1993-1995.
Edwin C. Howell 50 Vice President of the Company since 1995; and President of Baker Oil Tools
since 1992. Employed 1975. President, Baker Service Tools, 1989-1992.
Eric L. Mattson 46 Senior Vice President of the Company since 1994; and Chief Financial Officer
of the Company since 1993. Employed 1980. Treasurer of the Company, 1983-1994;
and Vice President of the Company, 1988 to 1994.
Lawrence O'Donnell, III 40 Vice President and General Counsel of the Company since 1995. Employed 1991.
Deputy General Counsel of the Company, 1991-1995; Vice President and General
Counsel, Baker Hughes Oilfield Operations, 1994-1995; and Corporate Secretary
of the Company, 1992-1996.
Timothy J. Probert 46 Vice President of the Company since 1994; and President of Baker Hughes INTEQ
since 1996. Employed 1972. President, Milpark, 1989-1990; President, Eastman
Christensen, 1990-1992; President, Eastman Teleco, 1992-1993; Executive Vice
President, Baker Hughes INTEQ, 1993; Vice President, Drilling & Evaluation
Technology Unit, Baker Hughes INTEQ, 1993-1994; and President, Baker Hughes
Process Equipment Company, 1994-1996.
Andrew J. Szescila 50 Senior Vice President of the Company and President, Baker Hughes Oilfield
Operations, since July 1997; Vice President of the Company from 1995-1997; and
President of Hughes Christensen Company from 1989-1997. Employed 1973.
President, BJ Services International, 1987-1988; and President, Baker Service
Tools, 1988-1989.
Jabian P. Trahan 51 Vice President of the Company since 1995; and President of Baker Hughes
Solutions since 1996. Employed 1978. President, Baker Sand Control, 1990-1993;
and President, Baker Hughes INTEQ, 1993-1996.
</TABLE>
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<TABLE>
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Douglas J. Wall 44 Vice President of the Company and President of Hughes Christensen Company
since December 1997. Employed 1997. President, Western Rock Bit Company
Limited, 1992-1997.
</TABLE>
There are no family relationships between the executive officers of
the Company.
The Company follows the practice of electing its officers annually in
October.
ENVIRONMENTAL MATTERS
The Company is subject to local, state and federal regulations with
regard to air and water quality and other environmental matters. The Company
believes that it is in substantial compliance with these regulations.
Regulation in this area is in the process of development, and changes in
standards of enforcement of existing regulations as well as the enactment and
enforcement of new legislation may require the Company, as well as its
customers, to modify, supplement or replace equipment or facilities, or to
change or discontinue present methods of operation.
While making projections of future costs in the environmental area can
be difficult and uncertain, based upon current information, the Company
estimates that during the fiscal year ending September 30, 1998, the Company
will spend approximately $23,220,000 to enable the Company to comply with
federal, state and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment or otherwise
relating to the protection of the environment (collectively, "Environmental
Regulations"). Based upon current information, the Company believes that its
compliance with Environmental Regulations will not have a material adverse
effect upon the capital expenditures, earnings and competitive position of the
Company because the Company has adequate reserves for such compliance
expenditures or the cost to the Company for such compliance will be small when
compared to the Company's overall net worth.
In addition to the amounts described in the preceding paragraph, based
upon current information, the Company estimates that it will incur capital
expenditures of approximately $3,324,000 for environmental control equipment
during the fiscal year ending September 30, 1998. Based upon current
information, the Company believes that capital expenditures for environmental
control equipment for the 1998 and 1999 fiscal years, as well as such future
periods as the Company deems relevant, will not have a material adverse effect
upon the financial condition of the Company because the aggregate amount of
these expenditures for those periods is or will be small when compared to the
Company's overall net worth.
The Company and certain of its subsidiaries and divisions have been
identified as a potentially responsible party ("PRP") as a result of substances
which may have been released in the past at various sites more fully discussed
below. The United States Environmental Protection Agency (the "EPA") and
appropriate state agencies are supervising investigative and clean-up
activities at these sites.
(a) Baker Performance Chemicals Incorporated and
Petrolite Corporation (now known as BPC), a subsidiary of the Company,
Hughes Christensen Company ("HC"), Milpark Drilling Fluids ("Milpark")
(now known as INTEQ), and Baker Oil Tools ("BOT"), a division of Baker
Hughes Oilfield Operations, Inc. ("BHOO"), have been named as PRPs in
the Sheridan Superfund Site, located in Hempstead, Texas. The remedial
work at this site is being overseen
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by the Texas Natural Resource Conservation Commission ("TNRCC"). A
trust (the "Sheridan Site Trust") was formed to manage the site
remediation and administrative details of the project. The Company
participates as a member of the Sheridan Site Trust. Total remedial and
administrative costs are estimated by Sheridan Site Trust officials to
total approximately $30,000,000. Contribution of the Company's
subsidiaries and divisions (including Baker Hughes Tubular Services,
Inc. ("BHTS") which was sold to ICO on September 30, 1992), is
estimated to be 1.81% of those costs.
(b) Spectrace Instruments, Inc. ("Spectrace") the assets
of which were sold to Thermo- Electron Corporation on March 15, 1994,
is a named respondent to an EPA Administrative Order associated with
the MEW Study Area, an eight square mile soil and groundwater
contamination site located in Mountain View, California. A group of
PRPs estimates that the total cost of remediation will be
approximately $80,000,000. The Company's environmental consultants
have conducted extensive investigations of Spectrace's operating
facility located within the MEW Study Area and have concluded that
Spectrace's activities could not have been the source of any
contamination in the soil or groundwater at and around the MEW Study
Area. The EPA has informed the Company that no further work needs to
be performed on Spectrace's site and indicated that the EPA does not
believe there is a contaminant source on the property. However, the
Company continues to be named in the EPA's Administrative Order. The
Company continues to believe the EPA's Administrative Order for
Remedial Design and Remedial Action is not valid with respect to the
Company's subsidiary and is seeking the withdrawal of the
Administrative Order with respect to the Company's subsidiary.
(c) Baker Performance Chemicals Incorporated (now known
as BPC) was named in an administrative action brought by the EPA
pursuant to the Toxic Substances Control Act, as amended. The
complaint filed by the EPA alleges failure on the part of BPC to
properly update the EPA with the volume of Toxic Substance Control Act
listed substances manufactured. The EPA has proposed a fine against
BPC in the amount of $104,000.
(d) In May 1987, Baker Performance Chemicals Incorporated
(now known as BPC) entered into an Agreed Administrative Order with
the then Texas Water Commission, now known as the TNRCC, with respect
to soil and groundwater contamination at the Odessa - Hillmont site
located in Odessa, Texas. This site was previously used by BPC as a
chemical blending plant. The contaminated soil has been removed, and
the site continues in the groundwater recovery/treatment phase at an
annual cost to the Company of approximately $20,000.
(e) Oil Base, Inc. and Hughes Drilling Fluids (now known
as INTEQ) have been identified by the EPA as PRPs in the PAB Oil and
Chemical Superfund Site located in Abbeville, Louisiana. The Company
has estimated that the contribution to the contamination by these
entities may be from 2.0% to 5.0% of the total waste at this site. A
volumetric calculation is not possible because the disposal records
maintained at this site are incomplete and inaccurate. The Company's
ultimate percentage of liability will depend in part upon the final
allocation of volumes among the participating PRPs (members of the PAB
site Remediation Group, L.L.C. ("PAB Group")). Resolution of these
allocation issues is currently being sought through the Company's
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participation in the PAB Group formed to implement the EPA
Administrative Order. Current estimates of the total cost of
remediation at this site is approximately $7,000,000. Remediation is
underway and the Company has provided interim funding of remedial
activity through the PAB Group of up to 4% of the total estimated cost
of remediation.
(f) PA Inc., a former subsidiary of the Company, was
identified as a PRP in the Sonics International Site, a former
hazardous waste disposal facility located near Ranger, Texas. This
site is currently being administered by the TNRCC under the Texas
Superfund Statute. The Company allegedly contributed 1.64% of the
waste volume at the site. It is not possible at this time to quantify
the Company's ultimate liability. The remediation proposed by the
TNRCC is estimated to cost $700,000.
(g) Milpark (now known as INTEQ) has been identified as a
PRP at the Toups Farm Superfund Site (eligible for cleanup under the
Texas State Cleanup Fund) located two miles north of South Lake at the
intersection of Highway 105 and Highway 326 near Hallettsville, Texas.
The site consists of approximately 21 acres and was operated over the
years as a municipal landfill, fence post treating company and a hog
farm. Based on available information, the Company does not believe
that it has any liability for contamination at the site.
(h) The Company and Baker Performance Chemicals
Incorporated (now known as BPC) have been named as PRPs at the former
Fike Chemical Company site located in Nitro, West Virginia. The
Company and BPC were alleged to be responsible by virtue of business
transactions involving toll chemical processing and raw materials with
the site's operator, Fike Chemical. Contractual indemnities,
associated with the acquisition of Chemlink, that protect the Company
and BPC from liability (and associated defense costs, if any)
associated with this site, have been executed and are in place and
have been acknowledged by the EPA and the Department of Justice
(Environmental Division).
(i) Milpark (now known as INTEQ) and Baker Sand Control
(now known as BOT) have been named as PRPs at the DL Mud Superfund
Site located in Abbeville, Louisiana. This site was used for the
disposal of used drilling fluids and drilling muds. However, another
named PRP is responsible for a majority of the waste volume disposed
at this site, and such PRP is presently engaged in the remediation of
the site. To date neither the other PRP nor the EPA have produced any
substantive waste disposal or transportation documentation linking the
Company or its subsidiaries or divisions to the environmental
conditions at the site. The Company does not anticipate that it will
have any liability for this site.
(j) Milpark (now known as INTEQ) has been named as a PRP
at the Mar Services Superfund site located in Crankton, Louisiana. It
has been estimated that the contribution to this site by the Company's
subsidiary is approximately 0.08% of the total volume of solids at the
site (based upon a volumetric calculation). The site is now undergoing
investigative studies to determine the remedial action plan as well as
a total estimated cost for remediation.
-11-
<PAGE> 13
(k) Teleco Oilfield Services, Inc. (now known as INTEQ)
has been named as a PRP at the Solvent Recycling Service of New
England Superfund Site located in Southington, Connecticut.
Approximately 1,000 companies have been named as PRPs at this site.
Calculations from the PRP group verified by the Company, indicate that
Teleco contributed 0.00006% of the volume at the site. The total cost
of cleanup at the site is currently estimated to be $3,500,000. A
deminimis buyout offer from either the EPA or the PRP group is
anticipated in the future.
(l) In January 1996, Petrolite Corporation (now known as
BPC) was named as a PRP by the TNRCC at the McBay Oil and Gas State
Superfund site. The Company has disputed its involvement in the site
based on the fact that it has no knowledge of transporting waste to
the site. However, the Company has transacted product sales to McBay
Oil and Gas Company. Documentation of product sales has been sent to
the TNRCC. Based on available information, the Company does not
believe that it has any liability for contamination at this site.
(m) In July 1997, Petrolite Corporation (now known as
BPC), was named by the EPA as a PRP at the Shore Refinery Site,
Kilgore, Gregg County, Texas. The Company has completed a thorough
search of its documents and records. The Company has concluded that it
has not arranged for the disposal, treatment, or transportation of
hazardous substances or used oil at the site. To date, the EPA has not
produced any substantive, hazardous substance treatment, disposal or
transportation documentation linking the Company or any of its
subsidiaries or divisions to the environmental conditions at the site.
The Company does not believe that it has any liability for
contamination at the site.
While PRPs in Superfund actions have joint and several liability for
all costs of remediation in many of the sites described above, it is not
possible at this time to quantify the Company's ultimate exposure because the
project is either in its early investigative or remediation stage. Based upon
current information, the Company does not believe that probable and reasonably
possible expenditures in connection with any of the sites described above are
likely to have a material adverse effect on the Company's financial condition
because: (i) the Company has established adequate reserves to cover what the
Company presently believes will be its ultimate liability with respect to the
matter, (ii) the Company and its subsidiaries have only limited involvement in
the sites based upon a volumetric calculation, as described above, (iii) there
are other PRPs that have greater involvement on a volumetric calculation basis
who have substantial assets and who may reasonably be expected to pay their
share of the cost of remediation, (iv) where discussed above, the Company has
insurance coverage or contractual indemnities from third parties to cover the
ultimate liability, and (v) the Company's ultimate liability, based upon
current information, is small compared to the Company's overall net worth.
The Company is subject to various other governmental proceedings
relating to environmental matters, but the Company does not believe that any of
these matters is likely to have a material adverse effect on its financial
condition.
-12-
<PAGE> 14
ITEM 2. PROPERTIES
The Company operates 85 manufacturing plants, almost all of which are
owned, ranging in size from approximately 750 square feet to approximately
230,000 square feet of manufacturing space and totaling more than 3,395,000
square feet. Of such total, approximately 2,241,000 square feet (66%) are
located in the United States, 206,000 square feet (6%) are located in the
Western Hemisphere exclusive of the United States, 818,000 square feet (24%)
are located in Europe, and 130,000 square feet (4%) are located in the Eastern
Hemisphere exclusive of Europe. These manufacturing plants by industry segment
and geographic area appear in the table below. The Company also owns or leases
and operates various customer service centers and shops, and sales and
administrative offices throughout the geographic areas in which it operates.
<TABLE>
<CAPTION>
Other Other
United Western Eastern
States Hemisphere Europe Hemisphere Total
------ ---------- ------ ---------- -----
<S> <C> <C> <C> <C> <C>
Oilfield 24 7 8 9 48
Chemicals 11 3 3 5 22
Process equipment 7 2 6 - 15
</TABLE>
The Company believes that its manufacturing facilities are well
maintained. The Company also has a significant investment in service vehicles,
rental tools and equipment. During 1997 and 1996, the Company recognized
permanent impairments and wrote down to net realizable value certain inventory,
property, plant and equipment. For further information regarding these
write-downs, see Note 5 of Notes to Consolidated Financial Statements. Property
additions increased in 1997 as the Company added capacity to meet the increased
market demand. The Company believes that it has the capacity to meet increased
demands in each of its industry segments.
ITEM 3. LEGAL PROCEEDINGS
The Company is sometimes named as a defendant in litigation relating
to the products and services it provides. The Company insures against these
risks to the extent deemed prudent by its management, but no assurance can be
given that the nature and amount of such insurance will in every case fully
indemnify the Company against liabilities arising out of pending and future
legal proceedings relating to its ordinary business activities. However, the
Company is not a party to any litigation the probable outcome of which, in the
opinion of the Company's management, would have a material adverse effect on
the consolidated financial condition of the Company.
See also "Item 1. Business -- Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-13-
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock, $1.00 par value per share (the "Common Stock"), of
the Company is principally traded on The New York Stock Exchange. The Common
Stock is also traded on the Pacific Exchange and the Swiss Exchange. At
December 3, 1997, there were approximately 96,663 stockholders and 17,650
stockholders of record.
For information regarding quarterly high and low sales prices on the
New York Stock Exchange for the Common Stock, during the two years ended
September 30, 1997 and information regarding dividends declared on the Common
Stock during the two years ended September 30, 1997, see Note 15 of Notes to
Consolidated Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Condensed Comparative
Consolidated Financial Information" in the 1997 Annual Report to Stockholders
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information set forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the 1997
Annual Report to Stockholders ("MD&A") is incorporated herein by reference.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The information set forth under the sub-caption "Quantitative and
Qualitative Market Risk Disclosures" under MD&A is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and the
independent auditors' report set forth in the 1997 Annual Report to
Stockholders are incorporated herein by reference:
Independent Auditors' Report.
Consolidated Statements of Operations for each of the three years in
the period ended September 30, 1997.
Consolidated Statements of Financial Position as of September 30,
1997 and 1996.
-14-
<PAGE> 16
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended September 30, 1997.
Consolidated Statements of Cash Flows for each of the three years in
the period ended September 30, 1997.
Notes to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-15-
<PAGE> 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of the Company is set forth in
the section entitled "Election of Directors" in the Proxy Statement of the
Company for the Annual Meeting of Stockholders to be held January 28, 1998,
which section is incorporated herein by reference. For information regarding
executive officers of the Company, see "Item 1. Business -- Executive
Officers." Additional information regarding compliance by directors and
executive officers with Section 16(a) of the Securities Exchange Act of 1934,
as amended, is set forth under the section entitled "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Proxy Statement for the
Annual Meeting of Stockholders to be held on January 28, 1998, which section is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information for this item is set forth in the section entitled
"Executive Compensation" in the Proxy Statement of the Company for the Annual
Meeting of Stockholders to be held January 28, 1998, which section is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information concerning security ownership of certain beneficial owners
and management is set forth in the sections entitled "Voting Securities" and
"Security Ownership of Management" in the Proxy Statement of the Company for
the Annual Meeting of Stockholders to be held January 28, 1998, which sections
are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
-16-
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
(1) Financial Statements
All financial statements of the Registrant as set forth under
Item 8 of this Annual Report on Form 10-K.
(2) Financial Statement Schedules:
Financial statement schedules are omitted because of the
absence of conditions under which they are required or because
all material information required to be reported is included
in the consolidated financial statements and notes thereto.
(3) Exhibits:
3.1 Restated Certificate of Incorporation (filed as
Exhibit 3.1 to Annual Report of Baker Hughes
Incorporated on Form 10-K for the year ended
September 30, 1993 and incorporated herein by
reference).
3.2 By-Laws
3.3 Certificate of Designation of Series L Preferred
Stock of Baker Hughes Incorporated (filed as Exhibit
3.3 to Annual Report of Baker Hughes Incorporated on
Form 10-K for the year ended September 30, 1996 and
incorporated herein by reference).
4.1 Rights of Holders of the Company's Long-Term Debt.
The Company has no long-term debt instrument with
regard to which the securities authorized thereunder
equal or exceed 10% of the total assets of the
Company and its subsidiaries on a consolidated basis.
The Company agrees to furnish a copy of its long-term
debt instruments to the SEC upon request.
4.2 Restated Certificate of Incorporation (filed as
Exhibit 3.1 to Annual Report of Baker Hughes
Incorporated on Form 10-K for the year ended
September 30, 1993 and incorporated herein by
reference).
4.3 By-Laws (filed as Exhibit 3.2 hereto).
4.4 Certificate of Designation of Series L Preferred
Stock of Baker Hughes Incorporated (filed as Exhibit
4.4 to Annual Report of Baker Hughes Incorporated on
Form 10-K for the year ended September 30, 1996 and
incorporated herein by reference).
-17-
<PAGE> 19
10.1 Employment Agreement between Baker Hughes
Incorporated and Max L. Lukens dated as of December
7, 1994 (filed as Exhibit 10.3 to Annual Report of
Baker Hughes Incorporated on Form 10-K for the year
ended September 30, 1994 and incorporated herein by
reference).
10.2 Severance Agreement between Baker Hughes Incorporated
and David H. Barr dated as of July 23, 1997.
10.3 Severance Agreement between Baker Hughes Incorporated
and M. Glen Bassett dated as of July 23, 1997.
10.4 Severance Agreement between Baker Hughes Incorporated
and Joseph F. Brady dated as of July 23, 1997.
10.5 Severance Agreement between Baker Hughes Incorporated
and Matthew G. Dick dated as of July 23, 1997.
10.6 Severance Agreement between Baker Hughes Incorporated
and G. Stephen Finley dated as of July 23, 1997.
10.7 Severance Agreement between Baker Hughes Incorporated
and R. Patrick Herbert dated as of July 23, 1997.
10.8 Severance Agreement between Baker Hughes Incorporated
and Edwin C. Howell dated as of July 23, 1997.
10.9 Severance Agreement between Baker Hughes Incorporated
and Max L. Lukens dated as of July 23, 1997.
10.10 Severance Agreement between Baker Hughes Incorporated
and Eric L. Mattson dated as of July 23, 1997.
10.11 Severance Agreement between Baker Hughes Incorporated
and Lawrence O'Donnell, III dated as of July 23, 1997.
10.12 Severance Agreement between Baker Hughes Incorporated
and Timothy J. Probert dated as of July 23, 1997.
10.13 Severance Agreement between Baker Hughes Incorporated
and Andrew J. Szescila dated as of July 23, 1997.
10.14 Severance Agreement between Baker Hughes Incorporated
and Jay P. Trahan dated as of July 23, 1997.
10.15 Amended and Restated 1991 Employee Stock Bonus Plan
of Baker Hughes Incorporated.
10.16 Amendment No. 1997-1 to the Amended and Restated 1991
Employee Stock Bonus Plan.
-18-
<PAGE> 20
10.17 Restated 1987 Stock Option Plan of Baker Hughes
Incorporated (Amended as of October 24, 1990).
10.18 1987 Convertible Debenture Plan of Baker Hughes
Incorporated (Amended as of October 24, 1990).
10.19 Baker Hughes Incorporated Supplemental Retirement
Plan (filed as Exhibit 10.10 to Annual Report of
Baker Hughes Incorporated on Form 10-K for the year
ended September 30, 1993 and incorporated herein by
reference).
10.20 Amendment No. 1997-1 to the Baker Hughes Incorporated
Supplemental Retirement Plan.
10.21 Executive Severance Policy (filed as Exhibit 10.11 to
Annual Report of Baker Hughes Incorporated on Form
10-K for the year ended September 30, 1993 and
incorporated herein by reference).
10.22 1993 Stock Option Plan (filed as Exhibit 10.12 to
Annual Report of Baker Hughes Incorporated on Form
10-K for the year ended September 30, 1993 and
incorporated herein by reference).
10.23 Amendment No. 1997-1 to the 1993 Stock Option Plan.
10.24 1993 Employee Stock Bonus Plan (filed as Exhibit
10.13 to Annual Report of Baker Hughes Incorporated
on Form 10-K for the year ended September 30, 1993
and incorporated herein by reference).
10.25 Amendment No. 1997-1 to the 1993 Employee Stock Bonus
Plan.
10.26 Director Compensation Deferral Plan (filed as Exhibit
10.15 to Annual Report of Baker Hughes Incorporated
on Form 10-K for the year ended September 30, 1993
and incorporated herein by reference).
10.27 1995 Employee Annual Incentive Compensation Plan
(filed as Exhibit 10.16 to Annual Report of Baker
Hughes Incorporated on Form 10-K for the year ended
September 30, 1994 and incorporated herein by
reference).
10.28 Amendment No. 1997-1 to the 1995 Employee Annual
Incentive Compensation Plan.
10.29 1995 Stock Award Plan (filed as Exhibit 10.17 to
Annual Report of Baker Hughes Incorporated on Form
10-K for the year ended September 30, 1994 and
incorporated herein by reference).
10.30 Amendment No. 1997-1 to the 1995 Stock Award Plan.
10.31 Long Term Incentive Plan.
-19-
<PAGE> 21
10.32 Form of Credit Agreement, dated as of September 1,
1994, among Baker Hughes Incorporated and eighteen
banks (filed as Exhibit 10.18 to Annual Report of
Baker Hughes Incorporated on Form 10-K for the year
ended September 30, 1994 and incorporated herein by
reference).
10.33 Form of Nonqualified Stock Option Agreement for
directors (filed as Exhibit 10.16 to Annual Report of
Baker Hughes Incorporated on Form 10-K for the year
ended September 30, 1996 and incorporated herein by
reference).
10.34 Form of Nonqualified Stock Option Agreement for
employees (filed as Exhibit 10.17 to Annual Report of
Baker Hughes Incorporated on Form 10-K for the year
ended September 30, 1996 and incorporated herein by
reference).
10.35 Form of Incentive Stock Option Agreement for
employees (filed as Exhibit 10.18 to Annual Report of
Baker Hughes Incorporated on Form 10-K for the year
ended September 30, 1996 and incorporated herein by
reference).
10.36 Agreement and Plan of Merger among Baker Hughes
Incorporated, Baker Hughes Missouri, Inc., Baker
Hughes Delaware, Inc., Petrolite Corporation and
Wm. S. Barnickel & Company, dated as of February 25,
1997 (filed as Exhibit 2.1 to Form 8-K dated March 5,
1997 and incorporated herein by reference).
11.1 Statement of Computation of Earnings per Common
Share.
13.1 Portions of 1997 Annual Report to Stockholders.
21.1 Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule (for SEC purposes only).
(b) REPORTS ON FORM 8-K:
A report on Form 8-K was filed on July 17, 1997, as amended on Form
8-K/A dated August 11, 1997, reporting that the Company had consummated the
transactions contemplated by the Agreement and Plan of Merger dated as of
February 25, 1997, providing for the acquisition of Petrolite Corporation and
Wm. S. Barnickel & Company by the Company.
-20-
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on the
8th day of December, 1997.
BAKER HUGHES INCORPORATED
By /s/ Max L. Lukens
---------------------------------------
(Max L. Lukens, Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ MAX L. LUKENS Chairman of the Board, President December 8, 1997
- ----------------------------------- and Chief Executive Officer
(Max L. Lukens) (principal executive officer)
/s/ E. L. MATTSON Senior Vice President and December 8, 1997
- ----------------------------------- Chief Financial Officer
(E. L. Mattson) (principal financial officer)
/s/ JAMES E. BRAUN Vice President and Controller December 8, 1997
- -------------------- (principal accounting officer)
(James E. Braun)
/s/ LESTER M. ALBERTHAL, JR. Director December 8, 1997
- ---------------------------
(Lester M Alberthal, Jr.)
/s/ VICTOR G. BEGHINI Director December 8, 1997
- ---------------------------
(Victor G. Beghini)
</TABLE>
-21-
<PAGE> 23
<TABLE>
<S> <C> <C>
/s/ JACK S. BLANTON Director December 8, 1997
- ---------------------------
(Jack S. Blanton)
/s/ EUNICE M. FILTER Director December 8, 1997
- ---------------------------
(Eunice M. Filter)
/s/ JOE B. FOSTER Director December 8, 1997
- -----------------------------------
(Joe B. Foster)
/s/ RICHARD D. KINDER Director December 8, 1997
- ---------------------------
(Richard D. Kinder)
/s/ JOHN F. MAHER Director December 8, 1997
- -----------------------------------
(John F. Maher)
/s/ JAMES F. McCALL Director December 8, 1997
- ---------------------------
(James F. McCall)
/s/ H. JOHN RILEY, JR. Director December 8, 1997
- ---------------------------
(H. John Riley, Jr.)
/s/ DONALD C. TRAUSCHT Director December 8, 1997
- ---------------------------
(Donald C. Trauscht)
</TABLE>
-22-
<PAGE> 24
Index to Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation (filed as Exhibit 3.1 to Annual Report of Baker Hughes
Incorporated on Form 10-K for the year ended September 30, 1993 and incorporated herein by
reference).
3.2 By-Laws
3.3 Certificate of Designation of Series L Preferred Stock of Baker Hughes Incorporated (filed as
Exhibit 3.3 to Annual Report of Baker Hughes Incorporated on Form 10-K for the year ended
September 30, 1996 and incorporated herein by reference).
4.1 Rights of Holders of the Company's Long-Term Debt. The Company has no long-term debt instrument
with regard to which the securities authorized thereunder equal or exceed 10% of the total
assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to
furnish a copy of its long-term debt instruments to the SEC upon request.
4.2 Restated Certificate of Incorporation (filed as Exhibit 3.1 to Annual Report of Baker Hughes
Incorporated on Form 10-K for the year ended September 30, 1993 and incorporated herein by
reference).
4.3 By-Laws (filed as Exhibit 3.2 hereto).
4.4 Certificate of Designation of Series L Preferred Stock of Baker Hughes Incorporated (filed as
Exhibit 4.4 to Annual Report of Baker Hughes Incorporated on Form 10-K for the year ended
September 30, 1996 and incorporated herein by reference).
</TABLE>
<PAGE> 25
<TABLE>
<S> <C>
10.1 Employment Agreement between Baker Hughes Incorporated and Max L. Lukens dated as of December
7, 1994 (filed as Exhibit 10.3 to Annual Report of Baker Hughes Incorporated on Form 10-K for
the year ended September 30, 1994 and incorporated herein by reference).
10.2 Severance Agreement between Baker Hughes Incorporated and David H. Barr dated as of July 23, 1997.
10.3 Severance Agreement between Baker Hughes Incorporated and M. Glen Bassett dated as of July 23, 1997.
10.4 Severance Agreement between Baker Hughes Incorporated and Joseph F. Brady dated as of July 23, 1997.
10.5 Severance Agreement between Baker Hughes Incorporated and Matthew G. Dick dated as of July 23, 1997.
10.6 Severance Agreement between Baker Hughes Incorporated and G. Stephen Finley dated as of July 23, 1997.
10.7 Severance Agreement between Baker Hughes Incorporated and R. Patrick Herbert dated as of July 23, 1997.
10.8 Severance Agreement between Baker Hughes Incorporated and Edwin C. Howell dated as of July 23, 1997.
10.9 Severance Agreement between Baker Hughes Incorporated and Max L. Lukens dated as of July 23, 1997.
10.10 Severance Agreement between Baker Hughes Incorporated and Eric L. Mattson dated as of July 23, 1997.
10.11 Severance Agreement between Baker Hughes Incorporated and Lawrence O'Donnell, III dated as of July 23,
1997.
10.12 Severance Agreement between Baker Hughes Incorporated and Timothy J. Probert dated as of July 23, 1997.
10.13 Severance Agreement between Baker Hughes Incorporated and Andrew J. Szescila dated as of July 23, 1997.
10.14 Severance Agreement between Baker Hughes Incorporated and Jay P. Trahan dated as of July 23, 1997.
10.15 Amended and Restated 1991 Employee Stock Bonus Plan of Baker Hughes Incorporated.
10.16 Amendment No. 1997-1 to the Amended and Restated 1991 Employee Stock Bonus Plan.
</TABLE>
<PAGE> 26
<TABLE>
<S> <C>
10.17 Restated 1987 Stock Option Plan of Baker Hughes Incorporated (Amended as of October 24, 1990).
10.18 1987 Convertible Debenture Plan of Baker Hughes Incorporated (Amended as of October 24, 1990).
10.19 Baker Hughes Incorporated Supplemental Retirement Plan (filed as Exhibit 10.10 to Annual Report
of Baker Hughes Incorporated on Form 10-K for the year ended September 30, 1993 and
incorporated herein by reference).
10.20 Amendment No. 1997-1 to the Baker Hughes Incorporated Supplemental Retirement Plan.
10.21 Executive Severance Policy (filed as Exhibit 10.11 to Annual Report of Baker Hughes
Incorporated on Form 10-K for the year ended September 30, 1993 and incorporated herein by
reference).
10.22 1993 Stock Option Plan (filed as Exhibit 10.12 to Annual Report of Baker Hughes Incorporated on
Form 10-K for the year ended September 30, 1993 and incorporated herein by reference).
10.23 Amendment No. 1997-1 to the 1993 Stock Option Plan.
10.24 1993 Employee Stock Bonus Plan (filed as Exhibit 10.13 to Annual Report of Baker Hughes
Incorporated on Form 10-K for the year ended September 30, 1993 and incorporated herein by
reference).
10.25 Amendment No. 1997-1 to the 1993 Employee Stock Bonus Plan.
10.26 Director Compensation Deferral Plan (filed as Exhibit 10.15 to Annual Report of Baker Hughes
Incorporated on Form 10-K for the year ended September 30, 1993 and incorporated herein by
reference).
10.27 1995 Employee Annual Incentive Compensation Plan (filed as Exhibit 10.16 to Annual Report of
Baker Hughes Incorporated on Form 10-K for the year ended September 30, 1994 and incorporated
herein by reference).
10.28 Amendment No. 1997-1 to the 1995 Employee Annual Incentive Compensation Plan.
10.29 1995 Stock Award Plan (filed as Exhibit 10.17 to Annual Report of Baker Hughes Incorporated on
Form 10-K for the year ended September 30, 1994 and incorporated herein by reference).
10.30 Amendment No. 1997-1 to the 1995 Stock Award Plan.
10.31 Long Term Incentive Plan.
</TABLE>
<PAGE> 27
<TABLE>
<S> <C>
10.32 Form of Credit Agreement, dated as of September 1, 1994, among Baker Hughes Incorporated and
eighteen banks (filed as Exhibit 10.18 to Annual Report of Baker Hughes Incorporated on Form
10-K for the year ended September 30, 1994 and incorporated herein by reference).
10.33 Form of Nonqualified Stock Option Agreement for directors (filed as Exhibit 10.16 to Annual
Report of Baker Hughes Incorporated on Form 10-K for the year ended September 30, 1996 and
incorporated herein by reference).
10.34 Form of Nonqualified Stock Option Agreement for employees (filed as Exhibit 10.17 to Annual
Report of Baker Hughes Incorporated on Form 10-K for the year ended September 30, 1996 and
incorporated herein by reference).
10.35 Form of Incentive Stock Option Agreement for employees (filed as Exhibit 10.18 to Annual Report
of Baker Hughes Incorporated on Form 10-K for the year ended September 30, 1996 and
incorporated herein by reference).
10.36 Agreement and Plan of Merger among Baker Hughes Incorporated, Baker Hughes Missouri, Inc., Baker
Hughes Delaware, Inc., Petrolite Corporation and Wm. S. Barnickel & Company, dated as of February 25,
1997 (filed as Exhibit 2.1 to Form 8-K dated March 5, 1997 and incorporated herein by reference).
11.1 Statement of Computation of Earnings per Common Share.
13.1 Portions of 1997 Annual Report to Stockholders.
21.1 Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule (for SEC purposes only).
</TABLE>
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
BAKER HUGHES INCORPORATED
As Amended
October 22, 1997
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
ARTICLE I - Offices 1
Section 1. Registered Office ...............................................................1
Section 2. Other Offices ...................................................................1
ARTICLE II - Meetings of Stockholders ..........................................................1
Section 1. Place of Meetings................................................................1
Section 2. Annual Meeting of Stockholders...................................................1
Section 3. Quorum; Adjourned Meetings and Notice Thereof ...................................1
Section 4. Voting ..........................................................................2
Section 5. Proxies..........................................................................2
Section 6. Special Meetings ................................................................2
Section 7. Notice of Stockholders' Meetings ................................................2
Section 8. Waiver of Notice ................................................................2
Section 9. Maintenance and Inspection of Stockholder List ..................................3
Section 10. Stockholder Action by Written Consent Without a Meeting .........................3
Section 11. Inspectors of Election ..........................................................3
Section 12. Procedure for Stockholders' Meetings.............................................4
Section 13. Order of Business ...............................................................4
Section 14. Procedures for Bringing Business before an Annual Meeting .......................4
Section 15. Procedures for Nominating Directors .............................................5
ARTICLE III - Directors ........................................................................5
Section 1. Number and Qualification of Directors ..........................................5
Section 2. Election and Term of Office ....................................................6
Section 3. Resignation and Removal of Directors ...........................................6
Section 4. Vacancies ......................................................................7
Section 5. Powers .........................................................................7
Section 6. Place of Directors' Meetings ...................................................7
Section 7. Regular Meetings ...............................................................7
Section 8. Special Meetings ...............................................................7
Section 9. Quorum .........................................................................8
Section 10. Action Without Meeting .........................................................8
Section 11. Telephonic Meetings ............................................................8
Section 12. Meetings and Action of Committees ..............................................8
Section 13. Special Meetings of Committees .................................................9
Section 14. Minutes of Committee Meetings ..................................................9
Section 15. Compensation of Directors ......................................................9
Section 16. Indemnification ................................................................9
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE IV - Officers .........................................................................11
Section 1. Officers .......................................................................11
Section 2. Election of Officers ...........................................................11
Section 3. Subordinate Officers ...........................................................11
Section 4. Removal and Resignation of Officers ............................................12
Section 5. Vacancies in Offices ...........................................................12
Section 6. Chairman of the Board ..........................................................12
Section 7. Vice Chairman of the Board .....................................................12
Section 8. President ......................................................................12
Section 9. Vice Presidents ................................................................12
Section 10. Secretary ......................................................................12
Section 11. Chief Financial Officer ........................................................13
Section 12. Treasurer and Controller ......................................................13
ARTICLE V - Certificate of Stock ..............................................................13
Section 1. Certificates ...................................................................13
Section 2. Signatures on Certificates .....................................................13
Section 3. Statement of Stock Rights, Preferences, Privileges .............................13
Section 4. Lost Certificates ..............................................................14
Section 5. Transfers of Stock .............................................................14
Section 6. Fixing Record Date .............................................................14
Section 7. Registered Stockholders ........................................................14
ARTICLE VI - General Provisions - Dividends ...................................................15
Section 1. Dividends ......................................................................15
Section 2. Payment of Dividends; Directors' Duties.........................................15
Section 3. Checks .........................................................................15
Section 4. Corporate Contracts and Instruments ............................................15
Section 5. Fiscal Year ....................................................................15
Section 6. Manner of Giving Notice ........................................................15
Section 7. Waiver of Notice ...............................................................16
Section 8. Annual Statement ...............................................................16
ARTICLE VII - Amendments ......................................................................16
Section 1. Amendment by Directors .........................................................16
Section 2. Amendment by Stockholders ......................................................16
</TABLE>
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<PAGE> 4
BYLAWS
OF
BAKER HUGHES INCORPORATED
ARTICLE I
Offices
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The Corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may
from time to time determine or the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. All meetings of the stockholders shall be held at such
place either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting.
Section 2. An annual meeting of stockholders shall be held on the
fourth Wednesday in January in each year, if not a legal holiday, and if a
legal holiday, then on the next business day following, at 2:00 p.m. or at such
other date and time as may be determined from time to time by resolution
adopted by the Board of Directors, for the purpose of electing, subject to
Article III, Section 17 hereof, one class of the directors of the Corporation,
and transacting such other business as may properly be brought before the
meeting.
Section 3. A majority of the stock issued and outstanding and entitled
to vote at any meeting of stockholders, the holders of which are present in
person or represented by proxy, without regard to class or series, shall
constitute a quorum for the transaction of business except as otherwise
provided by law, by the Certificate of Incorporation, or by these Bylaws. A
quorum, once established, shall not be broken by the withdrawal of enough votes
to leave less than a quorum and the votes present may continue to transact
business until adjournment provided that any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, a majority of the voting stock
represented in person or by proxy may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat.
<PAGE> 5
Section 4. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
the Certificate of Incorporation or these Bylaws, a different vote is required
in which case such express provision shall govern and control the decision of
such question.
Section 5. At each meeting of the stockholders, each stockholder
having the right to vote may vote in person or may authorize another person or
persons to act for him by proxy appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three years
prior to said meeting, unless said instrument provides for a longer period. All
proxies must be filed with the Secretary of the Corporation at the beginning of
each meeting in order to be counted in any vote at the meeting. A proxy shall
be deemed signed if the stockholder's name is placed on the proxy (whether by
manual signature, telegraphic transmission or otherwise) by the stockholder or
the stockholder's attorney in fact. Each stockholder shall have one vote for
each share of stock having voting power, registered in his name on the books of
the Corporation on the record date set by the Board of Directors as provided in
Article V, Section 6 hereof.
Section 6. Special meetings of the stockholders, for any purpose, or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called at any time by the Board of Directors or by a
committee of the Board of Directors which has been duly designated by the Board
of Directors and whose powers and authority, as provided in a resolution of the
Board of Directors or in these Bylaws, include the power to call such meetings.
Special meetings of stockholders of the Corporation may not be called by any
other person or persons. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 7. Any notice requested to be given to stockholders by
statute, the Certificate of Incorporation or these Bylaws, including notice of
any meeting of stockholders, shall be given personally, by first-class mail or
by telegraphic communication, charges prepaid, addressed to the stockholder at
the address of such stockholder appearing on the books of the Corporation or
given by the stockholder to the Corporation for the purpose of notice. If no
such address appears on the Corporation's books or has been so given, notice
shall be deemed to have been given if sent by first-class mail or telegraphic
communication to the Corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county where such
principal executive office is located. Notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
telegram.
If any notice addressed to a stockholder at the address of such
stockholder appearing on the books of a Corporation is returned to the
Corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the stockholder
at such address, all further notices shall be deemed to have been duly given
without further mailing if the same shall be available to the stockholder upon
written demand of the stockholder at the principal executive office of the
Corporation for a period of one year from the date of the giving of such
notice.
Section 8. Attendance of a person at a meeting shall constitute a
waiver of notice to such person of such meeting, except when the person objects
at the beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened, or objects to the consideration of
matters not included in the notice of the meeting.
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<PAGE> 6
Section 9. The officer or agent who has charge of the stock ledger of
the Corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where their meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept open at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled to examine such list or
to vote at any meetings of stockholders.
Section 10. No action shall be taken by stockholders except at an
annual or special meeting of stockholders, and stockholders may not act by
written consent.
Section 11. Before any meeting of stockholders, the Board of Directors
may appoint any persons other than nominees for office to act as inspectors of
election at the meeting or its adjournment. If no inspectors of election are so
appointed, the chairman of the meeting may, and on the request of any
stockholder or a stockholder's proxy shall, appoint inspectors of election at
the meeting. The number of inspectors shall be either one or three. If
inspectors are appointed at a meeting on the request of one or more
stockholders or proxies, the holders of a majority of shares or their proxies
present at the meeting shall determine whether one or three inspectors are to
be appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, the chairman of the meeting may, and upon the request of any
stockholder or a stockholder's proxy shall, appoint a person to fill such
vacancy.
The duties of these inspectors shall be as follows:
(a) Determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of
a quorum, and the authenticity, validity and effect of proxies;
(b) Receive votes or ballots;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes;
(e) Determine when the polls shall close;
(f) Determine the results; and
(g) Do any other acts that may be proper to conduct the
election or vote with fairness to all stockholders.
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Section 12. Meetings of the stockholders shall be presided over by the
Chairman of the Board of Directors, or in his absence, by the Vice Chairman,
the President or by any Vice President, or, in the absence of any of such
officers, by a chairman to be chosen by a majority of the stockholders entitled
to vote at the meeting who are present in person or by proxy. The Secretary,
or, in his absence, any person appointed by the chairman, shall act as
secretary of all meetings of the stockholders.
Section 13. The order of business at all meetings of stockholders
shall be as determined by the chairman of the meeting.
Section 14. Notwithstanding anything in these Bylaws to the contrary,
no business shall be conducted at an annual meeting of the stockholders except
in accordance with the procedures hereinafter set forth in this Section 14;
provided, however, that nothing in this Section 14 shall be deemed to preclude
discussion by any stockholder of any business properly brought before the
annual meeting in accordance with said procedures.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (1) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board, (2) otherwise properly brought before the meeting by or at the
direction of the Board, or (3) otherwise properly brought before the meeting by
a stockholder. In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the Corporation
not less than one hundred twenty (120) days in advance of the first annual
anniversary of the date of the Corporation's proxy statement released to
stockholders in connection with the previous year's annual meeting of
stockholders, except that if no annual meeting was held in the previous year or
the date of the annual meeting has been changed by more than thirty (30)
calendar days from the date contemplated at the time of the previous year's
proxy statement, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth (10th) day following the day on
which such notice of the date of the annual meeting was mailed or such public
disclosure was made. Any adjournment(s) or postponement(s) of the original
meeting whereby the meeting will reconvene within 30 days from the original
date shall be deemed for purposes of notice to be a continuation of the
original meeting and no business may be brought before any such reconvened
meeting unless timely notice of such business was given to the Secretary of the
Corporation for the meeting as originally scheduled. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (i) a brief description of the business desired
to be brought before the annual meeting and their reasons for conducting such
business at the annual meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class and number of shares of
the Corporation which are beneficially owned by the stockholders, and (iv) any
material interest of the stockholder in such business.
The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 14, and if
he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
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<PAGE> 8
Section 15. Notwithstanding anything in these Bylaws to the contrary,
only persons who are nominated in accordance with the procedures hereinafter
set forth in this Section 15 shall be eligible for election as directors of the
Corporation.
Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders only (1) by or at the
direction of the Board of Directors or (2) by any stockholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 15. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation
not less than thirty (30) days nor more than sixty (60) days prior to the
meeting; provided, however, that in the event that less than forty (40) days'
notice or prior public disclosure of the date of the meeting is given or made
to stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth (10th) day following the day on
which such notice of the date of the meeting was mailed or such public
disclosure was made. Any adjournment(s) or postponement(s) of the original
meeting whereby the meeting will reconvene within thirty (30) days from the
original date shall be deemed for purposes of notice to be a continuation of
the original meeting and no nominations by a shareholder of persons to be
elected directors of the Corporation may be made at any such reconvened meeting
other than pursuant to a notice that was timely for the meeting on the date
originally scheduled. Such stockholder's notice shall set forth: (i) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, or any successor regulation
thereto (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (ii) as to
the stockholder giving notice (A) the name and address, as they appear on the
Corporation's books, of such stockholder, and (B) the class and number of
shares of the Corporation which are beneficially owned by such stockholder. At
the request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this Section 15, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.
ARTICLE III
Directors
Section 1. The Board of Directors shall consist of a minimum of twelve
(12) and a maximum of sixteen (16) directors. The number of directors shall be
fixed from time to time within the minimum and the maximum number established
by the then elected Board of Directors. The number of directors until changed
by the Board shall be twelve (12). The maximum number of directors may not be
increased by the Board of Directors to exceed sixteen without the affirmative
vote of 75% of the members of the entire Board. The directors need not be
stockholders. No officer of the Corporation may serve on a board of directors
of any company having a present or retired employee on the
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<PAGE> 9
Corporation's Board of Directors. No person may stand for election as a
director if within the previous one (1) year he has resigned from the Board as
a result of the tenure provisions of Article III, Section 3 hereof regarding
service for more than ten (10), eleven (11) or twelve (12) consecutive years on
the Board. No person associated with an organization whose services are
contracted by the Corporation shall serve on the Corporation's Board of
Directors; provided, however, that this prohibition may be waived by a majority
of the members of the whole Board if the Board in its judgment determines that
such waiver would be in the best interest of the Corporation.
Section 2. The Board of Directors shall be divided into three classes,
Class I, Class II and Class III. The number of directors in each class shall be
the whole number contained in the quotient arrived at by dividing the
authorized number of directors by three, and if a fraction is also contained in
such quotient then if such fraction is one-third (1/3), the extra director
shall be a member of Class III, and if the fraction is two-thirds (2/3), one of
the extra directors shall be a member of Class III and the other a member of
Class II. Each director shall serve for a term ending on the date of the third
annual meeting following the annual meeting at which such director was elected;
provided, however, that the directors initially appointed to Class I shall
serve for a term ending on the date of the first annual meeting next following
September 30, 1988, the directors initially appointed to Class II shall serve
for a term ending on the date of the second annual meeting next following
September 30, 1988, and the directors initially appointed to Class III shall
serve for a term ending on the date of the third annual meeting next following
September 30, 1988. One class of the directors shall be elected at each annual
meeting of the stockholders. If any such annual meeting is not held or the
directors are not elected thereat, the directors may be elected at any special
meeting of stockholders held for that purpose. All directors shall hold office
until their respective successors are elected and qualified or until their
earlier death, resignation or removal.
Section 3. Directors who are employees of the Corporation must resign
from the Board of Directors at the time of any diminution in their duties or
responsibilities as an officer, at the time they leave the employ of the
Corporation for any reason or on their 70th birthday. A director's term of
office shall automatically terminate on the date of the annual meeting of
stockholders following: (i) his seventieth (70th) birthday; (ii) the third
anniversary of his retirement from his principal occupation; (iii) unless he is
an officer of the Corporation, the date on which he has served on the
Corporation's Board of Directors a total of ten (10) complete years; (iv) any
fiscal year in which he has failed to attend at least sixty-six percent (66%)
of the meetings of the Board of Directors and any committees of the Board of
Directors on which such director serves; or (v) the first anniversary of any
change in his employment (other than a promotion or lateral movement within the
same organization). The requirements of Section 3(i) through Section 3(v) of
Article III may be waived by a majority of the members of the whole Board
(excluding the director whose resignation would otherwise be required) if the
Board in its judgment determines that such waiver would be in the best interest
of the Corporation. Any director may be removed for cause by the holders of a
majority of the shares of the Corporation entitled to vote in the election of
directors; stockholders may not remove any director without cause. The Board of
Directors may not remove any director for or without cause, and no
recommendation by the Board of Directors that a director be removed for cause
may be made to the stockholders except by the affirmative vote of not less than
seventy-five percent (75%) of the members of the whole Board; provided that the
Board may remove any director who fails to resign as required by the provisions
of these Bylaws.
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<PAGE> 10
Section 4. Except as otherwise provided by statute or the Certificate
of Incorporation, in the case of any increase in the number of directors, such
additional director or directors shall be proposed for election to terms of
office that will most nearly result in each class of directors containing
one-third (1/3) of the entire number of members of the whole Board, and, unless
such position is to be filled by a vote of the stockholders at an annual or
special meeting, shall be elected by a majority vote of the directors in such
class or classes, voting separately by class. In the case of any vacancy in the
Board of Directors, however created, the vacancy or vacancies shall be filled
by majority vote of the directors remaining in the class in which the vacancy
occurs or, if only one such director remains, by such director. In the event
one or more directors shall resign, effective at a future date, such vacancy or
vacancies shall be filled as provided herein. Directors so chosen or elected
shall hold office for the remaining term of the directorship to which
appointed. Any director elected or chosen as provided herein shall serve for
the unexpired term of office or until his successor is elected and qualified or
until his earlier death, resignation or removal.
In the event of any decrease in the authorized number of directors,
(a) each director then serving as such shall nevertheless continue as a
director of the class of which he is a member until the expiration of this
current term, or his prior death, resignation or removal, and (b) the newly
eliminated directorships resulting from such decrease shall be apportioned by
the Board of Directors to such class or classes as shall, so far as possible,
bring the number of directors in the respective classes into conformity with
the formula in Section 2 hereof as applied to the newly authorized number of
directors.
Section 5. The property and business of the Corporation shall be
managed by or under the direction of its Board of Directors. In addition to the
powers and authorities by these Bylaws expressly conferred upon them, the Board
may exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute, by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
Meetings of the Board of Directors
Section 6. The directors may hold their meetings and have one or more
offices, and keep the books of the Corporation outside the State of Delaware.
Section 7. Regular meetings of the Board of Directors may be held
without notice at such time and place as shall from time to time be determined
by the Board. Except as otherwise provided by statute, any business may be
transacted at any regular meeting of the Board of Directors.
Section 8. Special meetings of the Board of Directors may be called by
the Chairman of the Board, the Vice Chairman or the President on at least
twenty-four hours' notice, or such shorter period as the person calling deems
appropriate, to each director. Special meetings shall be called by the
President or the Secretary in like manner and on like notice on the written
request of any two directors unless the Board consists of only one director, in
which case special meetings shall be called by the President or Secretary in
like manner and on like notice on the written request of the sole director.
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<PAGE> 11
Section 9. At all meetings of the Board of Directors a majority of the
authorized number of directors shall be necessary and sufficient to constitute
a quorum for the transaction of business, and the vote of a majority of the
directors present at any meeting at which there is a quorum, shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
statute, by the Certificate of Incorporation or by these Bylaws. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present. If only one
director is authorized, such sole director shall constitute a quorum. A meeting
at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action is approved by at
least a majority of the required quorum for such meeting.
Section 10. Unless otherwise restricted by statute, the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
Section 11. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
a meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Committees of Directors
Section 12. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each such
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. If no alternate members have been appointed, the committee
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. The Board of Directors shall, by resolution
passed by a majority of the whole Board, designate one member of each committee
as chairman of such committee. Each such chairman shall hold such office for a
period not in excess of five years, and shall upon surrender of such
chairmanship resign from membership on such committee. Any such committee, to
the extent provided in the resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, but no such
committee shall have the power or authority to authorize an amendment to the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the Board of Directors, fix the designations and any
of the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation, or fix the number or shares of any series of stock or authorize
the increase or decrease of the shares of any series), adopt an agreement of
merger or consolidation, recommend to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's
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<PAGE> 12
property and assets, recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, or amend the Bylaws of the
Corporation; and, unless the resolution or the Certificate of Incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend, to authorize the issuance of stock or to adopt a
certificate of ownership and merger.
Section 13. Special meetings of committees may be called by the
Chairman of such committee, the Chairman of the Board or the President, on at
least forty-eight (48) hours notice to each member and alternate member.
Alternate members shall have the right to attend all meetings of the committee.
The Board of Directors may adopt rules of the government of any committee not
inconsistent with the provisions of these Bylaws. If a committee is comprised
of an odd number of members, a quorum shall consist of a majority of that
number. If the committee is comprised of an even number of members, a quorum
shall consist of one-half (1/2) of that number. If a committee is comprised of
two members, a quorum shall consist of both members.
Section 14. Each Committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when requested.
Compensation of Directors
Section 15. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a
stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Indemnification
Section 16. (a) The Corporation shall indemnify every person who is or
was a party or is or was threatened to be made a party to any threatened,
pending or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation), by reason of the fact that he is or was a director, officer or
employee of the Corporation or any of its direct or indirect wholly-owned
subsidiaries or, while a director, officer or employee of the Corporation or
any of its direct or indirect wholly-owned subsidiaries, is or was serving at
the request of the Corporation or any of its direct or indirect wholly-owned
subsidiaries, as a director, officer or employee, of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including counsel fees), judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, to the full extent permitted by applicable law;
provided that the Corporation shall not be obligated to indemnify any such
person against any such action, suit or proceeding which is brought by such
person against the Corporation or any of its direct or indirect wholly-owned
subsidiaries or the directors of the Corporation or any of its direct or
indirect wholly-owned subsidiaries, other than an action brought by such person
to enforce his rights to indemnification hereunder, unless a majority of the
Board of Directors of the Corporation shall have previously approved the
bringing of such action, suit or proceeding, and provided further that the
Corporation shall not be obligated to indemnify any such person against any
action, suit or proceeding
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arising out of any adjudicated criminal, dishonest or fraudulent acts, errors
or omissions of such person or any adjudicated willful, intentional or
malicious acts, errors or omissions of such person.
(b) The Corporation shall indemnify every person who is or was a party
or is or was threatened to be made a party to any threatened, pending or
completed action, suit, or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was licensed to practice
law and an employee (including an employee who is or was an officer) of the
Corporation or any of its direct or indirect wholly-owned subsidiaries and,
while acting in the course of such employment committed or is alleged to have
committed any negligent acts, errors or omissions in rendering professional
legal services at the request of the Corporation or pursuant to his employment
(including, without limitation, rendering written or oral legal opinions to
third parties) against expenses (including counsel fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding, to the full extent permitted
by applicable law; provided that the Corporation shall not be obligated to
indemnify any such person against any action, suit or proceeding arising out of
any adjudicated criminal, dishonest or fraudulent acts, errors or omissions of
such person or any adjudicated willful, intentional or malicious acts, errors
or omissions of such person.
(c) The Corporation shall indemnify every person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, or
employee of the Corporation, or any of its direct or indirect wholly-owned
subsidiaries or, while a director, officer, or employee of the Corporation or
any of its direct or indirect wholly-owned subsidiaries, is or was serving at
the request of the Corporation or any of its direct or indirect wholly-owned
subsidiaries, as a director, officer, or employee of another corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(d) To the extent that a director, officer, or employee of the
Corporation, or any of its direct or indirect wholly-owned subsidiaries, has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a), (b) and (c) of this section, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(e) Any indemnification under subsections (a), (b) and (c) of this
section (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, or employee is proper in the circumstances because he
has met the applicable standard of conduct set forth in subsections (a), (b)
and (c) of this section. Such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of
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Directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
(f) Expenses (including attorneys' fees) incurred by an officer or
director of the Corporation or any of its direct or indirect wholly-owned
subsidiaries in defending a civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Section 16. Such expenses incurred by
other employees and agents may be so paid upon such terms and conditions, if
any, as the Board of Directors deems appropriate.
(g) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 16 shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any provision of law, the Corporation's Certificate of
Incorporation, the Certificate of Incorporation or Bylaws or other governing
documents of any direct or indirect wholly-owned subsidiary of the Corporation,
or any agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding any of the positions or having any of the relationships referred
to in this Section 16.
(h) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 16 shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer or employee and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE IV
Officers
Section 1. The officers of the Corporation shall be a Chairman of the
Board, a Vice Chairman of the Board, a President, a Chief Financial Officer, a
Vice President, a Secretary, a Treasurer and a Controller. The Corporation may
also have, at the discretion of the Board of Directors, one or more additional
Vice Presidents, and such other officers as may be appointed in accordance with
the provisions of Section 3 of this Article.
Section 2. The officers of the Corporation, except such officers as
may be appointed in accordance with the provisions of Section 3 or Section 5 of
this Article, shall be chosen by the Board of Directors, and each shall serve
at the pleasure of the Board, subject to the rights, if any, of any officer
under any contract of employment.
Section 3. The Board of Directors may appoint, and may empower the
President to appoint, such other officers as the business of the Corporation
may require, each of whom shall hold office for such period, have such
authority and perform such duties as are provided in the Bylaws or as the Board
of Directors may from time to time determine.
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Section 4. Any officer may be removed, either with or without cause,
by the Board of Directors, at any regular or special meeting thereof, or except
in case of an officer chosen by the Board of Directors, by any officer upon
whom such power of removal may be conferred by the Board of Directors, provided
that such removal shall not prejudice the remedy of such officer for breach of
any contract of employment.
Any officer may resign at any time by giving written notice to the
Corporation. Any such resignation shall take effect on receipt of such notice
or at any later time specified therein. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. Any
such resignation is without prejudice to the rights, if any, of the Corporation
under any contract to which the officer is a party.
Section 5. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in these Bylaws for regular appointments to such office.
Section 6. The Chairman of the Board shall, if present, preside at all
meetings of the Board of Directors and of the stockholders, and shall exercise
and perform such other powers and duties as may be from time to time assigned
to him by the Board of Directors or prescribed by the Bylaws.
Section 7. The Vice Chairman of the Board shall exercise and perform
such powers and duties as may be from time to time assigned to him by the Board
of Directors or prescribed in these Bylaws. In the absence of the Chairman of
the Board, the Vice Chairman of the Board shall preside at all meetings of the
stockholders and the Board of Directors.
Section 8. The President shall be the chief executive officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the Corporation. In the absence of the Chairman of the Board and the Vice
Chairman of the Board, the President shall preside at all meetings of the
stockholders and the Board of Directors. He shall have the general powers and
duties of management usually vested in the office of President of a
corporation, and shall have such other powers and duties as may be prescribed
by the Board of Directors or the Bylaws.
Section 9. In the absence or disability of the President, the Vice
Presidents, if any, in order of their rank as fixed by the Board of Directors,
or if not ranked, the Vice President designated by the President, shall perform
all the duties of the President, and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board of Directors,
these Bylaws or the President.
Section 10. The Secretary shall keep or cause to be kept, at the
principal office or such other place as the Board of Directors may order, a
book of minutes of all meetings and actions of directors, committees of
directors and stockholders, with the time and place of holding, whether regular
or special, and, if special, how authorized, the notice thereof given, the
names of those present at directors' and committee meetings, the number of
shares present or represented at stockholders' meetings, and the proceedings
thereof.
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The Secretary shall keep, or cause to be kept, at the principal office
or at the office of the Corporation's transfer agent or registrar, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required by these Bylaws or
by law to be given, and he shall keep the seal of the Corporation, if one be
adopted, in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or by the Bylaws.
Section 11. The Chief Financial Officer shall keep and maintain, or
cause to be kept and maintained, adequate and correct books and records of
accounts of the properties and business transactions of the Corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings and shares. The books of account shall be
open at all times to inspection by any director.
The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board of Directors, shall
render to the President and Directors, whenever they request it, an account of
all of his transactions as Chief Financial Officer and of the financial
condition of the Corporation, and shall have other powers and perform such
other duties as may be prescribed by the Board of Directors or the Bylaws.
Section 12. The Treasurer and the Controller shall each have such
powers and perform such duties as from time to time may be prescribed for him
by the Board of Directors, the President or these Bylaws.
ARTICLE V
Certificate of Stock
Section 1. Every holder of stock of the Corporation shall be entitled
to have a certificate signed by, or in the name of the Corporation by, the
Chairman or Vice Chairman of the Board of Directors, or the President or a Vice
President, and by the Secretary or an Assistant Secretary, if one be appointed,
or the Treasurer or an Assistant Treasurer of the Corporation, certifying the
number of shares represented by the certificate owned by such stockholder in
the Corporation.
Section 2. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
Section 3. If the Corporation shall be authorized to issue more than
one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualification,
limitations or restrictions of such preferences and/or rights shall be set
forth in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided by statute, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the
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Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Lost, Stolen or Destroyed Certificates
Section 4. The Board of Directors, the Secretary and the Treasurer
each may direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the owner of such certificate, or his legal representative. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to furnish the Corporation a bond in such form and
substance and with such surety as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
Transfers of Stock
Section 5. Upon surrender to the Corporation, or the transfer agent of
the Corporation, of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall
be the duty of the Corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books.
Fixing Record Date
Section 6. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of the
stockholders, or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix a
record date which shall not be more than 60 nor less than 10 days before the
date of such meeting, nor more than 60 days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
Registered Stockholder
Section 7. The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable or other claim or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, save as expressly provided by the laws of
the State of Delaware.
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ARTICLE VI
General Provisions
Dividends
Section 1. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property or in shares of the
Corporation's capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. Before declaration of any dividend, there may be set aside
out of any funds of the Corporation available for dividends such sum or sums as
the Board of Directors from time to time, in its absolute discretion, thinks
proper as a reserve fund to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for such other
purpose as the Board of Directors shall think conducive to the interests of the
Corporation, and the Board of Directors may thereafter abolish any such reserve
in its absolute discretion.
Checks
Section 3. All checks, drafts or other orders for payment of money,
notes or other evidences of indebtedness, issued in the name of or payable to
the Corporation shall be signed by such officer or officers as the Board of
Directors or the President or any Vice President, acting jointly, may from time
to time designate.
Section 4. The President, any Vice President, the Secretary or the
Treasurer may enter into contracts and execute instruments on behalf of the
Corporation. The Board of Directors, the President or any Vice President may
authorize any officer or officers, and any employee or employees or agent or
agents of the Corporation or any of its subsidiaries, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation, and such authority may be general or confined to specific
instances.
Fiscal Year
Section 5. The fiscal year of the Corporation shall be October 1
through September 30, unless otherwise fixed by resolution of the Board of
Directors.
Notices
Section 6. Whenever, under the provisions of the statutes, the
Certificate of Incorporation or these Bylaws, notice is required to be given to
any director, it shall not be construed to require personal notice, but such
notice may be given in writing, by mail, addressed to such director, at his
address as it appears on the records of the Corporation (unless prior to
mailing of such notice he shall have filed with the Secretary a written request
that notices intended for him be mailed to some other address, in which case
such notice shall be mailed to the address designated in the request) with
postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be
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deposited in the United States mail; provided, however, that, in the case of
notice of a special meeting of the Board of Directors, if such meeting is to be
held within seven calendar days after the date of such notice, notice shall be
deemed given as of the date such notice shall be accepted for delivery by a
courier service that provides "opening of business next day" delivery, so long
as at least one attempt shall have been made, on or before the date such notice
is accepted for delivery by such courier service, to provide notice by
telephone to each director at his principal place of business and at his
principal residence. Notice to directors may also be given by telegram, by
personal delivery, by telephone or by facsimile.
Section 7. Whenever any notice is required to be given under the
provisions of the statutes, the Certificate of Incorporation or these Bylaws, a
waiver thereof in writing, or by telegraph, cable or other written form of
recorded communication, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
Annual Statement
Section 8. The Board of Directors shall present at each annual
meeting, and at any special meeting of the stockholders when called for by vote
of the stockholders, a full and clear statement of the business and condition
of the Corporation.
ARTICLE VII
Amendments
Section 1. Except any amendment to this Article VII and to Article II,
Section 6, Article II, Section 10, Article III, Section 1 (as it relates to
increases in the number of directors), Article III, Section 2, the last
sentence of Article III, Section 3 (as it relates to removal of directors),
Article III, Section 4, Article III, Section 16 and Article VI, Section 6 of
these Bylaws, or any of such provisions, which shall require approval by the
affirmative vote of directors representing at least seventy-five percent (75%)
of the number of directors provided for in accordance with Article III, Section
1, and except as otherwise expressly provided in a bylaw adopted by the
stockholders as hereinafter provided, the directors, by the affirmative vote of
a majority of the whole Board and without the assent or vote of the
stockholders, may at any meeting, make, repeal, alter, amend or rescind any of
these Bylaws, provided the substance of the proposed amendment or other action
shall have been stated in a notice of the meeting.
Section 2. These Bylaws may not be altered, amended or rescinded, and
new Bylaws may not be adopted, by the stockholders of the Corporation except by
the vote of the holders of not less than seventy-five percent (75%) of the
total voting power of all shares of stock of the Corporation entitled to vote
in the election of directors, considered for such purpose as one class.
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EXHIBIT 10.2
SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of July 23, 1997, is made by and
between BAKER HUGHES INCORPORATED, a Delaware corporation (the "Company"), and
DAVID H. BARR (the "Executive").
WHEREAS, the Company considers it essential to the best
interests of its stockholders to foster the continued employment of key
management personnel; and
WHEREAS, the Board recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the Company and the Executive hereby agree
as follows:
1. Defined Terms. The definitions of capitalized terms used
in this Agreement are provided in the last Section hereof.
2. Term of Agreement. Subject to the provisions of Section
12.2 hereof, the Term of this Agreement shall commence on the date hereof and
shall continue in effect through December 31, 1999; provided, however, that
commencing on January 1, 1998 and each January 1 thereafter (an "Extension
Date"), the Term shall automatically be extended for one additional year (i.e.,
resulting in a two-year Term on the Extension Date) unless, not later than
September 30 of the year preceding the Extension Date, the Company or the
Executive shall have given notice not to extend the Term; and further provided,
however, that if a Change in Control shall have occurred during the Term, the
Term shall expire no earlier than twenty-four (24) months beyond the month in
which such Change in Control occurred.
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3. Company's Covenants Summarized. In order to induce the
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants set forth in Section 4 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the Severance Payments
and the other payments and benefits described herein. Except as provided in
Section 9.1 hereof, no Severance Payments shall be payable under this Agreement
unless there shall have been (or, under the terms of the second sentence of
Section 6.1 hereof, there shall be deemed to have been) a termination of the
Executive's employment with the Company following a Change in Control and
during the Term. This Agreement shall not be construed as creating an express
or implied contract of employment and, except as otherwise agreed in writing
between the Executive and the Company, the Executive shall not have any right
to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that,
subject to the terms and conditions of this Agreement, in the event of a
Potential Change in Control during the Term, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six (6) months
from the date of such Potential Change of Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason or by reason of death, Disability or Retirement, or
(iv) the termination by the Company of the Executive's employment for any
reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during
any period that the Executive fails to perform the Executive's full-time duties
with the Company as a result of incapacity due to physical or mental illness,
the Company shall pay the Executive's full salary to the Executive at the rate
in effect at the commencement of any such period, together with all
compensation and benefits payable to the Executive under the terms of any
compensation or benefit plan, program or arrangement maintained by the Company
during such period, until the Executive's employment is terminated by the
Company for Disability.
5.2 If the Executive's employment shall be terminated for any
reason following a Change in Control and during the Term, the Company shall pay
the Executive's full salary to the Executive through the Date of Termination at
the rate in effect immediately prior to the Date of Termination or, if higher,
the rate in effect immediately prior to the first occurrence of
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an event or circumstance constituting Good Reason, together with all
compensation and benefits payable to the Executive through the Date of
Termination under the terms of the Company's compensation and benefit plans,
programs or arrangements as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance constituting Good
Reason.
5.3 If the Executive's employment shall be terminated for any
reason following a Change in Control and during the Term, the Company shall pay
to the Executive the Executive's normal post-termination compensation and
benefits as such payments become due. Such post-termination compensation and
benefits shall be determined under, and paid in accordance with, the Company's
retirement, insurance and other compensation or benefit plans, programs and
arrangements as in effect immediately prior to the Date of Termination or, if
more favorable to the Executive, as in effect immediately prior to the
occurrence of the first event or circumstance constituting Good Reason.
5.4 Upon the occurrence of a Change in Control all options to
acquire shares of Company stock, all shares of restricted Company stock and all
other equity or phantom equity incentives held by the Executive under any plan
of the Company (including, but not limited to, the Company's 1995 Stock Award
Plan (and the Stock Matching Programs thereunder), 1993 Stock Option Plan, 1993
Stock Bonus Plan and 1991 Stock Bonus Plan) shall become immediately vested,
exercisable and nonforfeitable and all conditions thereof (including, but not
limited to, any required holding periods) shall be deemed to have been
satisfied.
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6. Severance Payments.
6.1 If (i) the Executive's employment is terminated following
a Change in Control and during the Term, other than (A) by the Company for
Cause, (B) by reason of death or Disability, or (C) by the Executive without
Good Reason, or (ii) the Executive voluntarily terminates his employment for
any reason during the one-month period commencing on the first anniversary of
the Change in Control, then, the Company shall pay the Executive the amounts,
and provide the Executive the benefits, described in this Section 6.1
("Severance Payments") and Section 6.2, in addition to any payments and
benefits to which the Executive is entitled under Section 5 hereof. For
purposes of this Agreement, the Executive's employment shall be deemed to have
been terminated following a Change in Control by the Company without Cause or
by the Executive with Good Reason, if (i) the Executive'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) the Executive
terminates his 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 such Person
described in clause (i), or (iii) the Executive's employment is terminated by
the Company without Cause or by the Executive 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). For purposes of any determination
regarding the applicability of the immediately preceding sentence, any position
taken by the Executive shall be presumed to be correct unless the Company
establishes to the Committee by clear and convincing evidence that such
position is not correct.
(A) In lieu of any further salary payments
to the Executive for periods subsequent to the Date of Termination and
in lieu of any severance benefit otherwise payable to the Executive,
the Company shall pay to the Executive a lump sum severance payment,
in cash, equal to three times the sum of (i) the Executive's base
salary as in effect immediately prior to the Date of Termination or,
if higher, in effect immediately prior to the first occurrence of an
event or circumstance constituting
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Good Reason, and (ii) the average annual bonus earned by the Executive
pursuant to any annual bonus or incentive plan maintained by the
Company in respect of the three fiscal years ending immediately prior
to the fiscal year in which occurs the Date of Termination or, if
higher, immediately prior to the fiscal year in which occurs the first
event or circumstance constituting Good Reason; provided, that if the
Executive has not participated in an annual bonus or incentive plan
maintained by the Company for the entirety of such three-year period,
the amount referred to in this clause (ii) shall be calculated using
such lesser number of bonuses as have been actually earned by the
Executive in respect of such lesser period.
(B) For the thirty-six (36) month period
immediately following the Date of Termination, the Company shall
arrange to provide the Executive and his dependents life, disability,
accident and health insurance benefits and perquisites (including, but
not limited to, executive life insurance, club memberships, financial
planning and tax preparation, annual physical examination and
charitable contributions), in each case, substantially similar to
those provided to the Executive and his dependents immediately prior
to the Date of Termination or, if more favorable to the Executive,
those provided to the Executive and his dependents immediately prior
to the first occurrence of an event or circumstance constituting Good
Reason, at no greater cost to the Executive than the cost to the
Executive immediately prior to such date or occurrence; provided,
however, that, unless the Executive consents to a different method
(after taking into account the effect of such method on the
calculation of "parachute payments" pursuant to Section 6.2 hereof),
such health insurance benefits shall be provided through a third-party
insurer. Benefits otherwise receivable by the Executive pursuant to
this Section 6.1(B) shall be reduced to the extent benefits of the
same type are received by or made available to the Executive during
the thirty-six (36) month period following the Executive's termination
of employment (and any such benefits received by or made available to
the Executive shall be reported to the Company by the Executive);
provided, however, that the Company shall reimburse the Executive for
the excess, if any, of the cost of such benefits to the Executive over
such cost immediately prior to the Date of Termination or, if more
favorable to the Executive,
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the first occurrence of an event or circumstance constituting Good
Reason.
(C) Notwithstanding any provision of the
Baker Hughes Incorporated 1995 Employee Annual Incentive Compensation
Plan (the "Annual Incentive Plan"), the Company shall pay to the
Executive a lump sum amount, in cash, equal to the sum of (i) any
unpaid incentive compensation which has been allocated or awarded to
the Executive for a completed fiscal year or other measuring period
preceding the Date of Termination under the Annual Incentive Plan and
which, as of the Date of Termination, is contingent only upon the
continued employment of the Executive 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 Executive for all
then uncompleted periods under the Annual Incentive Plan, calculated
as to each such award by multiplying the award that the Executive
would have earned on the last day of the performance award period,
assuming the achievement, at the expected value target level, of the
individual and corporate performance goals established with respect to
such award, by the fraction obtained by dividing the number of full
months and any fractional portion of a month during such performance
award period through the Date of Termination by the total number of
months contained in such performance award period; provided, however,
that if such termination of employment occurs during the same year in
which the Change in Control occurs, the pro-rata bonus payment
referred to in clause (ii) above shall be offset by any payments
received under the Annual Incentive Plan in connection with such
Change in Control.
(D) In addition to the retirement benefits
to which the Executive is entitled under the Company's Thrift Plan
(the "Thrift Plan") and the Company's Supplemental Retirement Plan
(the "SRP"), the Company shall pay the Executive a lump sum amount, in
cash, equal to the present value of the employer-provided
contributions, deferrals and allocations the Executive would have
received had he continued to participate, after the Date of
Termination, in the Thrift Plan and the SRP for three (3) additional
years, assuming for this purpose that (i) the Executive earned
compensation for purposes of the Thrift Plan and SRP during such
three- year period the amount used to calculate the Executive's
severance payment under subparagraph
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(A) of this Section 6.1, and (ii) the percentages of contributions,
deferrals and allocations made under the Thrift Plan and the SRP by or
on behalf of the Executive during such three-year period are the same
percentages of contributions, deferrals and allocations in effect on
the date of the Change in Control or the Date of Termination,
whichever is more favorable to the Executive.
(E) If the Executive would have become
entitled to benefits under the Company's post- retirement health care
or life insurance plans, as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect
immediately prior to the first occurrence of an event or circumstance
constituting Good Reason, had the Executive's employment terminated at
any time during the period of thirty-six (36) months after the Date of
Termination, the Company shall provide such post-retirement health
care or life insurance benefits to the Executive and the Executive's
dependents commencing on the later of (i) the date on which such
coverage would have first become available and (ii) the date on which
benefits described in subsection (B) of this Section 6.1 terminate.
(F) The Company shall provide the Executive
with outplacement services suitable to the Executive's position for a
period of three years or, if earlier, until the first acceptance by
the Executive of an offer of employment.
6.2 (A) Whether or not the Executive becomes entitled
to the Severance Payments, if any of the payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change in Control or any Person affiliated
with the Company or such Person) (such payments or benefits, excluding the
Gross-Up Payment, being hereinafter referred to as the "Total Payments") will
be subject to the Excise Tax, the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive, after deduction of any Excise Tax on the Total Payments and any
federal, state and local income and employment taxes and Excise Tax upon the
Gross-Up Payment, shall be equal to the Total Payments.
(B) For purposes of determining whether any of
the Total
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<PAGE> 8
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(i) all of the Total Payments shall be treated as "parachute payments" (within
the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax
counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by
the accounting firm which was, immediately prior to the Change in Control, the
Company's independent auditor (the "Auditor"), such payments or benefits (in
whole or in part) do not constitute parachute payments, including by reason of
section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within
the meaning of section 280G(b)(l) of the Code shall be treated as subject to
the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute
payments (in whole or in part) represent reasonable compensation for services
actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in
excess of the Base Amount allocable to such reasonable compensation, or are
otherwise not subject to the Excise Tax, and (iii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Auditor
in accordance with the principles of sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income tax at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment is
to be made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the Date of
Termination (or if there is no Date of Termination, then the date on which the
Gross-Up Payment is calculated for purposes of this Section 6.2), net of the
maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
(C) In the event that the Excise Tax is finally
determined to be less than the amount taken into account hereunder in
calculating the Gross-Up Payment, the Executive shall repay to the Company,
within five (5) business days following the time that the amount of such
reduction in the Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive,
to the extent that such repayment results in a reduction in the Excise Tax and
a dollar-for-dollar reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and employment taxes, plus interest
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on the amount of such repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder in calculating the Gross-Up
Payment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) within five (5) business days following the time that the amount of
such excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A), (C) and (D) of
Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the
fifth day following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before such day,
the Company shall pay to the Executive on such day an estimate, as determined
in good faith by the Executive or, in the case of payments under Section 6.2
hereof, in accordance with Section 6.2 hereof, of the minimum amount of such
payments to which the Executive is clearly entitled and shall pay the remainder
of such payments (together with interest on the unpaid remainder (or on all
such payments to the extent the Company fails to make such payments when due)
at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be determined but in no event later than the thirtieth
(30th) day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) business day after demand by the Company (together with
interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code),
but only to the extent such amount has not been paid by the Executive pursuant
to Section 6.2(C) above. At the time that payments are made under this
Agreement, the Company shall provide the Executive with a written statement
setting forth the manner in which such payments were calculated and the basis
for such calculations including, without limitation, any opinions or other
advice the Company has received from Tax Counsel, the Auditor or other advisors
or consultants (and any such opinions or advice which are in
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writing shall be attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees
and expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and
during the Term, any purported termination of the Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party hereto to the other party hereto in accordance with Section 10
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board which was called and held for the
purpose of considering such termination (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, the Executive was guilty of conduct set forth in clause (i) or
(ii) of the definition of Cause herein, and specifying the particulars thereof
in detail.
7.2 Date of Termination. "Date of Termination," with respect
to any purported termination of the Executive's employment after a Change in
Control and during the Term, shall mean (i) if the Executive's employment is
terminated for Disability, thirty (30) days after Notice of Termination is
given (provided that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day period), and
(ii) if
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the Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a termination by
the Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive,
shall not be less than fifteen (15) days nor more than sixty (60) days,
respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15)
days after any Notice of Termination is given, or, if later, prior to the Date
of Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of
the parties or by a final judgment, order or decree of an arbitrator or a court
of competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that the Date of Termination shall be extended by a notice
of dispute given by the Executive only if such notice is given in good faith
and the Executive pursues the resolution of such dispute with reasonable
diligence.
7.4 Compensation During Dispute. If a purported termination
occurs following a Change in Control and during the Term and the Date of
Termination is extended in accordance with Section 7.3 hereof, the Company
shall continue to pay the Executive the full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to,
salary) and continue the Executive as a participant in all compensation,
benefit and insurance plans in which the Executive was participating when the
notice giving rise to the dispute was given or those plans in which the
Executive was participating immediately prior to the first occurrence of an
event or circumstance giving rise to the Notice of Termination, if more
favorable to the Executive, until the Date of Termination, as determined in
accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in
addition to all other amounts due under this Agreement (other than those due
under Section 5.2 hereof) and shall not be offset against or reduce any other
amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the
Executive's employment with the Company terminates during the Term, the
Executive is not required to seek other
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employment or to attempt in any way to reduce any amounts payable to the
Executive by the Company pursuant to Sections 5, 6 or 7.4 hereof. Further, the
amount of any payment or benefit provided for in this Agreement (other than
Section 6.1(B) hereof but including (but not limited to) Section 7.4 hereof)
shall not be reduced by any compensation earned by the Executive as the result
of employment by another employer, by retirement benefits, by offset against
any amount claimed to be owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control, except that, for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death
of the Executive) if the Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the executors, personal representatives or administrators of
the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed,
if to the Executive, to the address inserted below the
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Executive's signature on the final page hereof and, if to the Company, to the
address set forth below, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon actual receipt:
To the Company:
3900 Essex Lane
Suite 1200
Houston, Texas 77027
Attention: General Counsel
11. Miscellaneous. Except as otherwise specifically provided
in Section 12.2 below, no provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
forth the terms and conditions of the Executive's employment with the Company
only in the event that the Executive's employment with the Company is
terminated on or following a Change in Control, by the Company other than for
Cause or by the Executive other than for Good Reason; and provided further that
all agreements otherwise superseded by this Agreement shall be automatically
reinstated with full force and effect to the extent this Agreement is
terminated or otherwise rendered inapplicable or amended in accordance with
Section 12.2 hereof. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas. All references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
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required under federal, state or local law and any additional withholding to
which the Executive has agreed. The obligations of the Company and the
Executive under this Agreement which by their nature may require either partial
or total performance after the expiration of the Term (including, without
limitation, those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity; Pooling.
12.1 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
12.2 Pooling. In the event that (A) the Company is party to
a transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of Section 15(G)(III) and (C) individuals who satisfy the
requirements in clauses (i) and (ii) below constitute more than two-thirds
(2/3) of the number of directors of the entity surviving such transaction and
the parent thereof, if any: individuals who (i) immediately prior to such
transaction constitute the Board and (ii) on the date hereof constitute the
Board 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 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 (a) this Agreement shall, to the extent practicable, be
interpreted so as to permit such accounting treatment, and (b) to the extent
that the application of clause (a) of this Section 12.2 does not preserve the
availability of such accounting treatment, then, to the extent that any
provision or combination of provisions of the Agreement disqualifies the
transaction as a "pooling" transaction (including, if applicable, the entire
Agreement), the Board shall have the right, by sending written notice to the
Executive prior to the Change in Control, to unilaterally amend (without the
consent of the Executive) 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
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accounted for as a "pooling of interests." All determinations under this
Section 12.2 shall be made by the Board prior to the Change in Control, 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.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
14.1 All claims by the Executive for benefits under this
Agreement shall be directed to and determined by the Committee and shall be in
writing. Any denial by the Committee of a claim for benefits under this
Agreement shall be delivered to the Executive in writing within thirty (30)
days after written notice of the claim is provided to the Company in accordance
with Section 10 and shall set forth the specific reasons for the denial and the
specific provisions of this Agreement relied upon. The Committee shall afford
a reasonable opportunity to the Executive for a review of the decision denying
a claim and shall further allow the Executive to appeal to the Committee a
decision of the Committee within sixty (60) days after notification by the
Committee that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Houston, Texas in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2
hereof.
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(C) "Base Amount" shall have the meaning set forth in section
280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive'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 Executive pursuant to Section
7.1 hereof) after a written demand for substantial performance is delivered to
the Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the Executive 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 Executive's part shall
be deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive'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.
(G) 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:
(I) 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 (III) below; or
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(II) 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 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 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
(III) 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
(IV) the stockholders of the Company approve
a plan of complete liquidation or dissolution of the Company
or there is consummated
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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.
(H) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(I) "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, 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).
(J) "Company" shall mean Baker Hughes Incorporated and,
except in determining under Section 15(G) hereof whether or not any Change in
Control of the Company has occurred, shall include any successor to its
business and/or assets which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(K) "Date of Termination" shall have the meaning set forth in
Section 7.2 hereof.
(L) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, as a result of
the Executive's incapacity due to physical or mental illness, the Executive
shall have been absent from the full-time performance
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of the Executive's duties with the Company for a period of six (6) consecutive
months, the Company shall have given the Executive a Notice of Termination for
Disability, and, within thirty (30) days after such Notice of Termination is
given, the Executive shall not have returned to the full-time performance of
the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(N) "Excise Tax" shall mean any excise tax imposed under
section 4999 of the Code.
(O) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(P) "Extension Date" shall have the meaning set forth in
Section 2 hereof.
(Q) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive'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 the
second sentence of Section 6.1 hereof (treating all references in paragraphs
(I) through (VII) 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 (I), (V), (VI) or (VII) below, such act or failure
to act is corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
(I) the assignment to the Executive of any
duties inconsistent with the Executive's status as a senior
executive officer of the Company or a substantial adverse
alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the
Change in Control;
(II) a reduction by the Company in the
Executive'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
senior executives of the Company and all senior executives of
any Person in control of the Company;
(III) the relocation of the Executive's
principal place of
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employment to a location more than 50 miles from the
Executive's principal place of employment immediately prior to
the Change in Control or the Company's requiring the Executive
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 Executive's present business
travel obligations;
(IV) the failure by the Company to pay to
the Executive any portion of the Executive's current
compensation except pursuant to an across-the-board
compensation deferral similarly affecting all senior
executives of the Company and all senior executives of any
Person in control of the Company, or to pay to the Executive
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;
(V) the failure by the Company to continue
in effect any compensation plan in which the Executive
participates immediately prior to the Change in Control which
is material to the Executive's total compensation, including
but not limited to the Company's 1993 Stock Option Plan, 1993
Employee Stock Bonus Plan, 1991 Employee Stock Bonus Plan,
1995 Stock Award Plan (and the 1995, 1996 and 1997 Stock
Matching Programs thereunder and any subsequent Stock Matching
Programs in which the Executive participates), 1987
Convertible Debenture Plan and 1995 Employee Annual Incentive
Compensation Plan or any substitute plans adopted prior to the
Change in Control, 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 Executive'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 Executive's
participation relative to other participants, as existed
immediately prior to the Change in Control;
(VI) the failure by the Company to continue
to provide the
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Executive with benefits substantially similar to those
enjoyed by the Executive under any of the Company's pension,
savings, life insurance, medical, health and accident, or
disability plans in which the Executive was participating
immediately prior to the Change in Control (except for across
the board changes similarly affecting all senior executives of
the Company and all senior executives of any Person in control
of the Company), the taking of any other action by the Company
which would directly or indirectly materially reduce any of
such benefits or deprive the Executive of any material fringe
benefit or perquisite enjoyed by the Executive at the time of
the Change in Control, or the failure by the Company to
provide the Executive with the number of paid vacation days to
which the Executive 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
(VII) any purported termination of the
Executive's employment which is not effected pursuant to a
Notice of Termination satisfying the requirements of Section
7.1 hereof; for purposes of this Agreement, no such purported
termination shall be effective.
The Executive's right to terminate the Executive's employment
for Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive'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 Executive 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.
(R) "Gross-Up Payment" shall have the meaning set forth in
Section 6.2 hereof.
(S) "Notice of Termination" shall have the meaning set forth
in Section 7.1 hereof.
(T) "Person" shall have the meaning given in Section 3(a)(9)
of the Exchange
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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.
(U) "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:
(I) the Company enters into an agreement,
the consummation of which would result in the occurrence of a
Change in Control;
(II) 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;
(III) 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
(IV) the Board adopts a resolution to the
effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(V) "Retirement" shall, for purposes of Section 4 hereof, be
deemed the reason for the termination by the Executive of the Executive's
employment if such employment is terminated after completion of ten (10) years
of service with the Company and attainment of age fifty-five (55).
(W) "Severance Payments" shall have the meaning set forth in
Section 6.1 hereof.
(X) "SRP" shall have the meaning set forth in Section 6.1
hereof.
(Y) "Tax Counsel" shall have the meaning set forth in Section
6.2 hereof.
(Z) "Term" shall mean the period of time described in Section
2 hereof
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(including any extension, continuation or termination described therein).
(AA) "Thrift Plan" shall have the meaning set forth in
Section 6.1 hereof.
(BB) "Total Payments" shall mean those payments so described
in Section 6.2 hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above first written.
BAKER HUGHES INCORPORATED
By: /s/ JOHN F. MAHER
---------------------------------
John F. Maher
Chairman - Compensation
Committee of the Board of
Directors
EXECUTIVE:
---------
/s/ DAVID H. BARR
------------------------------------
DAVID H. BARR
Address:
------------------------------------
------------------------------------
------------------------------------
(Please print carefully)
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EXHIBIT 10.3
SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of July 23, 1997, is made by and
between BAKER HUGHES INCORPORATED, a Delaware corporation (the "Company"), and
M. GLEN BASSETT (the "Executive").
WHEREAS, the Company considers it essential to the best
interests of its stockholders to foster the continued employment of key
management personnel; and
WHEREAS, the Board recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the Company and the Executive hereby agree
as follows:
1. Defined Terms. The definitions of capitalized terms used
in this Agreement are provided in the last Section hereof.
2. Term of Agreement. Subject to the provisions of Section
12.2 hereof, the Term of this Agreement shall commence on the date hereof and
shall continue in effect through December 31, 1999; provided, however, that
commencing on January 1, 1998 and each January 1 thereafter (an "Extension
Date"), the Term shall automatically be extended for one additional year (i.e.,
resulting in a two-year Term on the Extension Date) unless, not later than
September 30 of the year preceding the
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<PAGE> 2
Extension Date, the Company or the Executive shall have given notice not to
extend the Term; and further provided, however, that if a Change in Control
shall have occurred during the Term, the Term shall expire no earlier than
twenty- four (24) months beyond the month in which such Change in Control
occurred.
3. Company's Covenants Summarized. In order to induce the
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants set forth in Section 4 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the Severance Payments
and the other payments and benefits described herein. Except as provided in
Section 9.1 hereof, no Severance Payments shall be payable under this Agreement
unless there shall have been (or, under the terms of the second sentence of
Section 6.1 hereof, there shall be deemed to have been) a termination of the
Executive's employment with the Company following a Change in Control and
during the Term. This Agreement shall not be construed as creating an express
or implied contract of employment and, except as otherwise agreed in writing
between the Executive and the Company, the Executive shall not have any right
to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that,
subject to the terms and conditions of this Agreement, in the event of a
Potential Change in Control during the Term, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six (6) months
from the date of such Potential Change of Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason or by reason of death, Disability or Retirement, or
(iv) the termination by the Company of the Executive's employment for any
reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during
any period that the Executive fails to perform the Executive's full-time duties
with the
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Company as a result of incapacity due to physical or mental illness, the
Company shall pay the Executive's full salary to the Executive at the rate in
effect at the commencement of any such period, together with all compensation
and benefits payable to the Executive under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period, until the Executive's employment is terminated by the Company for
Disability.
5.2 If the Executive's employment shall be terminated for any
reason following a Change in Control and during the Term, the Company shall pay
the Executive's full salary to the Executive through the Date of Termination at
the rate in effect immediately prior to the Date of Termination or, if higher,
the rate in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of the Company's compensation and benefit plans, programs or arrangements
as in effect immediately prior to the Date of Termination or, if more favorable
to the Executive, as in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason.
5.3 If the Executive's employment shall be terminated for any
reason following a Change in Control and during the Term, the Company shall pay
to the Executive the Executive's normal post-termination compensation and
benefits as such payments become due. Such post-termination compensation and
benefits shall be determined under, and paid in accordance with, the Company's
retirement, insurance and other compensation or benefit plans, programs and
arrangements as in effect immediately prior to the Date of Termination or, if
more favorable to the Executive, as in effect immediately prior to the
occurrence of the first event or circumstance constituting Good Reason.
5.4 Upon the occurrence of a Change in Control all options to
acquire shares of Company stock, all shares of restricted Company stock and all
other equity or
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phantom equity incentives held by the Executive under any plan of the Company
(including, but not limited to, the Company's 1995 Stock Award Plan (and the
Stock Matching Programs thereunder), 1993 Stock Option Plan, 1993 Stock Bonus
Plan and 1991 Stock Bonus Plan) shall become immediately vested, exercisable
and nonforfeitable and all conditions thereof (including, but not limited to,
any required holding periods) shall be deemed to have been satisfied.
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6. Severance Payments.
6.1 If the Executive's employment is terminated following a
Change in Control and during the Term, other than (A) by the Company for Cause,
(B) by reason of death or Disability, or (C) by the Executive without Good
Reason, then, the Company shall pay the Executive the amounts, and provide the
Executive the benefits, described in this Section 6.1 ("Severance Payments")
and Section 6.2, in addition to any payments and benefits to which the
Executive is entitled under Section 5 hereof. For purposes of this Agreement,
the Executive's employment shall be deemed to have been terminated following a
Change in Control by the Company without Cause or by the Executive with Good
Reason, if (i) the Executive'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) the Executive terminates his 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 such Person described in clause
(i), or (iii) the Executive's employment is terminated by the Company without
Cause or by the Executive 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). For purposes of any determination regarding the
applicability of the immediately preceding sentence, any position taken by the
Executive shall be presumed to be correct unless the Company establishes to the
Committee by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments
to the Executive for periods subsequent to the Date of Termination and
in lieu of any severance benefit otherwise payable to the Executive,
the Company shall pay to the
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Executive a lump sum severance payment, in cash, equal to three times the sum
of (i) the Executive's base salary as in effect immediately prior to the Date
of Termination or, if higher, in effect immediately prior to the first
occurrence of an event or circumstance constituting Good Reason, and (ii) the
average annual bonus earned by the Executive pursuant to any annual bonus or
incentive plan maintained by the Company in respect of the three fiscal years
ending immediately prior to the fiscal year in which occurs the Date of
Termination or, if higher, immediately prior to the fiscal year in which occurs
the first event or circumstance constituting Good Reason; provided, that if the
Executive has not participated in an annual bonus or incentive plan maintained
by the Company for the entirety of such three-year period, the amount referred
to in this clause (ii) shall be calculated using such lesser number of bonuses
as have been actually earned by the Executive in respect of such lesser period.
(B) For the thirty-six (36) month period immediately
following the Date of Termination, the Company shall arrange to provide the
Executive and his dependents life, disability, accident and health insurance
benefits and perquisites (including, but not limited to, executive life
insurance, club memberships, financial planning and tax preparation, annual
physical examination and charitable contributions), in each case, substantially
similar to those provided to the Executive and his dependents immediately prior
to the Date of Termination or, if more favorable to the Executive, those
provided to the Executive and his dependents immediately prior to the first
occurrence of an event or circumstance constituting Good Reason, at no greater
cost to the Executive than the cost to the Executive immediately prior to such
date or occurrence; provided, however, that, unless the Executive consents to a
different method (after taking into account the effect of such method on the
calculation of "parachute payments" pursuant to Section 6.2 hereof), such
health
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<PAGE> 7
insurance benefits shall be provided through a third-party insurer. Benefits
otherwise receivable by the Executive pursuant to this Section 6.1(B) shall be
reduced to the extent benefits of the same type are received by or made
available to the Executive during the thirty-six (36) month period following
the Executive's termination of employment (and any such benefits received by or
made available to the Executive shall be reported to the Company by the
Executive); provided, however, that the Company shall reimburse the Executive
for the excess, if any, of the cost of such benefits to the Executive over such
cost immediately prior to the Date of Termination or, if more favorable to the
Executive, the first occurrence of an event or circumstance constituting Good
Reason.
(C) Notwithstanding any provision of the Baker
Hughes Incorporated 1995 Employee Annual Incentive Compensation Plan (the
"Annual Incentive Plan"), the Company shall pay to the Executive a lump sum
amount, in cash, equal to the sum of (i) any unpaid incentive compensation
which has been allocated or awarded to the Executive for a completed fiscal
year or other measuring period preceding the Date of Termination under the
Annual Incentive Plan and which, as of the Date of Termination, is contingent
only upon the continued employment of the Executive 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 Executive for all then
uncompleted periods under the Annual Incentive Plan, calculated as to each such
award by multiplying the award that the Executive would have earned on the last
day of the performance award period, assuming the achievement, at the expected
value target level, of the individual and corporate performance goals
established with respect to such award, by the fraction obtained by dividing
the number of full months and any fractional portion of a month during such
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performance award period through the Date of Termination by the total number of
months contained in such performance award period; provided, however, that if
such termination of employment occurs during the same year in which the Change
in Control occurs, the pro-rata bonus payment referred to in clause (ii) above
shall be offset by any payments received under the Annual Incentive Plan in
connection with such Change in Control.
(D) In addition to the retirement benefits to which
the Executive is entitled under the Company's Thrift Plan (the "Thrift Plan")
and the Company's Supplemental Retirement Plan (the "SRP"), the Company shall
pay the Executive a lump sum amount, in cash, equal to the present value of the
employer-provided contributions, deferrals and allocations the Executive would
have received had he continued to participate, after the Date of Termination,
in the Thrift Plan and the SRP for three (3) additional years, assuming for
this purpose that (i) the Executive earned compensation for purposes of the
Thrift Plan and SRP during such three-year period the amount used to calculate
the Executive's severance payment under subparagraph (A) of this Section 6.1,
and (ii) the percentages of contributions, deferrals and allocations made under
the Thrift Plan and the SRP by or on behalf of the Executive during such
three-year period are the same percentages of contributions, deferrals and
allocations in effect on the date of the Change in Control or the Date of
Termination, whichever is more favorable to the Executive.
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(E) If the Executive would have become
entitled to benefits under the Company's post-retirement health care
or life insurance plans, as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect
immediately prior to the first occurrence of an event or circumstance
constituting Good Reason, had the Executive's employment terminated at
any time during the period of thirty-six (36) months after the Date of
Termination, the Company shall provide such post-retirement health
care or life insurance benefits to the Executive and the Executive's
dependents commencing on the later of (i) the date on which such
coverage would have first become available and (ii) the date on which
benefits described in subsection (B) of this Section 6.1 terminate.
(F) The Company shall provide the Executive
with outplacement services suitable to the Executive's position for a
period of three years or, if earlier, until the first acceptance by
the Executive of an offer of employment.
6.2 (A) Whether or not the Executive becomes entitled
to the Severance Payments, if any of the payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change in Control or any Person affiliated
with the Company or such Person) (such payments or benefits, excluding the
Gross-Up Payment, being hereinafter referred to as the "Total Payments") will
be subject to the Excise Tax, the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive, after deduction of any Excise Tax on the Total Payments and any
federal, state and local income and employment taxes and Excise Tax upon the
Gross-Up Payment, shall be equal to the Total Payments.
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(B) For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (i) all of the Total Payments shall be treated as "parachute
payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the
opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive
and selected by the accounting firm which was, immediately prior to the Change
in Control, the Company's independent auditor (the "Auditor"), such payments or
benefits (in whole or in part) do not constitute parachute payments, including
by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute
payments" within the meaning of section 280G(b)(l) of the Code shall be treated
as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess
parachute payments (in whole or in part) represent reasonable compensation for
services actually rendered (within the meaning of section 280G(b)(4)(B) of the
Code) in excess of the Base Amount allocable to such reasonable compensation,
or are otherwise not subject to the Excise Tax, and (iii) the value of any
noncash benefits or any deferred payment or benefit shall be determined by the
Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the
Code. For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income tax at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Executive's residence on the
Date of Termination (or if there is no Date of Termination, then the date on
which the Gross-Up Payment is calculated for purposes of this Section 6.2), net
of the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
(C) In the event that the Excise Tax is finally
determined to be less than the amount taken into account hereunder in
calculating the Gross-Up Payment, the Executive shall repay to the Company,
within five (5) business days
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following the time that the amount of such reduction in the Excise Tax is
finally determined, the portion of the Gross-Up Payment attributable to such
reduction (plus that portion of the Gross-Up Payment attributable to the Excise
Tax and federal, state and local income and employment taxes imposed on the
Gross-Up Payment being repaid by the Executive, to the extent that such
repayment results in a reduction in the Excise Tax and a dollar-for-dollar
reduction in the Executive's taxable income and wages for purposes of federal,
state and local income and employment taxes, plus interest on the amount of
such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder in calculating the Gross-Up Payment (including by
reason of any payment the existence or amount of which cannot be determined at
the time of the Gross-Up Payment), the Company shall make an additional
Gross-Up Payment in respect of such excess (plus any interest, penalties or
additions payable by the Executive with respect to such excess) within five (5)
business days following the time that the amount of such excess is finally
determined. The Executive and the Company shall each reasonably cooperate with
the other in connection with any administrative or judicial proceedings
concerning the existence or amount of liability for Excise Tax with respect to
the Total Payments.
6.3 The payments provided in subsections (A), (C) and (D) of
Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the
fifth day following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before such day,
the Company shall pay to the Executive on such day an estimate, as determined
in good faith by the Executive or, in the case of payments under Section 6.2
hereof, in accordance with Section 6.2 hereof, of the minimum amount of such
payments to which the Executive is clearly entitled and shall pay the remainder
of such payments (together with interest on the unpaid remainder (or on all
such payments to the extent the Company fails to make such
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payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the
Code) as soon as the amount thereof can be determined but in no event later
than the thirtieth (30th) day after the Date of Termination. In the event that
the amount of the estimated payments exceeds the amount subsequently determined
to have been due, such excess shall constitute a loan by the Company to the
Executive, payable on the fifth (5th) business day after demand by the Company
(together with interest at 120% of the rate provided in section 1274(b)(2)(B)
of the Code), but only to the extent such amount has not been paid by the
Executive pursuant to Section 6.2(C) above. At the time that payments are made
under this Agreement, the Company shall provide the Executive with a written
statement setting forth the manner in which such payments were calculated and
the basis for such calculations including, without limitation, any opinions or
other advice the Company has received from Tax Counsel, the Auditor or other
advisors or consultants (and any such opinions or advice which are in writing
shall be attached to the statement).
6.4 The Company also shall pay to the Executive all legal
fees and expenses incurred by the Executive in disputing in good faith any
issue hereunder relating to the termination of the Executive's employment, in
seeking in good faith to obtain or enforce any benefit or right provided by
this Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
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7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and
during the Term, any purported termination of the Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party hereto to the other party hereto in accordance with Section 10
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board which was called and held for the
purpose of considering such termination (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, the Executive was guilty of conduct set forth in clause (i) or
(ii) of the definition of Cause herein, and specifying the particulars thereof
in detail.
7.2 Date of Termination. "Date of Termination," with respect
to any purported termination of the Executive's employment after a Change in
Control and during the Term, shall mean (i) if the Executive's employment is
terminated for Disability, thirty (30) days after Notice of Termination is
given (provided that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day period), and
(ii) if the Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a termination by
the Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive,
shall not be less than fifteen (15) days nor more than sixty (60) days,
respectively, from the date such Notice of Termination is given).
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7.3 Dispute Concerning Termination. If within fifteen (15)
days after any Notice of Termination is given, or, if later, prior to the Date
of Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of
the parties or by a final judgment, order or decree of an arbitrator or a court
of competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that the Date of Termination shall be extended by a notice
of dispute given by the Executive only if such notice is given in good faith
and the Executive pursues the resolution of such dispute with reasonable
diligence.
7.4 Compensation During Dispute. If a purported termination
occurs following a Change in Control and during the Term and the Date of
Termination is extended in accordance with Section 7.3 hereof, the Company
shall continue to pay the Executive the full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to,
salary) and continue the Executive as a participant in all compensation,
benefit and insurance plans in which the Executive was participating when the
notice giving rise to the dispute was given or those plans in which the
Executive was participating immediately prior to the first occurrence of an
event or circumstance giving rise to the Notice of Termination, if more
favorable to the Executive, until the Date of Termination, as determined in
accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in
addition to all other amounts due under this Agreement (other than those due
under Section 5.2 hereof) and shall not be offset against or reduce any other
amounts due under this Agreement.
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8. No Mitigation. The Company agrees that, if the
Executive's employment with the Company terminates during the Term, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to Sections
5, 6 or 7.4 hereof. Further, the amount of any payment or benefit provided for
in this Agreement (other than Section 6.1(B) hereof but including (but not
limited to) Section 7.4 hereof) shall not be reduced by any compensation earned
by the Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to
the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control, except that, for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death
of the Executive) if the Executive had continued to
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live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed,
if to the Executive, to the address inserted below the Executive's signature on
the final page hereof and, if to the Company, to the address set forth below,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon actual receipt:
To the Company:
3900 Essex Lane
Suite 1200
Houston, Texas 77027
Attention: General Counsel
11. Miscellaneous. Except as otherwise specifically provided
in Section 12.2 below, no provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof which have been made by
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either party; provided, however, that this Agreement shall supersede any
agreement setting forth the terms and conditions of the Executive's employment
with the Company only in the event that the Executive's employment with the
Company is terminated on or following a Change in Control, by the Company other
than for Cause or by the Executive other than for Good Reason; and provided
further that all agreements otherwise superseded by this Agreement shall be
automatically reinstated with full force and effect to the extent this
Agreement is terminated or otherwise rendered inapplicable or amended in
accordance with Section 12.2 hereof. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Texas. All references to sections of the Exchange Act or the Code
shall be deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law and any additional
withholding to which the Executive has agreed. The obligations of the Company
and the Executive under this Agreement which by their nature may require either
partial or total performance after the expiration of the Term (including,
without limitation, those under Sections 6 and 7 hereof) shall survive such
expiration.
12. Validity; Pooling.
12.1 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
12.2 Pooling. In the event that (A) the Company is party to
a transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of Section 15(G)(III) and (C) individuals who satisfy the
requirements in clauses (i) and (ii) below constitute more than two-thirds
(2/3) of the number of directors of the entity surviving such transaction and
the parent thereof, if any: individuals who
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(i) immediately prior to such transaction constitute the Board and (ii) on the
date hereof constitute the Board 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 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 (a) this Agreement
shall, to the extent practicable, be interpreted so as to permit such
accounting treatment, and (b) to the extent that the application of clause (a)
of this Section 12.2 does not preserve the availability of such accounting
treatment, then, to the extent that any provision or combination of provisions
of the Agreement disqualifies the transaction as a "pooling" transaction
(including, if applicable, the entire Agreement), the Board shall have the
right, by sending written notice to the Executive prior to the Change in
Control, to unilaterally amend (without the consent of the Executive) 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 under this Section 12.2 shall be made by the Board prior to the
Change in Control, 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.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
14.1 All claims by the Executive for benefits under this
Agreement shall be directed to and determined by the Committee and shall be in
writing.
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Any denial by the Committee of a claim for benefits under this Agreement shall
be delivered to the Executive in writing within thirty (30) days after written
notice of the claim is provided to the Company in accordance with Section 10
and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Committee shall afford a
reasonable opportunity to the Executive for a review of the decision denying a
claim and shall further allow the Executive to appeal to the Committee a
decision of the Committee within sixty (60) days after notification by the
Committee that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Houston, Texas in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule
12b-2 promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2
hereof.
(C) "Base Amount" shall have the meaning set forth in section
280G(b)(3) of the Code.
(D) Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act.
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(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive'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 Executive pursuant to Section
7.1 hereof) after a written demand for substantial performance is delivered to
the Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the Executive 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 Executive's part shall
be deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive'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.
(G) 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:
(I) 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
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connection with a transaction described in clause (i) of
paragraph (III) below; or
(II) 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 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 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
(III) 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
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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
(IV) 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.
(H) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(I) "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
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Committee of the Board, 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).
(J) "Company" shall mean Baker Hughes Incorporated and,
except in determining under Section 15(G) hereof whether or not any Change in
Control of the Company has occurred, shall include any successor to its
business and/or assets which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(K) "Date of Termination" shall have the meaning set forth
in Section 7.2 hereof.
(L) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, as a result of
the Executive's incapacity due to physical or mental illness, the Executive
shall have been absent from the full-time performance of the Executive's duties
with the Company for a period of six (6) consecutive months, the Company shall
have given the Executive a Notice of Termination for Disability, and, within
thirty (30) days after such Notice of Termination is given, the Executive shall
not have returned to the full-time performance of the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(N) "Excise Tax" shall mean any excise tax imposed under
section 4999 of the Code.
(O) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(P) "Extension Date" shall have the meaning set forth in
Section 2 hereof.
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(Q) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive'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 the
second sentence of Section 6.1 hereof (treating all references in paragraphs
(I) through (VII) 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 (I), (V), (VI) or (VII) below, such act or failure
to act is corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
(I) the assignment to the Executive of any
duties inconsistent with the Executive's status as a senior
executive officer of the Company or a substantial adverse
alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the
Change in Control;
(II) a reduction by the Company in the
Executive'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
senior executives of the Company and all senior executives of
any Person in control of the Company;
(III) the relocation of the Executive's
principal place of employment to a location more than 50 miles
from the Executive's principal place of employment immediately
prior to the Change in Control or the Company's requiring the
Executive 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
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extent substantially consistent with the Executive's present
business travel obligations;
(IV) the failure by the Company to pay to
the Executive any portion of the Executive's current
compensation except pursuant to an across-the-board
compensation deferral similarly affecting all senior
executives of the Company and all senior executives of any
Person in control of the Company, or to pay to the Executive
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;
(V) the failure by the Company to continue
in effect any compensation plan in which the Executive
participates immediately prior to the Change in Control which
is material to the Executive's total compensation, including
but not limited to the Company's 1993 Stock Option Plan, 1993
Employee Stock Bonus Plan, 1991 Employee Stock Bonus Plan,
1995 Stock Award Plan (and the 1995, 1996 and 1997 Stock
Matching Programs thereunder and any subsequent Stock Matching
Programs in which the Executive participates), 1987
Convertible Debenture Plan and 1995 Employee Annual Incentive
Compensation Plan or any substitute plans adopted prior to the
Change in Control, 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 Executive'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 Executive's
participation relative to other participants, as existed
immediately prior to the Change in Control;
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(VI) the failure by the Company to continue
to provide the Executive with benefits substantially similar
to those enjoyed by the Executive under any of the Company's
pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was
participating immediately prior to the Change in Control
(except for across the board changes similarly affecting all
senior executives of the Company and all senior executives of
any Person in control of the Company), the taking of any other
action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive the
Executive of any material fringe benefit or perquisite enjoyed
by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the
number of paid vacation days to which the Executive 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
(VII) any purported termination of the
Executive's employment which is not effected pursuant to a
Notice of Termination satisfying the requirements of Section
7.1 hereof; for purposes of this Agreement, no such purported
termination shall be effective.
The Executive's right to terminate the Executive's employment
for Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive'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
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Reason, any claim by the Executive 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.
(R) "Gross-Up Payment" shall have the meaning set forth in
Section 6.2 hereof.
(S) "Notice of Termination" shall have the meaning set forth
in Section 7.1 hereof.
(T) "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.
(U) "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:
(I) the Company enters into an agreement,
the consummation of which would result in the occurrence of a
Change in Control;
(II) 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;
(III) 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
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any securities acquired directly from the Company or its
affiliates); or
(IV) the Board adopts a resolution to the
effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(V) "Retirement" shall, for purposes of Section 4 hereof, be
deemed the reason for the termination by the Executive of the Executive's
employment if such employment is terminated after completion of ten (10) years
of service with the Company and attainment of age fifty-five (55).
(W) "Severance Payments" shall have the meaning set forth in
Section 6.1 hereof.
(X) "SRP" shall have the meaning set forth in Section 6.1
hereof.
(Y) "Tax Counsel" shall have the meaning set forth in Section
6.2 hereof.
(Z) "Term" shall mean the period of time described in Section
2 hereof (including any extension, continuation or termination described
therein).
(AA) "Thrift Plan" shall have the meaning set forth in
Section 6.1 hereof.
(BB) "Total Payments" shall mean those payments so described
in Section 6.2 hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above first written.
BAKER HUGHES INCORPORATED
By: /s/ JOHN F. MAHER
------------------------------------
John F. Maher
Chairman - Compensation Committee
of the Board of Directors
EXECUTIVE:
---------
/s/ M. GLEN BASSETT
---------------------------------------
M. GLEN BASSETT
Address:
---------------------------------------
---------------------------------------
---------------------------------------
(Please print carefully)
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Exhibit 10.4
SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of July 23, 1997, is made by and
between BAKER HUGHES INCORPORATED, a Delaware corporation (the "Company"), and
JOSEPH F. BRADY (the "Executive").
WHEREAS, the Company considers it essential to the best
interests of its stockholders to foster the continued employment of key
management personnel; and
WHEREAS, the Board recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the Company and the Executive hereby agree
as follows:
1. Defined Terms. The definitions of capitalized terms used
in this Agreement are provided in the last Section hereof.
2. Term of Agreement. Subject to the provisions of Section
12.2 hereof, the Term of this Agreement shall commence on the date hereof and
shall continue in effect through December 31, 1999; provided, however, that
commencing on January 1, 1998 and each January 1 thereafter (an "Extension
Date"), the Term shall automatically be extended for one additional year (i.e.,
resulting in a two-year Term on the Extension Date) unless, not later than
September 30 of the year preceding the Extension Date, the Company or the
Executive shall have given notice not to extend the Term; and further provided,
however, that if a Change in Control shall have occurred during the Term, the
Term shall expire no earlier than twenty-four (24) months beyond the month in
which such Change in Control occurred.
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3. Company's Covenants Summarized. In order to induce the
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants set forth in Section 4 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the Severance Payments
and the other payments and benefits described herein. Except as provided in
Section 9.1 hereof, no Severance Payments shall be payable under this Agreement
unless there shall have been (or, under the terms of the second sentence of
Section 6.1 hereof, there shall be deemed to have been) a termination of the
Executive's employment with the Company following a Change in Control and
during the Term. This Agreement shall not be construed as creating an express
or implied contract of employment and, except as otherwise agreed in writing
between the Executive and the Company, the Executive shall not have any right
to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that,
subject to the terms and conditions of this Agreement, in the event of a
Potential Change in Control during the Term, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six (6) months
from the date of such Potential Change of Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason or by reason of death, Disability or Retirement, or
(iv) the termination by the Company of the Executive's employment for any
reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during
any period that the Executive fails to perform the Executive's full-time duties
with the Company as a result of incapacity due to physical or mental illness,
the Company shall pay the Executive's full salary to the Executive at the rate
in effect at the commencement of any such period, together with all
compensation and benefits payable to the Executive under the terms of any
compensation or benefit plan, program or arrangement maintained by the Company
during such period, until the Executive's employment is terminated by the
Company for Disability.
5.2 If the Executive's employment shall be terminated for any
reason following a Change in Control and during the Term, the Company shall pay
the
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Executive's full salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the Date of Termination or, if higher, the
rate in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of the Company's compensation and benefit plans, programs or arrangements
as in effect immediately prior to the Date of Termination or, if more favorable
to the Executive, as in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason.
5.3 If the Executive's employment shall be terminated for any
reason following a Change in Control and during the Term, the Company shall pay
to the Executive the Executive's normal post-termination compensation and
benefits as such payments become due. Such post-termination compensation and
benefits shall be determined under, and paid in accordance with, the Company's
retirement, insurance and other compensation or benefit plans, programs and
arrangements as in effect immediately prior to the Date of Termination or, if
more favorable to the Executive, as in effect immediately prior to the
occurrence of the first event or circumstance constituting Good Reason.
5.4 Upon the occurrence of a Change in Control all options to
acquire shares of Company stock, all shares of restricted Company stock and all
other equity or phantom equity incentives held by the Executive under any plan
of the Company (including, but not limited to, the Company's 1995 Stock Award
Plan (and the Stock Matching Programs thereunder), 1993 Stock Option Plan, 1993
Stock Bonus Plan and 1991 Stock Bonus Plan) shall become immediately vested,
exercisable and nonforfeitable and all conditions thereof (including, but not
limited to, any required holding periods) shall be deemed to have been
satisfied.
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6. Severance Payments.
6.1 If the Executive's employment is terminated following a
Change in Control and during the Term, other than (A) by the Company for Cause,
(B) by reason of death or Disability, or (C) by the Executive without Good
Reason, then, the Company shall pay the Executive the amounts, and provide the
Executive the benefits, described in this Section 6.1 ("Severance Payments")
and Section 6.2, in addition to any payments and benefits to which the
Executive is entitled under Section 5 hereof. For purposes of this Agreement,
the Executive's employment shall be deemed to have been terminated following a
Change in Control by the Company without Cause or by the Executive with Good
Reason, if (i) the Executive'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) the Executive terminates his 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 such Person described in clause
(i), or (iii) the Executive's employment is terminated by the Company without
Cause or by the Executive 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). For purposes of any determination regarding the
applicability of the immediately preceding sentence, any position taken by the
Executive shall be presumed to be correct unless the Company establishes to the
Committee by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments
to the Executive for periods subsequent to the Date of Termination and
in lieu of any severance benefit otherwise payable to the Executive,
the Company shall pay to the Executive a lump sum severance payment,
in cash, equal to three times the sum of (i) the Executive's base
salary as in effect immediately prior to the Date of Termination or,
if higher, in effect immediately prior to the first occurrence of an
event or
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<PAGE> 5
circumstance constituting Good Reason, and (ii) the average annual
bonus earned by the Executive pursuant to any annual bonus or
incentive plan maintained by the Company in respect of the three
fiscal years ending immediately prior to the fiscal year in which
occurs the Date of Termination or, if higher, immediately prior to the
fiscal year in which occurs the first event or circumstance
constituting Good Reason; provided, that if the Executive has not
participated in an annual bonus or incentive plan maintained by the
Company for the entirety of such three-year period, the amount
referred to in this clause (ii) shall be calculated using such lesser
number of bonuses as have been actually earned by the Executive in
respect of such lesser period.
(B) For the thirty-six (36) month period
immediately following the Date of Termination, the Company shall
arrange to provide the Executive and his dependents life, disability,
accident and health insurance benefits and perquisites (including, but
not limited to, executive life insurance, club memberships, financial
planning and tax preparation, annual physical examination and
charitable contributions), in each case, substantially similar to
those provided to the Executive and his dependents immediately prior
to the Date of Termination or, if more favorable to the Executive,
those provided to the Executive and his dependents immediately prior
to the first occurrence of an event or circumstance constituting Good
Reason, at no greater cost to the Executive than the cost to the
Executive immediately prior to such date or occurrence; provided,
however, that, unless the Executive consents to a different method
(after taking into account the effect of such method on the
calculation of "parachute payments" pursuant to Section 6.2 hereof),
such health insurance benefits shall be provided through a third-party
insurer. Benefits otherwise receivable by the Executive pursuant to
this Section 6.1(B) shall be reduced to the extent benefits of the
same type are received by or made available to the Executive during
the thirty-six (36) month period following the Executive's termination
of employment (and any such benefits received by or made available to
the Executive shall be reported to the Company by the Executive);
provided, however, that the Company shall reimburse the
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<PAGE> 6
Executive for the excess, if any, of the cost of such benefits to the
Executive over such cost immediately prior to the Date of Termination
or, if more favorable to the Executive, the first occurrence of an
event or circumstance constituting Good Reason.
(C) Notwithstanding any provision of the
Baker Hughes Incorporated 1995 Employee Annual Incentive Compensation
Plan (the "Annual Incentive Plan"), the Company shall pay to the
Executive a lump sum amount, in cash, equal to the sum of (i) any
unpaid incentive compensation which has been allocated or awarded to
the Executive for a completed fiscal year or other measuring period
preceding the Date of Termination under the Annual Incentive Plan and
which, as of the Date of Termination, is contingent only upon the
continued employment of the Executive 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 Executive for all
then uncompleted periods under the Annual Incentive Plan, calculated
as to each such award by multiplying the award that the Executive
would have earned on the last day of the performance award period,
assuming the achievement, at the expected value target level, of the
individual and corporate performance goals established with respect to
such award, by the fraction obtained by dividing the number of full
months and any fractional portion of a month during such performance
award period through the Date of Termination by the total number of
months contained in such performance award period; provided, however,
that if such termination of employment occurs during the same year in
which the Change in Control occurs, the pro-rata bonus payment
referred to in clause (ii) above shall be offset by any payments
received under the Annual Incentive Plan in connection with such
Change in Control.
(D) In addition to the retirement benefits
to which the Executive is entitled under the Company's Thrift Plan
(the "Thrift Plan") and the Company's Supplemental Retirement Plan
(the "SRP"), the Company shall pay the Executive a lump sum amount, in
cash, equal to the present value of the employer-provided
contributions, deferrals and allocations the Executive would have re-
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<PAGE> 7
ceived had he continued to participate, after the Date of Termination,
in the Thrift Plan and the SRP for three (3) additional years,
assuming for this purpose that (i) the Executive earned compensation
for purposes of the Thrift Plan and SRP during such three-year period
the amount used to calculate the Executive's severance payment under
subparagraph (A) of this Section 6.1, and (ii) the percentages of
contributions, deferrals and allocations made under the Thrift Plan
and the SRP by or on behalf of the Executive during such three-year
period are the same percentages of contributions, deferrals and
allocations in effect on the date of the Change in Control or the Date
of Termination, whichever is more favorable to the Executive.
(E) If the Executive would have become
entitled to benefits under the Company's post-retirement health care
or life insurance plans, as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect
immediately prior to the first occurrence of an event or circumstance
constituting Good Reason, had the Executive's employment terminated at
any time during the period of thirty-six (36) months after the Date of
Termination, the Company shall provide such post-retirement health
care or life insurance benefits to the Executive and the Executive's
dependents commencing on the later of (i) the date on which such
coverage would have first become available and (ii) the date on which
benefits described in subsection (B) of this Section 6.1 terminate.
(F) The Company shall provide the Executive
with outplacement services suitable to the Executive's position for a
period of three years or, if earlier, until the first acceptance by
the Executive of an offer of employment.
6.2 (A) Whether or not the Executive becomes entitled
to the Severance Payments, if any of the payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change
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<PAGE> 8
in Control or any Person affiliated with the Company or such Person) (such
payments or benefits, excluding the Gross-Up Payment, being hereinafter
referred to as the "Total Payments") will be subject to the Excise Tax, the
Company shall pay to the Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Executive, after deduction
of any Excise Tax on the Total Payments and any federal, state and local income
and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal
to the Total Payments.
(B) For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (i) all of the Total Payments shall be treated as "parachute
payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the
opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive
and selected by the accounting firm which was, immediately prior to the Change
in Control, the Company's independent auditor (the "Auditor"), such payments or
benefits (in whole or in part) do not constitute parachute payments, including
by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute
payments" within the meaning of section 280G(b)(l) of the Code shall be treated
as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess
parachute payments (in whole or in part) represent reasonable compensation for
services actually rendered (within the meaning of section 280G(b)(4)(B) of the
Code) in excess of the Base Amount allocable to such reasonable compensation,
or are otherwise not subject to the Excise Tax, and (iii) the value of any
noncash benefits or any deferred payment or benefit shall be determined by the
Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the
Code. For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income tax at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Executive's residence on the
Date of Termination (or if there is no Date of Termination, then the date on
which the Gross-Up Payment is calculated for purposes of this Section 6.2), net
of the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
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<PAGE> 9
(C) In the event that the Excise Tax is finally
determined to be less than the amount taken into account hereunder in
calculating the Gross-Up Payment, the Executive shall repay to the Company,
within five (5) business days following the time that the amount of such
reduction in the Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive,
to the extent that such repayment results in a reduction in the Excise Tax and
a dollar-for-dollar reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and employment taxes, plus interest
on the amount of such repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder in calculating the Gross-Up
Payment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) within five (5) business days following the time that the amount of
such excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A), (C) and (D) of
Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the
fifth day following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before such day,
the Company shall pay to the Executive on such day an estimate, as determined
in good faith by the Executive or, in the case of payments under Section 6.2
hereof, in accordance with Section 6.2 hereof, of the minimum amount of such
payments to which the Executive is clearly entitled and shall pay the remainder
of such payments (together with interest on the unpaid remainder (or on all
such payments to the extent the Company fails to make such payments when due)
at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be deter-
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<PAGE> 10
mined but in no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to the Executive, payable on the fifth (5th)
business day after demand by the Company (together with interest at 120% of the
rate provided in section 1274(b)(2)(B) of the Code), but only to the extent
such amount has not been paid by the Executive pursuant to Section 6.2(C)
above. At the time that payments are made under this Agreement, the Company
shall provide the Executive with a written statement setting forth the manner
in which such payments were calculated and the basis for such calculations
including, without limitation, any opinions or other advice the Company has
received from Tax Counsel, the Auditor or other advisors or consultants (and
any such opinions or advice which are in writing shall be attached to the
statement).
6.4 The Company also shall pay to the Executive all legal
fees and expenses incurred by the Executive in disputing in good faith any
issue hereunder relating to the termination of the Executive's employment, in
seeking in good faith to obtain or enforce any benefit or right provided by
this Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
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<PAGE> 11
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and
during the Term, any purported termination of the Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party hereto to the other party hereto in accordance with Section 10
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board which was called and held for the
purpose of considering such termination (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, the Executive was guilty of conduct set forth in clause (i) or
(ii) of the definition of Cause herein, and specifying the particulars thereof
in detail.
7.2 Date of Termination. "Date of Termination," with respect
to any purported termination of the Executive's employment after a Change in
Control and during the Term, shall mean (i) if the Executive's employment is
terminated for Disability, thirty (30) days after Notice of Termination is
given (provided that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day period), and
(ii) if the Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a termination by
the Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive,
shall not be less than fifteen (15) days nor more than sixty (60) days,
respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15)
days after any Notice of Termination is given, or, if later, prior to the Date
of Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies
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<PAGE> 12
the other party that a dispute exists concerning the termination, the Date of
Termination shall be extended until the earlier of (i) the date on which the
Term ends or (ii) the date on which the dispute is finally resolved, either by
mutual written agreement of the parties or by a final judgment, order or decree
of an arbitrator or a court of competent jurisdiction (which is not appealable
or with respect to which the time for appeal therefrom has expired and no
appeal has been perfected); provided, however, that the Date of Termination
shall be extended by a notice of dispute given by the Executive only if such
notice is given in good faith and the Executive pursues the resolution of such
dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination
occurs following a Change in Control and during the Term and the Date of
Termination is extended in accordance with Section 7.3 hereof, the Company
shall continue to pay the Executive the full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to,
salary) and continue the Executive as a participant in all compensation,
benefit and insurance plans in which the Executive was participating when the
notice giving rise to the dispute was given or those plans in which the
Executive was participating immediately prior to the first occurrence of an
event or circumstance giving rise to the Notice of Termination, if more
favorable to the Executive, until the Date of Termination, as determined in
accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in
addition to all other amounts due under this Agreement (other than those due
under Section 5.2 hereof) and shall not be offset against or reduce any other
amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the
Executive's employment with the Company terminates during the Term, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to Sections
5, 6 or 7.4 hereof. Further, the amount of any payment or benefit provided for
in this Agreement (other than Section 6.1(B) hereof but including (but not
limited to) Section 7.4 hereof) shall not be reduced by any compensation earned
by the Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to
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<PAGE> 13
the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control, except that, for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death
of the Executive) if the Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the executors, personal representatives or administrators of
the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed,
if to the Executive, to the address inserted below the Executive's signature on
the final page hereof and, if to the Company, to the address set forth below,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be
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effective only upon actual receipt:
To the Company:
3900 Essex Lane
Suite 1200
Houston, Texas 77027
Attention: General Counsel
11. Miscellaneous. Except as otherwise specifically provided
in Section 12.2 below, no provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
forth the terms and conditions of the Executive's employment with the Company
only in the event that the Executive's employment with the Company is
terminated on or following a Change in Control, by the Company other than for
Cause or by the Executive other than for Good Reason; and provided further that
all agreements otherwise superseded by this Agreement shall be automatically
reinstated with full force and effect to the extent this Agreement is
terminated or otherwise rendered inapplicable or amended in accordance with
Section 12.2 hereof. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas. All references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law and any additional withholding to
which the Executive has agreed. The obligations of the Company and the
Executive under this Agreement which
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<PAGE> 15
by their nature may require either partial or total performance after the
expiration of the Term (including, without limitation, those under Sections 6
and 7 hereof) shall survive such expiration.
12. Validity; Pooling.
12.1 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
12.2 Pooling. In the event that (A) the Company is party to
a transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of Section 15(G)(III) and (C) individuals who satisfy the
requirements in clauses (i) and (ii) below constitute more than two-thirds
(2/3) of the number of directors of the entity surviving such transaction and
the parent thereof, if any: individuals who (i) immediately prior to such
transaction constitute the Board and (ii) on the date hereof constitute the
Board 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 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 (a) this Agreement shall, to the extent practicable, be
interpreted so as to permit such accounting treatment, and (b) to the extent
that the application of clause (a) of this Section 12.2 does not preserve the
availability of such accounting treatment, then, to the extent that any
provision or combination of provisions of the Agreement disqualifies the
transaction as a "pooling" transaction (including, if applicable, the entire
Agreement), the Board shall have the right, by sending written notice to the
Executive prior to the Change in Control, to unilaterally amend (without the
consent of the Executive) 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 under this Section 12.2 shall
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<PAGE> 16
be made by the Board prior to the Change in Control, 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.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
14.1 All claims by the Executive for benefits under this
Agreement shall be directed to and determined by the Committee and shall be in
writing. Any denial by the Committee of a claim for benefits under this
Agreement shall be delivered to the Executive in writing within thirty (30)
days after written notice of the claim is provided to the Company in accordance
with Section 10 and shall set forth the specific reasons for the denial and the
specific provisions of this Agreement relied upon. The Committee shall afford
a reasonable opportunity to the Executive for a review of the decision denying
a claim and shall further allow the Executive to appeal to the Committee a
decision of the Committee within sixty (60) days after notification by the
Committee that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Houston, Texas in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
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<PAGE> 17
(A) "Affiliate" shall have the meaning set forth in Rule
12b-2 promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2
hereof.
(C) "Base Amount" shall have the meaning set forth in section
280G(b)(3)
of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive'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 Executive pursuant to Section
7.1 hereof) after a written demand for substantial performance is delivered to
the Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the Executive 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 Executive's part shall
be deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive'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.
(G) 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:
(I) 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
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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 (III) below; or
(II) 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 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 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
(III) 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 Bene-
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<PAGE> 19
ficially 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
(IV) 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.
(H) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(I) "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, 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
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shall not exceed six (6).
(J) "Company" shall mean Baker Hughes Incorporated and,
except in determining under Section 15(G) hereof whether or not any Change in
Control of the Company has occurred, shall include any successor to its
business and/or assets which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(K) "Date of Termination" shall have the meaning set forth in
Section 7.2 hereof.
(L) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, as a result of
the Executive's incapacity due to physical or mental illness, the Executive
shall have been absent from the full-time performance of the Executive's duties
with the Company for a period of six (6) consecutive months, the Company shall
have given the Executive a Notice of Termination for Disability, and, within
thirty (30) days after such Notice of Termination is given, the Executive shall
not have returned to the full-time performance of the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(N) "Excise Tax" shall mean any excise tax imposed under
section 4999 of the Code.
(O) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(P) "Extension Date" shall have the meaning set forth in
Section 2 hereof.
(Q) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive'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 the
second sentence of Section 6.1 hereof (treating all references in paragraphs
(I) through (VII) 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 (I), (V), (VI) or (VII) below, such act or failure
to act is corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
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<PAGE> 21
(I) the assignment to the Executive of any
duties inconsistent with the Executive's status as a senior
executive officer of the Company or a substantial adverse
alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the
Change in Control;
(II) a reduction by the Company in the
Executive'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
senior executives of the Company and all senior executives of
any Person in control of the Company;
(III) the relocation of the Executive's
principal place of employment to a location more than 50 miles
from the Executive's principal place of employment immediately
prior to the Change in Control or the Company's requiring the
Executive 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 Executive's present business
travel obligations;
(IV) the failure by the Company to pay to
the Executive any portion of the Executive's current
compensation except pursuant to an across-the-board
compensation deferral similarly affecting all senior
executives of the Company and all senior executives of any
Person in control of the Company, or to pay to the Executive
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;
(V) the failure by the Company to continue
in effect any compensation plan in which the Executive
participates immediately prior to the Change in Control which
is material to the Executive's total compensation, including
but not limited to the Company's 1993 Stock Option Plan, 1993
Employee Stock Bonus Plan, 1991 Employee Stock
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Bonus Plan, 1995 Stock Award Plan (and the 1995, 1996 and 1997
Stock Matching Programs thereunder and any subsequent Stock
Matching Programs in which the Executive participates), 1987
Convertible Debenture Plan and 1995 Employee Annual Incentive
Compensation Plan or any substitute plans adopted prior to the
Change in Control, 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 Executive'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 Executive's
participation relative to other participants, as existed
immediately prior to the Change in Control;
(VI) the failure by the Company to continue
to provide the Executive with benefits substantially similar
to those enjoyed by the Executive under any of the Company's
pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was
participating immediately prior to the Change in Control
(except for across the board changes similarly affecting all
senior executives of the Company and all senior executives of
any Person in control of the Company), the taking of any other
action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive the
Executive of any material fringe benefit or perquisite enjoyed
by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the
number of paid vacation days to which the Executive 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
(VII) any purported termination of the
Executive's employment which is not effected pursuant to a
Notice of Termination satisfying the requirements of Section
7.1 hereof; for purposes of this
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Agreement, no such purported termination shall be effective.
The Executive's right to terminate the Executive's employment
for Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive'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 Executive 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.
(R) "Gross-Up Payment" shall have the meaning set forth in
Section 6.2 hereof.
(S) "Notice of Termination" shall have the meaning set forth
in Section 7.1 hereof.
(T) "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.
(U) "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:
(I) the Company enters into an agreement,
the consummation of which would result in the occurrence of a
Change in Control;
(II) 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;
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(III) 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
(IV) the Board adopts a resolution to the
effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(V) "Retirement" shall, for purposes of Section 4 hereof, be
deemed the reason for the termination by the Executive of the Executive's
employment if such employment is terminated after completion of ten (10) years
of service with the Company and attainment of age fifty-five (55).
(W) "Severance Payments" shall have the meaning set forth in
Section 6.1 hereof.
(X) "SRP" shall have the meaning set forth in Section 6.1
hereof.
(Y) "Tax Counsel" shall have the meaning set forth in Section
6.2 hereof.
(Z) "Term" shall mean the period of time described in Section
2 hereof (including any extension, continuation or termination described
therein).
(AA) "Thrift Plan" shall have the meaning set forth in
Section 6.1 hereof.
(BB) "Total Payments" shall mean those payments so described
in Section 6.2 hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above first written.
BAKER HUGHES INCORPORATED
By: /s/ JOHN F. MAHER
------------------------
John F. Maher
Chairman - Compensation
Committee of the Board
of Directors
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<PAGE> 25
EXECUTIVE:
---------
/s/ JOSEPH F. BRADY
---------------------------
JOSEPH F. BRADY
Address:
---------------------------
---------------------------
---------------------------
(Please print carefully)
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<PAGE> 1
EXHIBIT 10.5
SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of July 23, 1997, is made by and
between BAKER HUGHES INCORPORATED, a Delaware corporation (the "Company"), and
MATTHEW G. DICK (the "Executive").
WHEREAS, the Company considers it essential to the best
interests of its stockholders to foster the continued employment of key
management personnel; and
WHEREAS, the Board recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the Company and the Executive hereby agree
as follows:
1. Defined Terms. The definitions of capitalized terms used
in this Agreement are provided in the last Section hereof.
2. Term of Agreement. Subject to the provisions of Section
12.2 hereof, the Term of this Agreement shall commence on the date hereof and
shall continue in effect through December 31, 1999; provided, however, that
commencing on January 1, 1998 and each January 1 thereafter (an "Extension
Date"), the Term shall automatically be extended for one additional year (i.e.,
resulting in a two-year Term on the Extension Date) unless, not later than
September 30 of the year preceding the Extension Date, the Company or the
Executive shall have given notice not to extend the Term; and further provided,
however, that if a Change in Control shall have occurred during the Term, the
Term shall expire no earlier than twenty-four (24) months beyond the month in
which such Change in Control occurred.
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<PAGE> 2
3. Company's Covenants Summarized. In order to induce the
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants set forth in Section 4 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the Severance Payments
and the other payments and benefits described herein. Except as provided in
Section 9.1 hereof, no Severance Payments shall be payable under this Agreement
unless there shall have been (or, under the terms of the second sentence of
Section 6.1 hereof, there shall be deemed to have been) a termination of the
Executive's employment with the Company following a Change in Control and
during the Term. This Agreement shall not be construed as creating an express
or implied contract of employment and, except as otherwise agreed in writing
between the Executive and the Company, the Executive shall not have any right
to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that,
subject to the terms and conditions of this Agreement, in the event of a
Potential Change in Control during the Term, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six (6) months
from the date of such Potential Change of Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason or by reason of death, Disability or Retirement, or
(iv) the termination by the Company of the Executive's employment for any
reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during
any period that the Executive fails to perform the Executive's full-time duties
with the Company as a result of incapacity due to physical or mental illness,
the Company shall pay the Executive's full salary to the Executive at the rate
in effect at the commencement of any such period, together with all
compensation and benefits payable to the Executive under the terms of any
compensation or benefit plan, program or arrangement maintained by the Company
during such period, until the Executive's employment is terminated by the
Company for Disability.
5.2 If the Executive's employment shall be terminated for any
reason following a Change in Control and during the Term, the Company shall pay
the
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<PAGE> 3
Executive's full salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the Date of Termination or, if higher, the
rate in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of the Company's compensation and benefit plans, programs or arrangements
as in effect immediately prior to the Date of Termination or, if more favorable
to the Executive, as in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason.
5.3 If the Executive's employment shall be terminated for any
reason following a Change in Control and during the Term, the Company shall pay
to the Executive the Executive's normal post-termination compensation and
benefits as such payments become due. Such post-termination compensation and
benefits shall be determined under, and paid in accordance with, the Company's
retirement, insurance and other compensation or benefit plans, programs and
arrangements as in effect immediately prior to the Date of Termination or, if
more favorable to the Executive, as in effect immediately prior to the
occurrence of the first event or circumstance constituting Good Reason.
5.4 Upon the occurrence of a Change in Control all options to
acquire shares of Company stock, all shares of restricted Company stock and all
other equity or phantom equity incentives held by the Executive under any plan
of the Company (including, but not limited to, the Company's 1995 Stock Award
Plan (and the Stock Matching Programs thereunder), 1993 Stock Option Plan, 1993
Stock Bonus Plan and 1991 Stock Bonus Plan) shall become immediately vested,
exercisable and nonforfeitable and all conditions thereof (including, but not
limited to, any required holding periods) shall be deemed to have been
satisfied.
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<PAGE> 4
6. Severance Payments.
6.1 If the Executive's employment is terminated following a
Change in Control and during the Term, other than (A) by the Company for Cause,
(B) by reason of death or Disability, or (C) by the Executive without Good
Reason, then, the Company shall pay the Executive the amounts, and provide the
Executive the benefits, described in this Section 6.1 ("Severance Payments")
and Section 6.2, in addition to any payments and benefits to which the
Executive is entitled under Section 5 hereof. For purposes of this Agreement,
the Executive's employment shall be deemed to have been terminated following a
Change in Control by the Company without Cause or by the Executive with Good
Reason, if (i) the Executive'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) the Executive terminates his 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 such Person described in clause
(i), or (iii) the Executive's employment is terminated by the Company without
Cause or by the Executive 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). For purposes of any determination regarding the
applicability of the immediately preceding sentence, any position taken by the
Executive shall be presumed to be correct unless the Company establishes to the
Committee by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments
to the Executive for periods subsequent to the Date of Termination and
in lieu of any severance benefit otherwise payable to the Executive,
the Company shall pay to the Executive a lump sum severance payment,
in cash, equal to three times the sum of (i) the Executive's base
salary as in effect immediately prior to the Date of Termination or,
if higher, in effect immediately prior to the first occurrence of an
event or
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circumstance constituting Good Reason, and (ii) the average annual
bonus earned by the Executive pursuant to any annual bonus or incentive
plan maintained by the Company in respect of the three fiscal years
ending immediately prior to the fiscal year in which occurs the Date of
Termination or, if higher, immediately prior to the fiscal year in
which occurs the first event or circumstance constituting Good Reason;
provided, that if the Executive has not participated in an annual bonus
or incentive plan maintained by the Company for the entirety of such
three-year period, the amount referred to in this clause (ii) shall be
calculated using such lesser number of bonuses as have been actually
earned by the Executive in respect of such lesser period.
(B) For the thirty-six (36) month period
immediately following the Date of Termination, the Company shall
arrange to provide the Executive and his dependents life, disability,
accident and health insurance benefits and perquisites (including, but
not limited to, executive life insurance, club memberships, financial
planning and tax preparation, annual physical examination and
charitable contributions), in each case, substantially similar to
those provided to the Executive and his dependents immediately prior
to the Date of Termination or, if more favorable to the Executive,
those provided to the Executive and his dependents immediately prior
to the first occurrence of an event or circumstance constituting Good
Reason, at no greater cost to the Executive than the cost to the
Executive immediately prior to such date or occurrence; provided,
however, that, unless the Executive consents to a different method
(after taking into account the effect of such method on the
calculation of "parachute payments" pursuant to Section 6.2 hereof),
such health insurance benefits shall be provided through a third-party
insurer. Benefits otherwise receivable by the Executive pursuant to
this Section 6.1(B) shall be reduced to the extent benefits of the
same type are received by or made available to the Executive during
the thirty-six (36) month period following the Executive's termination
of employment (and any such benefits received by or made available to
the Executive shall be reported to the Company by the Executive);
provided, however, that the Company shall reimburse the
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Executive for the excess, if any, of the cost of such benefits to the
Executive over such cost immediately prior to the Date of Termination
or, if more favorable to the Executive, the first occurrence of an
event or circumstance constituting Good Reason.
(C) Notwithstanding any provision of the
Baker Hughes Incorporated 1995 Employee Annual Incentive Compensation
Plan (the "Annual Incentive Plan"), the Company shall pay to the
Executive a lump sum amount, in cash, equal to the sum of (i) any
unpaid incentive compensation which has been allocated or awarded to
the Executive for a completed fiscal year or other measuring period
preceding the Date of Termination under the Annual Incentive Plan and
which, as of the Date of Termination, is contingent only upon the
continued employment of the Executive 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 Executive for all
then uncompleted periods under the Annual Incentive Plan, calculated
as to each such award by multiplying the award that the Executive
would have earned on the last day of the performance award period,
assuming the achievement, at the expected value target level, of the
individual and corporate performance goals established with respect to
such award, by the fraction obtained by dividing the number of full
months and any fractional portion of a month during such performance
award period through the Date of Termination by the total number of
months contained in such performance award period; provided, however,
that if such termination of employment occurs during the same year in
which the Change in Control occurs, the pro-rata bonus payment
referred to in clause (ii) above shall be offset by any payments
received under the Annual Incentive Plan in connection with such
Change in Control.
(D) In addition to the retirement benefits
to which the Executive is entitled under the Company's Thrift Plan
(the "Thrift Plan") and the Company's Supplemental Retirement Plan
(the "SRP"), the Company shall pay the Executive a lump sum amount, in
cash, equal to the present value of the employer-provided
contributions, deferrals and allocations the Executive would have re-
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ceived had he continued to participate, after the Date of Termination,
in the Thrift Plan and the SRP for three (3) additional years, assuming
for this purpose that (i) the Executive earned compensation for
purposes of the Thrift Plan and SRP during such three-year period the
amount used to calculate the Executive's severance payment under
subparagraph (A) of this Section 6.1, and (ii) the percentages of
contributions, deferrals and allocations made under the Thrift Plan and
the SRP by or on behalf of the Executive during such three-year period
are the same percentages of contributions, deferrals and allocations in
effect on the date of the Change in Control or the Date of Termination,
whichever is more favorable to the Executive.
(E) If the Executive would have become
entitled to benefits under the Company's post-retirement health care
or life insurance plans, as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect
immediately prior to the first occurrence of an event or circumstance
constituting Good Reason, had the Executive's employment terminated at
any time during the period of thirty-six (36) months after the Date of
Termination, the Company shall provide such post-retirement health
care or life insurance benefits to the Executive and the Executive's
dependents commencing on the later of (i) the date on which such
coverage would have first become available and (ii) the date on which
benefits described in subsection (B) of this Section 6.1 terminate.
(F) The Company shall provide the Executive
with outplacement services suitable to the Executive's position for a
period of three years or, if earlier, until the first acceptance by
the Executive of an offer of employment.
6.2 (A) Whether or not the Executive becomes entitled
to the Severance Payments, if any of the payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change
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<PAGE> 8
in Control or any Person affiliated with the Company or such Person) (such
payments or benefits, excluding the Gross-Up Payment, being hereinafter
referred to as the "Total Payments") will be subject to the Excise Tax, the
Company shall pay to the Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Executive, after deduction
of any Excise Tax on the Total Payments and any federal, state and local income
and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal
to the Total Payments.
(B) For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (i) all of the Total Payments shall be treated as "parachute
payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the
opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive
and selected by the accounting firm which was, immediately prior to the Change
in Control, the Company's independent auditor (the "Auditor"), such payments or
benefits (in whole or in part) do not constitute parachute payments, including
by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute
payments" within the meaning of section 280G(b)(l) of the Code shall be treated
as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess
parachute payments (in whole or in part) represent reasonable compensation for
services actually rendered (within the meaning of section 280G(b)(4)(B) of the
Code) in excess of the Base Amount allocable to such reasonable compensation,
or are otherwise not subject to the Excise Tax, and (iii) the value of any
noncash benefits or any deferred payment or benefit shall be determined by the
Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the
Code. For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income tax at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Executive's residence on the
Date of Termination (or if there is no Date of Termination, then the date on
which the Gross-Up Payment is calculated for purposes of this Section 6.2), net
of the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
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(C) In the event that the Excise Tax is finally
determined to be less than the amount taken into account hereunder in
calculating the Gross-Up Payment, the Executive shall repay to the Company,
within five (5) business days following the time that the amount of such
reduction in the Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive,
to the extent that such repayment results in a reduction in the Excise Tax and
a dollar-for-dollar reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and employment taxes, plus interest
on the amount of such repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder in calculating the Gross-Up
Payment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) within five (5) business days following the time that the amount of
such excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A), (C) and (D) of
Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the
fifth day following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before such day,
the Company shall pay to the Executive on such day an estimate, as determined
in good faith by the Executive or, in the case of payments under Section 6.2
hereof, in accordance with Section 6.2 hereof, of the minimum amount of such
payments to which the Executive is clearly entitled and shall pay the remainder
of such payments (together with interest on the unpaid remainder (or on all
such payments to the extent the Company fails to make such payments when due)
at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be deter-
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mined but in no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to the Executive, payable on the fifth (5th)
business day after demand by the Company (together with interest at 120% of the
rate provided in section 1274(b)(2)(B) of the Code), but only to the extent
such amount has not been paid by the Executive pursuant to Section 6.2(C)
above. At the time that payments are made under this Agreement, the Company
shall provide the Executive with a written statement setting forth the manner
in which such payments were calculated and the basis for such calculations
including, without limitation, any opinions or other advice the Company has
received from Tax Counsel, the Auditor or other advisors or consultants (and
any such opinions or advice which are in writing shall be attached to the
statement).
6.4 The Company also shall pay to the Executive all legal
fees and expenses incurred by the Executive in disputing in good faith any
issue hereunder relating to the termination of the Executive's employment, in
seeking in good faith to obtain or enforce any benefit or right provided by
this Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
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7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and
during the Term, any purported termination of the Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party hereto to the other party hereto in accordance with Section 10
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board which was called and held for the
purpose of considering such termination (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, the Executive was guilty of conduct set forth in clause (i) or
(ii) of the definition of Cause herein, and specifying the particulars thereof
in detail.
7.2 Date of Termination. "Date of Termination," with respect
to any purported termination of the Executive's employment after a Change in
Control and during the Term, shall mean (i) if the Executive's employment is
terminated for Disability, thirty (30) days after Notice of Termination is
given (provided that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day period), and
(ii) if the Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a termination by
the Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive,
shall not be less than fifteen (15) days nor more than sixty (60) days,
respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15)
days after any Notice of Termination is given, or, if later, prior to the Date
of Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies
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the other party that a dispute exists concerning the termination, the Date of
Termination shall be extended until the earlier of (i) the date on which the
Term ends or (ii) the date on which the dispute is finally resolved, either by
mutual written agreement of the parties or by a final judgment, order or decree
of an arbitrator or a court of competent jurisdiction (which is not appealable
or with respect to which the time for appeal therefrom has expired and no
appeal has been perfected); provided, however, that the Date of Termination
shall be extended by a notice of dispute given by the Executive only if such
notice is given in good faith and the Executive pursues the resolution of such
dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination
occurs following a Change in Control and during the Term and the Date of
Termination is extended in accordance with Section 7.3 hereof, the Company
shall continue to pay the Executive the full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to,
salary) and continue the Executive as a participant in all compensation,
benefit and insurance plans in which the Executive was participating when the
notice giving rise to the dispute was given or those plans in which the
Executive was participating immediately prior to the first occurrence of an
event or circumstance giving rise to the Notice of Termination, if more
favorable to the Executive, until the Date of Termination, as determined in
accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in
addition to all other amounts due under this Agreement (other than those due
under Section 5.2 hereof) and shall not be offset against or reduce any other
amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the
Executive's employment with the Company terminates during the Term, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to Sections
5, 6 or 7.4 hereof. Further, the amount of any payment or benefit provided for
in this Agreement (other than Section 6.1(B) hereof but including (but not
limited to) Section 7.4 hereof) shall not be reduced by any compensation earned
by the Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to
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the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control, except that, for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death
of the Executive) if the Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the executors, personal representatives or administrators of
the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed,
if to the Executive, to the address inserted below the Executive's signature on
the final page hereof and, if to the Company, to the address set forth below,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be
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effective only upon actual receipt:
To the Company:
3900 Essex Lane
Suite 1200
Houston, Texas 77027
Attention: General Counsel
11. Miscellaneous. Except as otherwise specifically provided
in Section 12.2 below, no provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
forth the terms and conditions of the Executive's employment with the Company
only in the event that the Executive's employment with the Company is
terminated on or following a Change in Control, by the Company other than for
Cause or by the Executive other than for Good Reason; and provided further that
all agreements otherwise superseded by this Agreement shall be automatically
reinstated with full force and effect to the extent this Agreement is
terminated or otherwise rendered inapplicable or amended in accordance with
Section 12.2 hereof. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas. All references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law and any additional withholding to
which the Executive has agreed. The obligations of the Company and the
Executive under this Agreement which
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by their nature may require either partial or total performance after the
expiration of the Term (including, without limitation, those under Sections 6
and 7 hereof) shall survive such expiration.
12. Validity; Pooling.
12.1 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
12.2 Pooling. In the event that (A) the Company is party to
a transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of Section 15(G)(III) and (C) individuals who satisfy the
requirements in clauses (i) and (ii) below constitute more than two-thirds
(2/3) of the number of directors of the entity surviving such transaction and
the parent thereof, if any: individuals who (i) immediately prior to such
transaction constitute the Board and (ii) on the date hereof constitute the
Board 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 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 (a) this Agreement shall, to the extent practicable, be
interpreted so as to permit such accounting treatment, and (b) to the extent
that the application of clause (a) of this Section 12.2 does not preserve the
availability of such accounting treatment, then, to the extent that any
provision or combination of provisions of the Agreement disqualifies the
transaction as a "pooling" transaction (including, if applicable, the entire
Agreement), the Board shall have the right, by sending written notice to the
Executive prior to the Change in Control, to unilaterally amend (without the
consent of the Executive) 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 under this Section 12.2 shall
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be made by the Board prior to the Change in Control, 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.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
14.1 All claims by the Executive for benefits under this
Agreement shall be directed to and determined by the Committee and shall be in
writing. Any denial by the Committee of a claim for benefits under this
Agreement shall be delivered to the Executive in writing within thirty (30)
days after written notice of the claim is provided to the Company in accordance
with Section 10 and shall set forth the specific reasons for the denial and the
specific provisions of this Agreement relied upon. The Committee shall afford
a reasonable opportunity to the Executive for a review of the decision denying
a claim and shall further allow the Executive to appeal to the Committee a
decision of the Committee within sixty (60) days after notification by the
Committee that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Houston, Texas in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
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(A) "Affiliate" shall have the meaning set forth in Rule
12b-2 promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section
6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in
section 280G(b)(3) of the Code.
(D) Beneficial Owner" shall have the meaning set forth in Rule
13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive'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 Executive pursuant to Section
7.1 hereof) after a written demand for substantial performance is delivered to
the Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the Executive 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 Executive's part shall
be deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive'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.
(G) 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:
(I) 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
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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 (III) below; or
(II) 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 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 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
(III) 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 Bene-
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ficially 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
(IV) 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.
(H) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(I) "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, 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
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shall not exceed six (6).
(J) "Company" shall mean Baker Hughes Incorporated and,
except in determining under Section 15(G) hereof whether or not any Change in
Control of the Company has occurred, shall include any successor to its
business and/or assets which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(K) "Date of Termination" shall have the meaning set forth in
Section 7.2 hereof.
(L) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, as a result of
the Executive's incapacity due to physical or mental illness, the Executive
shall have been absent from the full-time performance of the Executive's duties
with the Company for a period of six (6) consecutive months, the Company shall
have given the Executive a Notice of Termination for Disability, and, within
thirty (30) days after such Notice of Termination is given, the Executive shall
not have returned to the full-time performance of the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(N) "Excise Tax" shall mean any excise tax imposed under
section 4999 of the Code.
(O) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(P) "Extension Date" shall have the meaning set forth in
Section 2 hereof.
(Q) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive'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 the
second sentence of Section 6.1 hereof (treating all references in paragraphs
(I) through (VII) 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 (I), (V), (VI) or (VII) below, such act or failure
to act is corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
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(I) the assignment to the Executive of any
duties inconsistent with the Executive's status as a senior
executive officer of the Company or a substantial adverse
alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the
Change in Control;
(II) a reduction by the Company in the
Executive'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
senior executives of the Company and all senior executives of
any Person in control of the Company;
(III) the relocation of the Executive's
principal place of employment to a location more than 50 miles
from the Executive's principal place of employment immediately
prior to the Change in Control or the Company's requiring the
Executive 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 Executive's present business
travel obligations;
(IV) the failure by the Company to pay to
the Executive any portion of the Executive's current
compensation except pursuant to an across-the-board
compensation deferral similarly affecting all senior
executives of the Company and all senior executives of any
Person in control of the Company, or to pay to the Executive
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;
(V) the failure by the Company to continue
in effect any compensation plan in which the Executive
participates immediately prior to the Change in Control which
is material to the Executive's total compensation, including
but not limited to the Company's 1993 Stock Option Plan, 1993
Employee Stock Bonus Plan, 1991 Employee Stock
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Bonus Plan, 1995 Stock Award Plan (and the 1995, 1996 and 1997
Stock Matching Programs thereunder and any subsequent Stock
Matching Programs in which the Executive participates), 1987
Convertible Debenture Plan and 1995 Employee Annual Incentive
Compensation Plan or any substitute plans adopted prior to the
Change in Control, 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 Executive'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 Executive's
participation relative to other participants, as existed
immediately prior to the Change in Control;
(VI) the failure by the Company to continue
to provide the Executive with benefits substantially similar
to those enjoyed by the Executive under any of the Company's
pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was
participating immediately prior to the Change in Control
(except for across the board changes similarly affecting all
senior executives of the Company and all senior executives of
any Person in control of the Company), the taking of any other
action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive the
Executive of any material fringe benefit or perquisite enjoyed
by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the
number of paid vacation days to which the Executive 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
(VII) any purported termination of the
Executive's employment which is not effected pursuant to a
Notice of Termination satisfying the requirements of Section
7.1 hereof; for purposes of
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this Agreement, no such purported termination shall be
effective.
The Executive's right to terminate the Executive's employment
for Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive'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 Executive 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.
(R) "Gross-Up Payment" shall have the meaning set forth in
Section 6.2 hereof.
(S) "Notice of Termination" shall have the meaning set forth
in Section 7.1 hereof.
(T) "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.
(U) "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:
(I) the Company enters into an agreement,
the consummation of which would result in the occurrence of a
Change in Control;
(II) 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;
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(III) 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
(IV) the Board adopts a resolution to the
effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(V) "Retirement" shall, for purposes of Section 4 hereof, be
deemed the reason for the termination by the Executive of the Executive's
employment if such employment is terminated after completion of ten (10) years
of service with the Company and attainment of age fifty-five (55).
(W) "Severance Payments" shall have the meaning set forth in
Section 6.1 hereof.
(X) "SRP" shall have the meaning set forth in Section 6.1
hereof.
(Y) "Tax Counsel" shall have the meaning set forth in Section
6.2 hereof.
(Z) "Term" shall mean the period of time described in Section
2 hereof (including any extension, continuation or termination described
therein).
(AA) "Thrift Plan" shall have the meaning set forth in
Section 6.1 hereof.
(BB) "Total Payments" shall mean those payments so described
in Section 6.2 hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above first written.
BAKER HUGHES INCORPORATED
By: /s/ JOHN F. MAHER
---------------------------------
John F. Maher
Chairman - Compensation Committee
of the Board of Directors
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EXECUTIVE:
---------
/s/ MATTHEW G. DICK
-----------------------------------
MATTHEW G. DICK
Address:
-----------------------------------
-----------------------------------
-----------------------------------
(Please print carefully)
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EXHIBIT 10.6
SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of July 23, 1997, is made by and between BAKER
HUGHES INCORPORATED, a Delaware corporation (the "Company"), and G. STEPHEN
FINLEY (the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continued employment of key management
personnel; and
WHEREAS the Board recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members of
the Company's management, including the Executive, to their assigned duties
without distraction in the face of potentially disturbing circumstances arising
from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last Section hereof.
2. Term of Agreement. Subject to the provisions of Section 12.2 hereof,
the Term of this Agreement shall commence on the date hereof and shall continue
in effect through December 31, 1999; provided, however, that commencing on
January 1, 1998 and each January 1 thereafter (an "Extension Date"), the
Term shall automatically be extended for one additional year (i.e., resulting
in a two-year Term on the Extension Date) unless, not later than September
30 of the year preceding the Extension Date, the Company or the Executive shall
have given notice not to extend the Term; and further provide, however, if a
Change in that Control shall have occurred during the Term, the Term shall
expire no earlier than twenty-four (24) months beyond the month in which such
Change in Control occurred.
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3. Company's Covenants Summarized. In order to induce the Executive to
remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and
the other payments and benefits described herein. Except as provided in Section
9.1 hereof, no Severance Payments shall be payable under this Agreement unless
there shall have been (or, under the terms of the second sentence of Section
6.1 hereof, there shall be deemed to have been) a termination of the
Executive's employment with the Company following a Change in Control and
during the Term. This Agreement shall not be construed as creating an express
or implied contract of employment and, except as otherwise agreed in writing
between the Executive and the Company, the Executive shall not have any right
to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to the
terms and conditions of this Agreement, in the event of a Potential Change in
Control during the Term, the Executive will remain in the employ of the Company
until the earliest of (i) a date which, is six (6) months from the date of such
Potential Change of Control, (ii) the date of a Change in Control, (iii) the
date of termination by the Executive of the Executive's employment for Good
Reason or by reason of death, Disability or Retirement, or (iv) the termination
by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during any
period that the Executive fails to perform the Executive's full-time duties
with the Company as a result of incapacity due to physical or mental illness,
the Company shall pay the Executive's full salary to the Executive at the rate
in effect at the commencement of any such period, together with all
compensation and benefits payable to the Executive under the terms of any
compensation or benefit plan, program or arrangement maintained by the Company
during such period, until the Executive's employment is terminated by the
Company for Disability.
5.2 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay the
Executive's full salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the
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Date of Termination or, if higher, the rate in effect immediately prior to the
first occurrence of an event or circumstance constituting Good Reason, together
with all compensation and benefits payable to the Executive through the Date
of Termination under the terms of the Company's compensation and benefit plans,
programs or arrangements as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance constituting Good
Reason.
5.3 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay to the
Executive the Executive's normal post-termination compensation and benefits as
such payments become due. Such post-termination compensation and benefits shall
be determined under, and paid in accordance with, the Company's retirement,
insurance and other compensation or benefit plans, programs and arrangements as
in effect immediately prior to the Date of Termination or, if more favorable to
the Executive, as in effect immediately prior to the occurrence of the first
event or circumstance constituting Good Reason.
5.4 Upon the occurrence of a Change in Control all options to acquire
shares of Company stock, all shares of restricted Company stock and all other
equity or phantom equity incentives held by the Executive under any plan of the
Company (including, but not limited to, the Company's 1995 Stock Award Plan
(and the Stock Matching Programs thereunder), 1993 Stock Option Plan, 1993
Stock Bonus Plan and 1991 Stock Bonus Plan) shall become immediately vested,
exercisable and nonforfeitable and all conditions thereof (including, but not
limited to, any required holding periods) shall be deemed to have been
satisfied.
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6. Severance Payments
6.1 If (i) the Executive's employment is terminated following a Change
in Control and during the Term, other than (A) by the Company for Cause, (B) by
reason of death or Disability, or (C) by the Executive without Good Reason, or
(ii) the Executive voluntarily terminates his employment for any reason during
the one-month period commencing on the first anniversary of the Change in
Control, then, the Company shall pay the Executive the amounts, and provide the
Executive the benefits, described in this Section 6.1 ("Severance Payments")
and Section 6.2, in addition to any payments and benefits to which the
Executive is entitled under Section 5 hereof. For purposes of this Agreement,
the Executive's employment shall be deemed to have been terminated following a
Change in Control by the Company without Cause or by the Executive with Good
Reason, if (i) the Executive'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) the Executive terminates his 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 such Person described in clause
(i), or (iii) the Executive's employment is terminated by the Company without
Cause or by the Executive 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). For purposes of any determination regarding the
applicability of the immediately preceding sentence, any position taken by the
Executive shall be presumed to be correct unless the Company establishes to the
Committee by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination and in lieu of any
severance benefit otherwise payable to the Executive, the Company shall
pay to the Executive a lump sum severance payment, in cash, equal to
three times the sum of (i) the Executive's base salary as in effect
immediately prior to the Date of Termination or, if higher, in
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effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, and (ii) the average annual bonus
earned by the Executive pursuant to any annual bonus or incentive plan
maintained by the Company in respect of the three fiscal years ending
immediately prior to the fiscal year in which occurs the Date of
Termination or, if higher, immediately prior to the fiscal year in which
occurs the first event or circumstance constituting Good Reason;
provided, that if the Executive has not participated in an annual bonus
or incentive plan maintained by the Company for the entirety of such
three-year period, the amount referred to in this clause (ii) shall be
calculated using such lesser number of bonuses as have been actually
earned by the Executive in respect of such lesser period.
(B) For the thirty-six (36) month period immediately following
the Date of Termination, the Company shall arrange to provide the
Executive and his dependents life, disability, accident and health
insurance benefits and perquisites (including, but not limited to,
executive life insurance, club memberships, financial planning and tax
preparation, annual physical examination and charitable contributions),
in each case, substantially similar to those provided to the Executive
and his dependents immediately prior to the Date of Termination or, if
more favorable to the Executive, those provided to the Executive and his
dependents immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, at no greater cost to the
Executive than the cost to the Executive immediately prior to such date
or occurrence; provided, however, that, unless the Executive consents to
a different method (after taking into account the effect of such method
on the calculation of "parachute payments" pursuant to Section 6.2
hereof, such health insurance benefits shall be provided through a
third-party insurer. Benefits otherwise receivable by the Executive
pursuant to this Section 6.1(B) shall be reduced to the extent benefits
of the same type are received by or made available to the Executive
during the thirty-six (36) month period following the Executive's
termination of employment (and any such benefits received by or made
available to the Executive shall be reported to the Company by the
Executive); provided, however, that the Company shall reimburse the
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Executive for the excess, if any, of the cost of such benefits to the
Executive over such cost immediately prior to the Date of Termination
or, if more favorable to the Executive, the first occurrence of an event
or circumstance constituting Good Reason.
(C) Notwithstanding any provision of the Baker Hughes
Incorporated 1995 Employee Annual Incentive Compensation Plan (the
"Annual Incentive Plan"), the Company shall pay to the Executive a lump
sum amount, in cash, equal to the sum of (i) any unpaid incentive
compensation which has been allocated or awarded to the Executive for a
completed fiscal year or other measuring period preceding the Date of
Termination under the Annual Incentive Plan and which, as of the Date of
Termination, is contingent only upon the continued employment of the
Executive 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 Executive for all then uncompleted periods
under the Annual Incentive Plan, calculated as to each such award by
multiplying the award that the Executive would have earned on the last
day of the performance award period, assuming the achievement, at the
expected value target level, of the individual and corporate performance
goals established with respect to such award, by the fraction obtained
by dividing the number of full months and any fractional portion of a
month during such performance award period through the Date of
Termination by the total number of months contained in such performance
award period; provided, however, that if such termination of employment
occurs during the same year in which the Change in Control occurs, the
pro-rata bonus payment referred to in clause (ii) above shall be offset
by any payments received under the Annual Incentive Plan in connection
with such Change in Control.
(D) In addition to the retirement benefits to which the
Executive is entitled under the Company's Thrift Plan (the "Thrift
Plan") and the Company's Supplemental Retirement Plan ( the "SRP"), the
Company shall pay the Executive a lump sum amount, in cash, equal to the
present value of the employer-provided contributions, deferrals and
allocations the Executive would have received had he continued to
participate, after the Date of Termination, in the Thrift Plan and
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the SRP for three (3) additional years, assuming for this purpose that
(i) the Executive earned compensation for purposes of the Thrift Plan and
SRP during such three-year period the amount used to calculate the
Executive's severance payment under subparagraph (A) of this Section 6.1,
and (ii) the percentages of contributions, deferrals and allocations made
under the Thrift Plan and the SRP by or on behalf of the Executive during
such three-year period are the same percentages of contributions,
deferrals and allocations in effect on the date of the Change in Control
or the Date of Termination, whichever is more favorable to the Executive,
(E) If the Executive would have become entitled to benefits
under the Company's post-retirement health care or life insurance plans,
as in effect immediately prior to the Date of Termination or, if more
favorable to the Executive, as in effect immediately prior to the first
occurrence of an event or circumstance constituting Good Reason, had the
Executive's employment terminated at any time during the period of
thirty-six (36) months after the Date of Termination, the Company shall
provide such post-retirement health care or life insurance benefits to
the Executive and the Executive's dependents commencing on the later of
(i) the date on which such coverage would have first become available
and (ii) the date on which benefits described in subsection (B) of this
Section 6.1 terminate.
(F) The Company shall provide the Executive with outplacement
services suitable to the Executive's position for a period of three
years or, if earlier, until the first acceptance by the Executive of an
offer of employment.
6.2 (A) Whether or not the Executive becomes entitled to the
Severance Payments, if any of the payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change in Control or any Person affiliated
with the Company or such Person) (such payments or benefits, excluding the
Gross-Up Payment, being hereinafter referred to as the "Total Payments") will
be subject to the Excise Tax, the Company shall pay to the Executive an
additional amount (the "Gross-Up
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<PAGE> 8
Payment") such that the net amount retained by the Executive, after deduction
of any Excise Tax on the Total Payments and any federal, state and local income
and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal
to the Total Payments.
(B) For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(i) all of the Total Payments shall be treated as "parachute payments" (within
the meaning of section 28OG(b)(2) of the Code) unless, in the opinion of tax
counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by
the accounting firm which was, immediately prior to the Change in Control, the
Company's independent auditor (the "Auditor"), such payments or benefits (in
whole or in part) do not constitute parachute payments, including by reason of
section 28OG(b)(4)(A) of the Code, (ii) all "excess parachute payments" within
the meaning of section 28OG(b)(1) of the Code shall be treated as subject to
the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute
payments (in whole or in part) represent reasonable compensation for services
actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in
excess of the Base Amount allocable to such reasonable compensation, or are
otherwise not subject to the Excise Tax, and (iii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Auditor
in accordance with the principles of sections 28OG(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income tax at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment is
to be made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the Date of
Termination (or if there is no Date of Termination, then the date on which the
Gross-Up Payment is calculated for purposes of this Section 6.2), net of the
maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
(C) In the event that the Excise Tax is finally determined to
be less than the amount taken into account hereunder in calculating the
Gross-Up Payment, the Executive shall repay to the Company, within five (5)
business days following the time that the amount of such reduction in the
Excise Tax is finally determined, the portion of the Gross-Up
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<PAGE> 9
Payment attributable to such reduction (plus that pardon of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive,
to the extent that such repayment results in a reduction in the Excise Tax and
a dollar-for-dollar reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and employment taxes, plus interest
on the amount of such repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder in calculating the Gross-Up
Payment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) within five (5) business days following the time that the amount of
such excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A), (C) and (D) of Section
6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day
following the Date of Termination; provided however that if the amounts of such
payments cannot be finally determined on or before such day, the Company shall
pay to the Executive on such day an estimate, as determined in good faith by
the Executive or, in the case of payments under Section 6.2 hereof, in
accordance with Section 6.2 hereof, of the minimum amount of such payments to
which the Executive is clearly entitled and shall pay the remainder of such
payments (together with interest on the unpaid remainder (or on all such
payments to the extent the Company fails to make such payments when due) at
120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the
amount thereof can be determined but in no event later than the thirtieth
(30th) day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) business day after demand by the Company (together with
interest at 120% of the rate provided in section
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1274(b)(2)(B) of the Code), but only to the extent such amount has not been
paid by the Executive pursuant to Section 6.2(C) above. At the time that
payments are made under this Agreement, the Company shall provide the Executive
with a written statement setting forth the manner in which such payments were
calculated and the basis for such calculations including, without limitation,
any opinions or other advice the Company has received from Tax Counsel, the
Auditor or other advisors or consultants (and any such opinions or advice which
are in writing shall be attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executives employment, in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Executive!s written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require,
7. Termination Procedures end Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and during the
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from
one party hereto to the other party hereto in accordance with Section 10 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board which was called and held for the
purpose of considering such termination (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, the Executive was guilty of conduct
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set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the Particulars thereof in detail.
7.2 Date of Termination "Date of Termination," with respect to any
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other reason, the date specified
in the Notice of Termination (which. in the case of a termination by the
Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive,
shall not be less than fifteen (15) days nor more than sixty (60) days,
respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days after
any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of
the parties or by a final judgment, order or decree of an arbitrator or a court
of competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however , that the Date of Termination shall be extended by a notice
of dispute given by the Executive only if such notice is given in good faith
and the Executive pursues the resolution of such dispute with reasonable
diligence.
7.4 Compensation During Dispute. If a purported termination occurs
following a Change in Control and during the Term and the Date of Termination
is extended in accordance with Section 7.3 hereof, the Company shall continue
to pay the Executive the full compensation in effect when the notice giving
rise to the dispute was given (including but not limited to, salary) and
continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when the notice giving
rise to the
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dispute was given or those plans in which the Executive was participating
immediately prior to the first occurrence of an event or circumstance giving
rise to the Notice of Termination, if more favorable to the Executive, until
the Date of Termination, as determined in accordance with Section 7.3 hereof.
Amounts paid under this Section 7.4 are in addition to all other amounts due
under this Agreement (other than those due under Section 5.2 hereof) and shall
not be offset against or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any
amounts payable to the Executive by the Company pursuant to Sections 5, 6 or
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof but including (but not limited to)
Section 7.4 hereof) shall not be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to
the, Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for
Good Reason after a Change in Control, except that, for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs,
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distributees, devisees and legatees. If the Executive shall die while any
amount would still be payable to the Executive hereunder (other than amounts
which, by their terms, terminate upon the death of the Executive), if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
executors, personal representatives or administrators of the Executive's
estate.
10. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to
the Executive, to the address inserted below the Executive's signature on the
final page hereof and, if to the Company, to the address set forth below, or to
such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon actual receipt:
To the Company:
3900 Essex Lane
Suite 1200
Houston, Texas 77027
Attention: General Counsel
11. Miscellaneous. Except as otherwise specifically provided in
Section 12.2 below, no provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
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forth the terms and conditions of the Executive's employment with the Company
only in the event that the Executive's employment with the Company is
terminated on or following a Change in Control, by the Company other than for
Cause or by the Executive other than for Good Reason; and provided further that
all agreements otherwise superseded by this Agreement shall be automatically
reinstated with full force and effect to the extent this Agreement is
terminated or otherwise rendered inapplicable or amended in accordance with
Section 12.2 hereof The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of Texas. All
references to sections of the Exchange Act or the Code shall be deemed also to
refer to any successor provisions to such sections. Any payments provided for
hereunder shall be paid net of any applicable withholding required under
federal, state or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under
this Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without limitation,
those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity Pooling.
12.1 Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement which shall remain in full force and effect.
12.2 Pooling. In the event that (A) the Company is party to a
transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of Section 15(G)(III) and (C) individuals who satisfy the
requirements in clauses (i) and (ii) below constitute more than two-thirds
(2/3) of the number of directors of the entity surviving such transaction and
the parent thereof, if any: individuals who (i) immediately prior to such
transaction constitute the Board and (ii) on the date hereof constitute the
Board 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 or nomination for election by the Company's stockholders was approved
or recommend-
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ed, 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 (a) this Agreement shall, to the extent practicable, be interpreted so as
to permit such accounting treatment, and (b) to the extent that the application
of clause (a) of this Section 12.2 does not preserve the availability of such
accounting treatment then, to the extent that any provision or combination of
provisions of the Agreement disqualifies the transaction as a "pooling"
transaction (including, if applicable, the entire Agreement), the Board shall
have the right, by sending written notice to the Executive prior to the Change
in Control, to unilaterally amend (without the consent of the Executive) 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 under this Section 12.2 shall be made by the Board prior to the
Change in Control, 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.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
14.1 All claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Committee and shall be in writing.
Any denial by the Committee of a claim for benefits under this Agreement shall
be delivered to the Executive in writing within thirty (30) days after written
notice of the claim is provided to the Company in accordance with Section 10
and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Committee shall afford a
reasonable opportunity to the Executive for a review of the decision denying a
claim and shall further allow the Executive to appeal to the Committee a
decision of the Committee within sixty (60) days after notification by the
Committee that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in connection
with
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this Agreement shall be settled exclusively by arbitration in Houston, Texas in
accordance with the rules of the American Arbitration Association then in
effect; provided, however that the evidentiary standards set forth in this
Agreement shall apply. Judgment may be entered on the arbitrator's award in any
court having jurisdiction. Notwithstanding any provision of this Agreement to
the contrary, the Executive shall be entitled to seek specific performance of
the Executive's right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
15. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in section
280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive'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 Executive pursuant to Section
7.1 hereof) after a written demand for substantial performance is delivered to
the Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the Executive 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 Executive's part shall
be deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the
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Executive'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.
(G) 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:
(I) 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
(III) below; or
(II) 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 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 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
(III) 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
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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
(IV) 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.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(I) "Committee" shall mean (i) the individuals (not fewer than three
in number)
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who, on the date six months before a Change in Control, constitute the
Compensation Committee of the Board, 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).
(J) "Company" shall mean Baker Hughes Incorporated and, except in
determining under Section 15(G) hereof whether or not any Change in Control of
the Company has occurred, shall include any successor to its business and/or
assets which assumes and agrees to perform this Agreement by operation of law,
or otherwise.
(K) "Date of Termination" shall have the meaning set forth in Section
7.2 hereof,
(L) "Disability" shall be deemed the reason for the termination by the
Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the
Company for a period of six (6) consecutive months, the Company shall have
given the Executive a Notice of Termination for Disability, and, within thirty
(30) days after such Notice of Termination is given, the Executive shall not
have returned to the full-time performance of the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(N) "Excise Tax" shall mean any excise tax imposed under Section 4999
of the Code.
(O) "Executive" shall mean the individual named in the first paragraph
of this Agreement.
(P) "Extension Date" shall have the meaning set forth in Section 2
hereof.
(Q) "Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) after any Change in Control, or prior to a Change in Control under the
circumstances described in
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clauses (ii) and (iii) of the second sentence of Section 6.1 hereof (treating
all references in paragraphs (I) through (VII) 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 (I), (V), (VI) or (VIII)
below, such act or failure to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect thereof:
(I) the assignment to the Executive of any duties
inconsistent with the Executive's status as a senior executive officer
of the Company or a substantial adverse alteration in the nature or
status of the Executive's responsibilities from those in effect
immediately prior to the Change in Control;
(II) a reduction by the Company in the Executive'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 senior executives of the Company
and all senior executives of any Person in control of the Company;
(III) the relocation of the Executive's principal
place of employment to a location more than 50 miles from the
Executive's principal place of employment immediately prior to the
Change in Control or the Company's requiring the Executive 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 Executive's
present business travel obligations;
(IV) the failure by the Company to pay to the
Executive any portion of the Executive's current compensation except
pursuant to an across-the-board compensation deferral similarly
affecting all senior executives of the Company and all senior
executives of any Person in control of the Company, or to pay to the
Executive 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;
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(V) the failure by the Company to continue in effect
any compensation plan in which the Executive participates immediately
prior to the Change in Control which is material to the Executive's
total compensation, including but not limited to the Company's 1993
Stock Option Plan, 1993 Employee Stock Bonus Plan, 1991 Employee Stock
Bonus Plan, 1995 Stock Award Plan (and the 1995, 1996 and 1997 Stock
Matching Programs thereunder and any subsequent Stock Matching
Programs in which the Executive participates), 1987 Convertible
Debenture Plan and 1995 Employee Annual Incentive Compensation Plan or
any substitute plans adopted prior to the Change in Control, 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 Executives 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 Executive's
participation relative to other participants, as existed immediately
prior to the Change in Control;
(VI) the failure by the Company to continue to
provide the Executive with benefits substantially similar to those
enjoyed by the Executive under any of the Company's pension, savings,
life insurance, medical, health and accident, or disability plans in
which the Executive was participating immediately prior to the Change
in Control (except for across the board changes similarly affecting
all senior executives of the Company and all senior executives of any
Person in control of the Company), the taking of any other action by
the Company which would directly or indirectly materially reduce any
of such benefits or deprive the Executive of any material fringe
benefit or perquisite enjoyed by the Executive at the time of the
Change in Control, or the failure by the Company to provide the
Executive with the number of paid vacation days to which the Executive
is entitled on the basis of years of service with the Company in
accordance with the any in accordance with the Company's normal
vacation policy in
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effect at the time of the Change in Control; or
(VII) any purported termination of the Executives
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 7.1 hereof, for purposes of
this Agreement no such purported termination shall be effective. The
Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive'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 Executive 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.
(R) "Gross-Up Payment" shall have the meaning set forth in Section 6.2
hereof.
(S) "Notice of Termination" shall have the meaning set forth in
Section 7.1 hereof.
(T) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Art, 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.
(U) "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:
(I) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an
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intention to take or to consider taking actions which, if consummated,
would constitute a Change in Control;
(III ) 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
(IV) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(V) "Retirement" shall, for purposes of Section 4 hereof be deemed the
reason for the termination by the Executive of the Executive's employment if
such employment is terminated after completion of ten (10) years of service
with the Company and attainment of age fifty-five (55).
(W) "Severance Payments" shall have the meaning set forth in Section
6.1 hereof.
(X) "SRP" shall have the meaning set forth in Section 6.1 hereof.
(Y) "Tax Counsel" shall have the meaning set forth in Section 6.2
hereof.
(Z) "Term" shall mean the period of time described in Section 2 hereof
(including any extension continuation or termination described therein).
(AA) "Thrift Plan" shall have the meaning set forth in Section 6.1
hereof.
(BB) "Total Payments" shall mean those payments so described in
Section 6.2 hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above first written.
BAKER HUGHES INCORPORATED
By: /s/ JOHN MAHER
-------------------------------
John Maher
Chairman-Compensation Committee
of the Board of Directors
EXECUTIVE:
----------
/s/ G. STEPHEN FINLEY
-------------------------------
G. STEPHEN FINLEY
Address:
-------------------------------
-------------------------------
-------------------------------
(Please print carefully)
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EXHIBIT 10.7
SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of July 23, 1997, is made by and
between BAKER HUGHES INCORPORATED, a Delaware corporation (the "Company"), and
R. PATRICK HERBERT (the "Executive").
WHEREAS, the Company considers it essential to the best
interests of its stockholders to foster the continued employment of key
management personnel; and
WHEREAS, the Board recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the Company and the Executive hereby agree
as follows:
1. Defined Terms. The definitions of capitalized terms used
in this Agreement are provided in the last Section hereof.
2. Term of Agreement. Subject to the provisions of Section
12.2 hereof, the Term of this Agreement shall commence on the date hereof and
shall continue in effect through December 31, 1999; provided, however, that
commencing on January 1, 1998 and each January 1 thereafter (an "Extension
Date"), the Term shall automatically be extended for one additional year (i.e.,
resulting in a two-year Term on the Extension Date) unless, not later than
September 30 of the year preceding the Extension Date, the Company or the
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Executive shall have given notice not to extend the Term; and further provided,
however, that if a Change in Control shall have occurred during the Term, the
Term shall expire no earlier than twenty-four (24) months beyond the month in
which such Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants set forth in Section 4 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the Severance Payments
and the other payments and benefits described herein. Except as provided in
Section 9.1 hereof, no Severance Payments shall be payable under this Agreement
unless there shall have been (or, under the terms of the second sentence of
Section 6.1 hereof, there shall be deemed to have been) a termination of the
Executive's employment with the Company following a Change in Control and
during the Term. This Agreement shall not be construed as creating an express
or implied contract of employment and, except as otherwise agreed in writing
between the Executive and the Company, the Executive shall not have any right
to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that,
subject to the terms and conditions of this Agreement, in the event of a
Potential Change in Control during the Term, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six (6) months
from the date of such Potential Change of Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason or by reason of death, Disability or Retirement, or
(iv) the termination by the Company of the Executive's employment for any
reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during
any period that the Executive fails to perform the Executive's full-time duties
with the Company as a result of incapacity due to physical or mental illness,
the Company shall pay the Executive's
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full salary to the Executive at the rate in effect at the commencement of any
such period, together with all compensation and benefits payable to the
Executive under the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during such period, until the Executive's
employment is terminated by the Company for Disability.
5.2 If the Executive's employment shall be terminated for any
reason following a Change in Control and during the Term, the Company shall pay
the Executive's full salary to the Executive through the Date of Termination at
the rate in effect immediately prior to the Date of Termination or, if higher,
the rate in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of the Company's compensation and benefit plans, programs or arrangements
as in effect immediately prior to the Date of Termination or, if more favorable
to the Executive, as in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason.
5.3 If the Executive's employment shall be terminated for any
reason following a Change in Control and during the Term, the Company shall pay
to the Executive the Executive's normal post-termination compensation and
benefits as such payments become due. Such post-termination compensation and
benefits shall be determined under, and paid in accordance with, the Company's
retirement, insurance and other compensation or benefit plans, programs and
arrangements as in effect immediately prior to the Date of Termination or, if
more favorable to the Executive, as in effect immediately prior to the
occurrence of the first event or circumstance constituting Good Reason.
5.4 Upon the occurrence of a Change in Control all options to
acquire shares of Company stock, all shares of restricted Company stock and all
other equity or phantom equity incentives held by the Executive under any plan
of the Company (including, but not limited to, the Company's 1995 Stock Award
Plan (and the Stock Matching Programs thereunder), 1993 Stock Option Plan, 1993
Stock Bonus Plan and 1991 Stock Bonus Plan)
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shall become immediately vested, exercisable and nonforfeitable and all
conditions thereof (including, but not limited to, any required holding
periods) shall be deemed to have been satisfied.
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6. Severance Payments.
6.1 If (i) the Executive's employment is terminated following
a Change in Control and during the Term, other than (A) by the Company for
Cause, (B) by reason of death or Disability, or (C) by the Executive without
Good Reason, or (ii) the Executive voluntarily terminates his employment for
any reason during the one-month period commencing on the first anniversary of
the Change in Control, then, the Company shall pay the Executive the amounts,
and provide the Executive the benefits, described in this Section 6.1
("Severance Payments") and Section 6.2, in addition to any payments and
benefits to which the Executive is entitled under Section 5 hereof. For
purposes of this Agreement, the Executive's employment shall be deemed to have
been terminated following a Change in Control by the Company without Cause or
by the Executive with Good Reason, if (i) the Executive'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) the Executive
terminates his 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 such Person
described in clause (i), or (iii) the Executive's employment is terminated by
the Company without Cause or by the Executive 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). For purposes of any determination
regarding the applicability of the immediately preceding sentence, any position
taken by the Executive shall be presumed to be correct unless the Company
establishes to the Committee by clear and convincing evidence that such
position is not correct.
(A) In lieu of any further salary payments to the
Executive for periods subsequent to the Date of Termination
and in lieu of any severance
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benefit otherwise payable to the Executive, the Company shall
pay to the Executive a lump sum severance payment, in cash,
equal to three times the sum of (i) the Executive's base
salary as in effect immediately prior to the Date of
Termination or, if higher, in effect immediately prior to the
first occurrence of an event or circumstance constituting Good
Reason, and (ii) the average annual bonus earned by the
Executive pursuant to any annual bonus or incentive plan
maintained by the Company in respect of the three fiscal years
ending immediately prior to the fiscal year in which occurs
the Date of Termination or, if higher, immediately prior to the
fiscal year in which occurs the first event or circumstance
constituting Good Reason; provided, that if the Executive has
not participated in an annual bonus or incentive plan
maintained by the Company for the entirety of such three-year
period, the amount referred to in this clause (ii) shall be
calculated using such lesser number of bonuses as have been
actually earned by the Executive in respect of such lesser
period.
(B) For the thirty-six (36) month period immediately
following the Date of Termination, the Company shall arrange
to provide the Executive and his dependents life, disability,
accident and health insurance benefits and perquisites
(including, but not limited to, executive life insurance, club
memberships, financial planning and tax preparation, annual
physical examination and charitable contributions), in each
case, substantially similar to those provided to the Executive
and his dependents immediately prior to the Date of
Termination or, if more favorable to the Executive, those
provided to the Executive and his dependents immediately prior
to the first occurrence of an event or circumstance
constituting Good Reason, at no greater cost to the Executive
than the cost to the Executive immediately prior to such date
or occurrence; provided, however, that, unless the Executive
consents to a different method (after taking into account the
effect of such method on the calculation of "parachute
payments" pursuant to Section 6.2 hereof),
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such health insurance benefits shall be provided through a
third-party insurer. Benefits otherwise receivable by the
Executive pursuant to this Section 6.1(B) shall be reduced to
the extent benefits of the same type are received by or made
available to the Executive during the thirty-six (36) month
period following the Executive's termination of employment
(and any such benefits received by or made available to the
Executive shall be reported to the Company by the Executive);
provided, however, that the Company shall reimburse the
Executive for the excess, if any, of the cost of such benefits
to the Executive over such cost immediately prior to the Date
of Termination or, if more favorable to the Executive, the
first occurrence of an event or circumstance constituting Good
Reason.
(C) Notwithstanding any provision of the Baker
Hughes Incorporated 1995 Employee Annual Incentive
Compensation Plan (the "Annual Incentive Plan"), the Company
shall pay to the Executive a lump sum amount, in cash, equal
to the sum of (i) any unpaid incentive compensation which has
been allocated or awarded to the Executive for a completed
fiscal year or other measuring period preceding the Date of
Termination under the Annual Incentive Plan and which, as of
the Date of Termination, is contingent only upon the continued
employment of the Executive 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
Executive for all then uncompleted periods under the Annual
Incentive Plan, calculated as to each such award by
multiplying the award that the Executive would have earned on
the last day of the performance award period, assuming the
achievement, at the expected value target level, of the
individual and corporate performance goals established with
respect to such award, by the fraction obtained by dividing
the number of full months and any fractional portion of a
month during such performance award period through the Date of
Termination by the total number of months contained in such
performance award period; provided,
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however, that if such termination of employment occurs during
the same year in which the Change in Control occurs, the
pro-rata bonus payment referred to in clause (ii) above shall
be offset by any payments received under the Annual Incentive
Plan in connection with such Change in Control.
(D) In addition to the retirement benefits to which
the Executive is entitled under the Company's Thrift Plan (the
"Thrift Plan") and the Company's Supplemental Retirement Plan
(the "SRP"), the Company shall pay the Executive a lump sum
amount, in cash, equal to the present value of the
employer-provided contributions, deferrals and allocations the
Executive would have received had he continued to participate,
after the Date of Termination, in the Thrift Plan and the SRP
for three (3) additional years, assuming for this purpose that
(i) the Executive earned compensation for purposes of the
Thrift Plan and SRP during such three-year period the amount
used to calculate the Executive's severance payment under
subparagraph (A) of this Section 6.1, and (ii) the percentages
of contributions, deferrals and allocations made under the
Thrift Plan and the SRP by or on behalf of the Executive
during such three-year period are the same percentages of
contributions, deferrals and allocations in effect on the date
of the Change in Control or the Date of Termination, whichever
is more favorable to the Executive.
(E) If the Executive would have become entitled to
benefits under the Company's post-retirement health care or
life insurance plans, as in effect immediately prior to the
Date of Termination or, if more favorable to the Executive, as
in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason, had the
Executive's employment terminated at any time during the
period of thirty-six (36) months after the Date of
Termination, the Company shall provide such post-retirement
health care or life insurance benefits to the Executive and
the Executive's dependents commencing on the later of (i) the
date on which such coverage would have first become available
and (ii) the date on
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which benefits described in subsection (B) of this Section 6.1
terminate.
(F) The Company shall provide the Executive
with outplacement services suitable to the Executive's
position for a period of three years or, if earlier, until the
first acceptance by the Executive of an offer of employment.
6.2 (A) Whether or not the Executive becomes entitled
to the Severance Payments, if any of the payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change in Control or any Person affiliated
with the Company or such Person) (such payments or benefits, excluding the
Gross-Up Payment, being hereinafter referred to as the "Total Payments") will
be subject to the Excise Tax, the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive, after deduction of any Excise Tax on the Total Payments and any
federal, state and local income and employment taxes and Excise Tax upon the
Gross-Up Payment, shall be equal to the Total Payments.
(B) For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (i) all of the Total Payments shall be treated as "parachute
payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the
opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive
and selected by the accounting firm which was, immediately prior to the Change
in Control, the Company's independent auditor (the "Auditor"), such payments or
benefits (in whole or in part) do not constitute parachute payments, including
by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute
payments" within the meaning of section 280G(b)(l) of the Code shall be treated
as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess
parachute payments (in whole or in part) represent reasonable compensation for
services actually rendered (within the meaning of
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section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to
such reasonable compensation, or are otherwise not subject to the Excise Tax,
and (iii) the value of any noncash benefits or any deferred payment or benefit
shall be determined by the Auditor in accordance with the principles of
sections 280G(d)(3) and (4) of the Code. For purposes of determining the
amount of the Gross-Up Payment, the Executive shall be deemed to pay federal
income tax at the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and state and local
income taxes at the highest marginal rate of taxation in the state and locality
of the Executive's residence on the Date of Termination (or if there is no Date
of Termination, then the date on which the Gross-Up Payment is calculated for
purposes of this Section 6.2), net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local taxes.
(C) In the event that the Excise Tax is finally
determined to be less than the amount taken into account hereunder in
calculating the Gross-Up Payment, the Executive shall repay to the Company,
within five (5) business days following the time that the amount of such
reduction in the Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive,
to the extent that such repayment results in a reduction in the Excise Tax and
a dollar-for-dollar reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and employment taxes, plus interest
on the amount of such repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder in calculating the Gross-Up
Payment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions
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payable by the Executive with respect to such excess) within five (5) business
days following the time that the amount of such excess is finally determined.
The Executive and the Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect to the Total
Payments.
6.3 The payments provided in subsections (A), (C) and (D) of
Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the
fifth day following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before such day,
the Company shall pay to the Executive on such day an estimate, as determined
in good faith by the Executive or, in the case of payments under Section 6.2
hereof, in accordance with Section 6.2 hereof, of the minimum amount of such
payments to which the Executive is clearly entitled and shall pay the remainder
of such payments (together with interest on the unpaid remainder (or on all
such payments to the extent the Company fails to make such payments when due)
at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be determined but in no event later than the thirtieth
(30th) day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) business day after demand by the Company (together with
interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code),
but only to the extent such amount has not been paid by the Executive pursuant
to Section 6.2(C) above. At the time that payments are made under this
Agreement, the Company shall provide the Executive with a written statement
setting forth the manner in which such payments were calculated and the basis
for such calculations including, without limitation, any opinions or other
advice the Company has received from Tax Counsel, the Auditor or other advisors
or consultants (and any such opinions or advice which are in writing shall be
attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees
and expenses
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incurred by the Executive in disputing in good faith any issue hereunder
relating to the termination of the Executive's employment, in seeking in good
faith to obtain or enforce any benefit or right provided by this Agreement or
in connection with any tax audit or proceeding to the extent attributable to
the application of section 4999 of the Code to any payment or benefit provided
hereunder. Such payments shall be made within five (5) business days after
delivery of the Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and
during the Term, any purported termination of the Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party hereto to the other party hereto in accordance with Section 10
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board which was called and held for the
purpose of considering such termination (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, the Executive was guilty of conduct set forth in clause (i) or
(ii) of the definition of Cause herein, and specifying the particulars thereof
in detail.
7.2 Date of Termination. "Date of Termination," with respect
to any purported termination of the Executive's employment after a Change in
Control and during the Term, shall mean (i) if the Executive's employment is
terminated for Disability, thirty (30) days after Notice of Termination is
given (provided that the Executive shall not have
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returned to the full-time performance of the Executive's duties during such
thirty (30) day period), and (ii) if the Executive's employment is terminated
for any other reason, the date specified in the Notice of Termination (which,
in the case of a termination by the Company, shall not be less than thirty (30)
days (except in the case of a termination for Cause) and, in the case of a
termination by the Executive, shall not be less than fifteen (15) days nor more
than sixty (60) days, respectively, from the date such Notice of Termination is
given).
7.3 Dispute Concerning Termination. If within fifteen (15)
days after any Notice of Termination is given, or, if later, prior to the Date
of Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of
the parties or by a final judgment, order or decree of an arbitrator or a court
of competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that the Date of Termination shall be extended by a notice
of dispute given by the Executive only if such notice is given in good faith
and the Executive pursues the resolution of such dispute with reasonable
diligence.
7.4 Compensation During Dispute. If a purported termination
occurs following a Change in Control and during the Term and the Date of
Termination is extended in accordance with Section 7.3 hereof, the Company
shall continue to pay the Executive the full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to,
salary) and continue the Executive as a participant in all compensation,
benefit and insurance plans in which the Executive was participating when the
notice giving rise to the dispute was given or those plans in which the
Executive was participating immediately prior to the first occurrence of an
event or circumstance giving rise to the Notice of Termination, if more
favorable to the Executive, until the Date of Termination, as determined in
accordance with Section 7.3 hereof. Amounts paid under this Section
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7.4 are in addition to all other amounts due under this Agreement (other than
those due under Section 5.2 hereof) and shall not be offset against or reduce
any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the
Executive's employment with the Company terminates during the Term, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to Sections
5, 6 or 7.4 hereof. Further, the amount of any payment or benefit provided for
in this Agreement (other than Section 6.1(B) hereof but including (but not
limited to) Section 7.4 hereof) shall not be reduced by any compensation earned
by the Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to
the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control, except that, for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs,
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<PAGE> 15
distributees, devisees and legatees. If the Executive shall die while any
amount would still be payable to the Executive hereunder (other than amounts
which, by their terms, terminate upon the death of the Executive) if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
executors, personal representatives or administrators of the Executive's
estate.
10. Notices. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed,
if to the Executive, to the address inserted below the Executive's signature on
the final page hereof and, if to the Company, to the address set forth below,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon actual receipt:
To the Company:
3900 Essex Lane
Suite 1200
Houston, Texas 77027
Attention: General Counsel
11. Miscellaneous. Except as otherwise specifically provided
in Section 12.2 below, no provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at
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any prior or subsequent time. This Agreement supersedes any other agreements
or representations, oral or otherwise, express or implied, with respect to the
subject matter hereof which have been made by either party; provided, however,
that this Agreement shall supersede any agreement setting forth the terms and
conditions of the Executive's employment with the Company only in the event
that the Executive's employment with the Company is terminated on or following
a Change in Control, by the Company other than for Cause or by the Executive
other than for Good Reason; and provided further that all agreements otherwise
superseded by this Agreement shall be automatically reinstated with full force
and effect to the extent this Agreement is terminated or otherwise rendered
inapplicable or amended in accordance with Section 12.2 hereof. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Texas. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law
and any additional withholding to which the Executive has agreed. The
obligations of the Company and the Executive under this Agreement which by
their nature may require either partial or total performance after the
expiration of the Term (including, without limitation, those under Sections 6
and 7 hereof) shall survive such expiration.
12. Validity; Pooling.
12.1 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
12.2 Pooling. In the event that (A) the Company is party to
a transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of Section 15(G)(III) and (C) individuals who satisfy the
requirements in clauses (i) and (ii) below constitute more than two-thirds
(2/3) of the number of directors of the entity surviving such transac-
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tion and the parent thereof, if any: individuals who (i) immediately prior to
such transaction constitute the Board and (ii) on the date hereof constitute
the Board 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 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 (a) this Agreement shall, to the extent
practicable, be interpreted so as to permit such accounting treatment, and (b)
to the extent that the application of clause (a) of this Section 12.2 does not
preserve the availability of such accounting treatment, then, to the extent
that any provision or combination of provisions of the Agreement disqualifies
the transaction as a "pooling" transaction (including, if applicable, the
entire Agreement), the Board shall have the right, by sending written notice to
the Executive prior to the Change in Control, to unilaterally amend (without
the consent of the Executive) 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 under this Section 12.2 shall be
made by the Board prior to the Change in Control, 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.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
14.1 All claims by the Executive for benefits under this
Agreement shall be directed to and determined by the Committee and shall be in
writing. Any denial by the
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Committee of a claim for benefits under this Agreement shall be delivered to
the Executive in writing within thirty (30) days after written notice of the
claim is provided to the Company in accordance with Section 10 and shall set
forth the specific reasons for the denial and the specific provisions of this
Agreement relied upon. The Committee shall afford a reasonable opportunity to
the Executive for a review of the decision denying a claim and shall further
allow the Executive to appeal to the Committee a decision of the Committee
within sixty (60) days after notification by the Committee that the Executive's
claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Houston, Texas in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) Auditor" shall have the meaning set forth in Section
6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in
section 280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
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<PAGE> 19
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive'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 Executive pursuant to Section
7.1 hereof) after a written demand for substantial performance is delivered to
the Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the Executive 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 Executive's part shall
be deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive'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.
(G) 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:
(I) 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 (III)
below; or
(II) the following individuals cease for any reason
to
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constitute a majority of the number of directors then serving:
individuals who, on the date hereof, constitute the Board 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 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
(III) 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
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Company's then outstanding securities; or
(IV) 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.
(H) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(I) "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, 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).
(J) "Company" shall mean Baker Hughes Incorporated and,
except in determining under Section 15(G) hereof whether or not any Change in
Control of the
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Company has occurred, shall include any successor to its business and/or assets
which assumes and agrees to perform this Agreement by operation of law, or
otherwise.
(K) "Date of Termination" shall have the meaning set forth in
Section 7.2 hereof.
(L) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, as a result of
the Executive's incapacity due to physical or mental illness, the Executive
shall have been absent from the full-time performance of the Executive's duties
with the Company for a period of six (6) consecutive months, the Company shall
have given the Executive a Notice of Termination for Disability, and, within
thirty (30) days after such Notice of Termination is given, the Executive shall
not have returned to the full-time performance of the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(N) "Excise Tax" shall mean any excise tax imposed under
section 4999 of the Code.
(O) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(P) "Extension Date" shall have the meaning set forth in
Section 2 hereof.
(Q) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive'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 the
second sentence of Section 6.1 hereof (treating all references in paragraphs
(I) through (VII) 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 (I), (V), (VI) or (VII) below, such act or failure
to act is corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
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(I) the assignment to the Executive of any duties
inconsistent with the Executive's status as a senior executive
officer of the Company or a substantial adverse alteration in
the nature or status of the Executive's responsibilities from
those in effect immediately prior to the Change in Control;
(II) a reduction by the Company in the Executive'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
senior executives of the Company and all senior executives of
any Person in control of the Company;
(III) the relocation of the Executive's principal
place of employment to a location more than 50 miles from the
Executive's principal place of employment immediately prior to
the Change in Control or the Company's requiring the Executive
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 Executive's present business
travel obligations;
(IV) the failure by the Company to pay to the
Executive any portion of the Executive's current compensation
except pursuant to an across-the-board compensation deferral
similarly affecting all senior executives of the Company and
all senior executives of any Person in control of the Company,
or to pay to the Executive 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;
(V) the failure by the Company to continue in effect
any compensation plan in which the Executive participates
immediately prior to the Change in Control which is material
to the Executive's total
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compensation, including but not limited to the Company's 1993
Stock Option Plan, 1993 Employee Stock Bonus Plan, 1991
Employee Stock Bonus Plan, 1995 Stock Award Plan (and the
1995, 1996 and 1997 Stock Matching Programs thereunder and any
subsequent Stock Matching Programs in which the Executive
participates), 1987 Convertible Debenture Plan and 1995
Employee Annual Incentive Compensation Plan or any substitute
plans adopted prior to the Change in Control, 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 Executive'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 Executive's participation relative to other
participants, as existed immediately prior to the Change in
Control;
(VI) the failure by the Company to continue to
provide the Executive with benefits substantially similar to
those enjoyed by the Executive under any of the Company's
pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was
participating immediately prior to the Change in Control
(except for across the board changes similarly affecting all
senior executives of the Company and all senior executives of
any Person in control of the Company), the taking of any other
action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive the
Executive of any material fringe benefit or perquisite enjoyed
by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the
number of paid vacation days to which the Executive is
entitled on the basis of years of service with the Company in
accordance
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with the Company's normal vacation policy in effect at the
time of the Change in Control; or
(VII) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 7.1 hereof;
for purposes of this Agreement, no such purported termination
shall be effective.
The Executive's right to terminate the Executive's employment
for Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive'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 Executive 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.
(R) "Gross-Up Payment" shall have the meaning set forth in
Section 6.2 hereof.
(S) "Notice of Termination" shall have the meaning set forth
in Section 7.1 hereof.
(T) "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.
(U) "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:
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(I) the Company enters into an agreement, the
consummation of which would result in the occurrence of a
Change in Control;
(II) 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;
(III) 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
(IV) the Board adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in
Control has occurred.
(V) "Retirement" shall, for purposes of Section 4 hereof, be
deemed the reason for the termination by the Executive of the Executive's
employment if such employment is terminated after completion of ten (10) years
of service with the Company and attainment of age fifty-five (55).
(W) "Severance Payments" shall have the meaning set forth in
Section 6.1 hereof.
(X) "SRP" shall have the meaning set forth in Section 6.1
hereof.
(Y) "Tax Counsel" shall have the meaning set forth in Section
6.2 hereof.
(Z) "Term" shall mean the period of time described in Section
2 hereof (including any extension, continuation or termination described
therein).
(AA) "Thrift Plan" shall have the meaning set forth in
Section 6.1 hereof.
(BB) "Total Payments" shall mean those payments so described
in Section 6.2 hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above first written.
BAKER HUGHES INCORPORATED
By: /s/ JOHN F. MAHER
------------------------------------
John F. Maher
Chairman -Compensation Committee
of the Board of Directors
EXECUTIVE
/s/ R. PATRICK HERBERT
---------------------------------------
R. PATRICK HERBERT
Address:
---------------------------------------
---------------------------------------
---------------------------------------
(Please print carefully)
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EXHIBIT 10.8
SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of July 23, 1997, is made by and
between BAKER HUGHES INCORPORATED, a Delaware corporation (the "Company"), and
EDWIN C. HOWELL (the "Executive").
WHEREAS, the Company considers it essential to the best
interests of its stockholders to foster the continued employment of key
management personnel; and
WHEREAS, the Board recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the Company and the Executive hereby agree
as follows:
1. Defined Terms. The definitions of capitalized terms used
in this Agreement are provided in the last Section hereof.
2. Term of Agreement. Subject to the provisions of Section
12.2 hereof, the Term of this Agreement shall commence on the date hereof and
shall continue in effect through December 31, 1999; provided, however, that
commencing on January 1, 1998 and each January 1 thereafter (an "Extension
Date"), the Term shall automatically be extended for one additional year (i.e.,
resulting in a two-year Term on the Extension Date) unless, not later than
September 30 of the year preceding the Extension Date, the Company or the
Executive shall have given notice not to extend the Term; and further provided,
however, that if a Change in Control shall have occurred during the Term, the
Term shall expire no earlier than twenty-four (24) months beyond the month in
which such Change in Control occurred.
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3. Company's Covenants Summarized. In order to induce the
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants set forth in Section 4 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the Severance Payments
and the other payments and benefits described herein. Except as provided in
Section 9.1 hereof, no Severance Payments shall be payable under this Agreement
unless there shall have been (or, under the terms of the second sentence of
Section 6.1 hereof, there shall be deemed to have been) a termination of the
Executive's employment with the Company following a Change in Control and
during the Term. This Agreement shall not be construed as creating an express
or implied contract of employment and, except as otherwise agreed in writing
between the Executive and the Company, the Executive shall not have any right
to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that,
subject to the terms and conditions of this Agreement, in the event of a
Potential Change in Control during the Term, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six (6) months
from the date of such Potential Change of Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason or by reason of death, Disability or Retirement, or
(iv) the termination by the Company of the Executive's employment for any
reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during
any period that the Executive fails to perform the Executive's full-time duties
with the Company as a result of incapacity due to physical or mental illness,
the Company shall pay the Executive's full salary to the Executive at the rate
in effect at the commencement of any such period, together with all
compensation and benefits payable to the Executive under the terms of any
compensation or benefit plan, program or arrangement maintained by the Company
during such period, until the Executive's employment is terminated by the
Company for Disability.
5.2 If the Executive's employment shall be terminated for any
reason following a Change in Control and during the Term, the Company shall pay
the
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<PAGE> 3
Executive's full salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the Date of Termination or, if higher, the
rate in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of the Company's compensation and benefit plans, programs or arrangements
as in effect immediately prior to the Date of Termination or, if more favorable
to the Executive, as in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason.
5.3 If the Executive's employment shall be terminated for any
reason following a Change in Control and during the Term, the Company shall pay
to the Executive the Executive's normal post-termination compensation and
benefits as such payments become due. Such post-termination compensation and
benefits shall be determined under, and paid in accordance with, the Company's
retirement, insurance and other compensation or benefit plans, programs and
arrangements as in effect immediately prior to the Date of Termination or, if
more favorable to the Executive, as in effect immediately prior to the
occurrence of the first event or circumstance constituting Good Reason.
5.4 Upon the occurrence of a Change in Control all options to
acquire shares of Company stock, all shares of restricted Company stock and all
other equity or phantom equity incentives held by the Executive under any plan
of the Company (including, but not limited to, the Company's 1995 Stock Award
Plan (and the Stock Matching Programs thereunder), 1993 Stock Option Plan, 1993
Stock Bonus Plan and 1991 Stock Bonus Plan) shall become immediately vested,
exercisable and nonforfeitable and all conditions thereof (including, but not
limited to, any required holding periods) shall be deemed to have been
satisfied.
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6. Severance Payments.
6.1 If the Executive's employment is terminated following a
Change in Control and during the Term, other than (A) by the Company for Cause,
(B) by reason of death or Disability, or (C) by the Executive without Good
Reason, then, the Company shall pay the Executive the amounts, and provide the
Executive the benefits, described in this Section 6.1 ("Severance Payments")
and Section 6.2, in addition to any payments and benefits to which the
Executive is entitled under Section 5 hereof. For purposes of this Agreement,
the Executive's employment shall be deemed to have been terminated following a
Change in Control by the Company without Cause or by the Executive with Good
Reason, if (i) the Executive'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) the Executive terminates his 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 such Person described in clause
(i), or (iii) the Executive's employment is terminated by the Company without
Cause or by the Executive 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). For purposes of any determination regarding the
applicability of the immediately preceding sentence, any position taken by the
Executive shall be presumed to be correct unless the Company establishes to the
Committee by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments
to the Executive for periods subsequent to the Date of Termination and
in lieu of any severance benefit otherwise payable to the Executive,
the Company shall pay to the Executive a lump sum severance payment,
in cash, equal to three times the sum of (i) the Executive's base
salary as in effect immediately prior to the Date of Termination or,
if higher, in effect immediately prior to the first occurrence of an
event or
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<PAGE> 5
circumstance constituting Good Reason, and (ii) the average annual
bonus earned by the Executive pursuant to any annual bonus or
incentive plan maintained by the Company in respect of the three
fiscal years ending immediately prior to the fiscal year in which
occurs the Date of Termination or, if higher, immediately prior to the
fiscal year in which occurs the first event or circumstance
constituting Good Reason; provided, that if the Executive has not
participated in an annual bonus or incentive plan maintained by the
Company for the entirety of such three-year period, the amount
referred to in this clause (ii) shall be calculated using such lesser
number of bonuses as have been actually earned by the Executive in
respect of such lesser period.
(B) For the thirty-six (36) month period
immediately following the Date of Termination, the Company shall
arrange to provide the Executive and his dependents life, disability,
accident and health insurance benefits and perquisites (including, but
not limited to, executive life insurance, club memberships, financial
planning and tax preparation, annual physical examination and
charitable contributions), in each case, substantially similar to
those provided to the Executive and his dependents immediately prior
to the Date of Termination or, if more favorable to the Executive,
those provided to the Executive and his dependents immediately prior
to the first occurrence of an event or circumstance constituting Good
Reason, at no greater cost to the Executive than the cost to the
Executive immediately prior to such date or occurrence; provided,
however, that, unless the Executive consents to a different method
(after taking into account the effect of such method on the
calculation of "parachute payments" pursuant to Section 6.2 hereof),
such health insurance benefits shall be provided through a third-party
insurer. Benefits otherwise receivable by the Executive pursuant to
this Section 6.1(B) shall be reduced to the extent benefits of the
same type are received by or made available to the Executive during
the thirty-six (36) month period following the Executive's termination
of employment (and any such benefits received by or made available to
the Executive shall be reported to the Company by the Executive);
provided, however, that the Company shall reimburse the
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Executive for the excess, if any, of the cost of such benefits to the
Executive over such cost immediately prior to the Date of Termination
or, if more favorable to the Executive, the first occurrence of an
event or circumstance constituting Good Reason.
(C) Notwithstanding any provision of the
Baker Hughes Incorporated 1995 Employee Annual Incentive Compensation
Plan (the "Annual Incentive Plan"), the Company shall pay to the
Executive a lump sum amount, in cash, equal to the sum of (i) any
unpaid incentive compensation which has been allocated or awarded to
the Executive for a completed fiscal year or other measuring period
preceding the Date of Termination under the Annual Incentive Plan and
which, as of the Date of Termination, is contingent only upon the
continued employment of the Executive 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 Executive for all
then uncompleted periods under the Annual Incentive Plan, calculated
as to each such award by multiplying the award that the Executive
would have earned on the last day of the performance award period,
assuming the achievement, at the expected value target level, of the
individual and corporate performance goals established with respect to
such award, by the fraction obtained by dividing the number of full
months and any fractional portion of a month during such performance
award period through the Date of Termination by the total number of
months contained in such performance award period; provided, however,
that if such termination of employment occurs during the same year in
which the Change in Control occurs, the pro-rata bonus payment
referred to in clause (ii) above shall be offset by any payments
received under the Annual Incentive Plan in connection with such
Change in Control.
(D) In addition to the retirement benefits
to which the Executive is entitled under the Company's Thrift Plan
(the "Thrift Plan") and the Company's Supplemental Retirement Plan
(the "SRP"), the Company shall pay the Executive a lump sum amount, in
cash, equal to the present value of the employer-provided
contributions, deferrals and allocations the Executive would have re-
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ceived had he continued to participate, after the Date of Termination,
in the Thrift Plan and the SRP for three (3) additional years,
assuming for this purpose that (i) the Executive earned compensation
for purposes of the Thrift Plan and SRP during such three-year period
the amount used to calculate the Executive's severance payment under
subparagraph (A) of this Section 6.1, and (ii) the percentages of
contributions, deferrals and allocations made under the Thrift Plan
and the SRP by or on behalf of the Executive during such three-year
period are the same percentages of contributions, deferrals and
allocations in effect on the date of the Change in Control or the Date
of Termination, whichever is more favorable to the Executive.
(E) If the Executive would have become
entitled to benefits under the Company's post-retirement health care
or life insurance plans, as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect
immediately prior to the first occurrence of an event or circumstance
constituting Good Reason, had the Executive's employment terminated at
any time during the period of thirty-six (36) months after the Date of
Termination, the Company shall provide such post-retirement health
care or life insurance benefits to the Executive and the Executive's
dependents commencing on the later of (i) the date on which such
coverage would have first become available and (ii) the date on which
benefits described in subsection (B) of this Section 6.1 terminate.
(F) The Company shall provide the Executive
with outplacement services suitable to the Executive's position for a
period of three years or, if earlier, until the first acceptance by
the Executive of an offer of employment.
6.2 (A) Whether or not the Executive becomes entitled
to the Severance Payments, if any of the payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change
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<PAGE> 8
in Control or any Person affiliated with the Company or such Person) (such
payments or benefits, excluding the Gross-Up Payment, being hereinafter
referred to as the "Total Payments") will be subject to the Excise Tax, the
Company shall pay to the Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Executive, after deduction
of any Excise Tax on the Total Payments and any federal, state and local income
and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal
to the Total Payments.
(B) For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (i) all of the Total Payments shall be treated as "parachute
payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the
opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive
and selected by the accounting firm which was, immediately prior to the Change
in Control, the Company's independent auditor (the "Auditor"), such payments or
benefits (in whole or in part) do not constitute parachute payments, including
by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute
payments" within the meaning of section 280G(b)(l) of the Code shall be treated
as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess
parachute payments (in whole or in part) represent reasonable compensation for
services actually rendered (within the meaning of section 280G(b)(4)(B) of the
Code) in excess of the Base Amount allocable to such reasonable compensation,
or are otherwise not subject to the Excise Tax, and (iii) the value of any
noncash benefits or any deferred payment or benefit shall be determined by the
Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the
Code. For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income tax at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Executive's residence on the
Date of Termination (or if there is no Date of Termination, then the date on
which the Gross-Up Payment is calculated for purposes of this Section 6.2), net
of the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
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<PAGE> 9
(C) In the event that the Excise Tax is finally
determined to be less than the amount taken into account hereunder in
calculating the Gross-Up Payment, the Executive shall repay to the Company,
within five (5) business days following the time that the amount of such
reduction in the Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive,
to the extent that such repayment results in a reduction in the Excise Tax and
a dollar-for-dollar reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and employment taxes, plus interest
on the amount of such repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder in calculating the Gross-Up
Payment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) within five (5) business days following the time that the amount of
such excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A), (C) and (D) of
Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the
fifth day following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before such day,
the Company shall pay to the Executive on such day an estimate, as determined
in good faith by the Executive or, in the case of payments under Section 6.2
hereof, in accordance with Section 6.2 hereof, of the minimum amount of such
payments to which the Executive is clearly entitled and shall pay the remainder
of such payments (together with interest on the unpaid remainder (or on all
such payments to the extent the Company fails to make such payments when due)
at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be deter-
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<PAGE> 10
mined but in no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to the Executive, payable on the fifth (5th)
business day after demand by the Company (together with interest at 120% of the
rate provided in section 1274(b)(2)(B) of the Code), but only to the extent
such amount has not been paid by the Executive pursuant to Section 6.2(C)
above. At the time that payments are made under this Agreement, the Company
shall provide the Executive with a written statement setting forth the manner
in which such payments were calculated and the basis for such calculations
including, without limitation, any opinions or other advice the Company has
received from Tax Counsel, the Auditor or other advisors or consultants (and
any such opinions or advice which are in writing shall be attached to the
statement).
6.4 The Company also shall pay to the Executive all legal
fees and expenses incurred by the Executive in disputing in good faith any
issue hereunder relating to the termination of the Executive's employment, in
seeking in good faith to obtain or enforce any benefit or right provided by
this Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
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7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and
during the Term, any purported termination of the Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party hereto to the other party hereto in accordance with Section 10
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board which was called and held for the
purpose of considering such termination (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, the Executive was guilty of conduct set forth in clause (i) or
(ii) of the definition of Cause herein, and specifying the particulars thereof
in detail.
7.2 Date of Termination. "Date of Termination," with respect
to any purported termination of the Executive's employment after a Change in
Control and during the Term, shall mean (i) if the Executive's employment is
terminated for Disability, thirty (30) days after Notice of Termination is
given (provided that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day period), and
(ii) if the Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a termination by
the Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive,
shall not be less than fifteen (15) days nor more than sixty (60) days,
respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15)
days after any Notice of Termination is given, or, if later, prior to the Date
of Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies
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the other party that a dispute exists concerning the termination, the Date of
Termination shall be extended until the earlier of (i) the date on which the
Term ends or (ii) the date on which the dispute is finally resolved, either by
mutual written agreement of the parties or by a final judgment, order or decree
of an arbitrator or a court of competent jurisdiction (which is not appealable
or with respect to which the time for appeal therefrom has expired and no
appeal has been perfected); provided, however, that the Date of Termination
shall be extended by a notice of dispute given by the Executive only if such
notice is given in good faith and the Executive pursues the resolution of such
dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination
occurs following a Change in Control and during the Term and the Date of
Termination is extended in accordance with Section 7.3 hereof, the Company
shall continue to pay the Executive the full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to,
salary) and continue the Executive as a participant in all compensation,
benefit and insurance plans in which the Executive was participating when the
notice giving rise to the dispute was given or those plans in which the
Executive was participating immediately prior to the first occurrence of an
event or circumstance giving rise to the Notice of Termination, if more
favorable to the Executive, until the Date of Termination, as determined in
accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in
addition to all other amounts due under this Agreement (other than those due
under Section 5.2 hereof) and shall not be offset against or reduce any other
amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the
Executive's employment with the Company terminates during the Term, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to Sections
5, 6 or 7.4 hereof. Further, the amount of any payment or benefit provided for
in this Agreement (other than Section 6.1(B) hereof but including (but not
limited to) Section 7.4 hereof) shall not be reduced by any compensation earned
by the Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to
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the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control, except that, for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death
of the Executive) if the Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the executors, personal representatives or administrators of
the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed,
if to the Executive, to the address inserted below the Executive's signature on
the final page hereof and, if to the Company, to the address set forth below,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be
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effective only upon actual receipt:
To the Company:
3900 Essex Lane
Suite 1200
Houston, Texas 77027
Attention: General Counsel
11. Miscellaneous. Except as otherwise specifically provided
in Section 12.2 below, no provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
forth the terms and conditions of the Executive's employment with the Company
only in the event that the Executive's employment with the Company is
terminated on or following a Change in Control, by the Company other than for
Cause or by the Executive other than for Good Reason; and provided further that
all agreements otherwise superseded by this Agreement shall be automatically
reinstated with full force and effect to the extent this Agreement is
terminated or otherwise rendered inapplicable or amended in accordance with
Section 12.2 hereof. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas. All references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law and any additional withholding to
which the Executive has agreed. The obligations of the Company and the
Executive under this Agreement which
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by their nature may require either partial or total performance after the
expiration of the Term (including, without limitation, those under Sections 6
and 7 hereof) shall survive such expiration.
12. Validity; Pooling.
12.1 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
12.2 Pooling. In the event that (A) the Company is party to
a transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of Section 15(G)(III) and (C) individuals who satisfy the
requirements in clauses (i) and (ii) below constitute more than two-thirds
(2/3) of the number of directors of the entity surviving such transaction and
the parent thereof, if any: individuals who (i) immediately prior to such
transaction constitute the Board and (ii) on the date hereof constitute the
Board 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 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 (a) this Agreement shall, to the extent practicable, be
interpreted so as to permit such accounting treatment, and (b) to the extent
that the application of clause (a) of this Section 12.2 does not preserve the
availability of such accounting treatment, then, to the extent that any
provision or combination of provisions of the Agreement disqualifies the
transaction as a "pooling" transaction (including, if applicable, the entire
Agreement), the Board shall have the right, by sending written notice to the
Executive prior to the Change in Control, to unilaterally amend (without the
consent of the Executive) 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 under this Section 12.2 shall
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be made by the Board prior to the Change in Control, 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.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
14.1 All claims by the Executive for benefits under this
Agreement shall be directed to and determined by the Committee and shall be in
writing. Any denial by the Committee of a claim for benefits under this
Agreement shall be delivered to the Executive in writing within thirty (30)
days after written notice of the claim is provided to the Company in accordance
with Section 10 and shall set forth the specific reasons for the denial and the
specific provisions of this Agreement relied upon. The Committee shall afford
a reasonable opportunity to the Executive for a review of the decision denying
a claim and shall further allow the Executive to appeal to the Committee a
decision of the Committee within sixty (60) days after notification by the
Committee that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Houston, Texas in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
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(A) "Affiliate" shall have the meaning set forth in Rule
12b-2 promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2
hereof.
(C) Base Amount" shall have the meaning set forth in section
280G(b)(3)
of the Code.
(D) Beneficial Owner" shall have the meaning set forth in Rule
13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive'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 Executive pursuant to Section
7.1 hereof) after a written demand for substantial performance is delivered to
the Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the Executive 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 Executive's part shall
be deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive'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.
(G) 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:
(I) 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
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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 (III) below; or
(II) 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 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 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
(III) 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 Bene-
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ficially 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
(IV) 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.
(H) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(I) "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, 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
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<PAGE> 20
shall not exceed six (6).
(J) "Company" shall mean Baker Hughes Incorporated and,
except in determining under Section 15(G) hereof whether or not any Change in
Control of the Company has occurred, shall include any successor to its
business and/or assets which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(K) "Date of Termination" shall have the meaning set forth in
Section 7.2 hereof.
(L) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, as a result of
the Executive's incapacity due to physical or mental illness, the Executive
shall have been absent from the full-time performance of the Executive's duties
with the Company for a period of six (6) consecutive months, the Company shall
have given the Executive a Notice of Termination for Disability, and, within
thirty (30) days after such Notice of Termination is given, the Executive shall
not have returned to the full-time performance of the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(N) "Excise Tax" shall mean any excise tax imposed under
section 4999 of the Code.
(O) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(P) "Extension Date" shall have the meaning set forth in
Section 2 hereof.
(Q) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive'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 the
second sentence of Section 6.1 hereof (treating all references in paragraphs
(I) through (VII) 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 (I), (V), (VI) or (VII) below, such act or failure
to act is corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
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<PAGE> 21
(I) the assignment to the Executive of any
duties inconsistent with the Executive's status as a senior
executive officer of the Company or a substantial adverse
alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the
Change in Control;
(II) a reduction by the Company in the
Executive'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
senior executives of the Company and all senior executives of
any Person in control of the Company;
(III) the relocation of the Executive's
principal place of employment to a location more than 50 miles
from the Executive's principal place of employment immediately
prior to the Change in Control or the Company's requiring the
Executive 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 Executive's present business
travel obligations;
(IV) the failure by the Company to pay to
the Executive any portion of the Executive's current
compensation except pursuant to an across-the-board
compensation deferral similarly affecting all senior
executives of the Company and all senior executives of any
Person in control of the Company, or to pay to the Executive
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;
(V) the failure by the Company to continue
in effect any compensation plan in which the Executive
participates immediately prior to the Change in Control which
is material to the Executive's total compensation, including
but not limited to the Company's 1993 Stock Option Plan, 1993
Employee Stock Bonus Plan, 1991 Employee Stock
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Bonus Plan, 1995 Stock Award Plan (and the 1995, 1996 and 1997
Stock Matching Programs thereunder and any subsequent Stock
Matching Programs in which the Executive participates), 1987
Convertible Debenture Plan and 1995 Employee Annual Incentive
Compensation Plan or any substitute plans adopted prior to the
Change in Control, 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 Executive'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 Executive's
participation relative to other participants, as existed
immediately prior to the Change in Control;
(VI) the failure by the Company to continue
to provide the Executive with benefits substantially similar
to those enjoyed by the Executive under any of the Company's
pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was
participating immediately prior to the Change in Control
(except for across the board changes similarly affecting all
senior executives of the Company and all senior executives of
any Person in control of the Company), the taking of any other
action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive the
Executive of any material fringe benefit or perquisite enjoyed
by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the
number of paid vacation days to which the Executive 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
(VII) any purported termination of the
Executive's employment which is not effected pursuant to a
Notice of Termination satisfying the requirements of Section
7.1 hereof; for purposes of this
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Agreement, no such purported termination shall be effective.
The Executive's right to terminate the Executive's employment
for Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive'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 Executive 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.
(R) "Gross-Up Payment" shall have the meaning set forth in
Section 6.2 hereof.
(S) "Notice of Termination" shall have the meaning set forth
in Section 7.1 hereof.
(T) "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.
(U) "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:
(I) the Company enters into an agreement,
the consummation of which would result in the occurrence of a
Change in Control;
(II) 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;
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(III) 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
(IV) the Board adopts a resolution to the
effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(V) "Retirement" shall, for purposes of Section 4 hereof, be
deemed the reason for the termination by the Executive of the Executive's
employment if such employment is terminated after completion of ten (10) years
of service with the Company and attainment of age fifty-five (55).
(W) "Severance Payments" shall have the meaning set forth in
Section 6.1 hereof.
(X) "SRP" shall have the meaning set forth in Section 6.1
hereof.
(Y) "Tax Counsel" shall have the meaning set forth in Section
6.2 hereof.
(Z) "Term" shall mean the period of time described in Section
2 hereof (including any extension, continuation or termination described
therein).
(AA) "Thrift Plan" shall have the meaning set forth in
Section 6.1 hereof.
(BB) "Total Payments" shall mean those payments so described
in Section 6.2 hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above first written.
BAKER HUGHES INCORPORATED
By: /s/ JOHN F. MAHER
------------------------
John F. Maher
Chairman - Compensation
Committee of the Board
of Directors
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<PAGE> 25
EXECUTIVE:
---------
/s/ EDWIN C. HOWELL
---------------------------
EDWIN C. HOWELL
Address:
---------------------------
---------------------------
---------------------------
(Please print carefully)
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<PAGE> 1
EXHIBIT 10.9
SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of July 23, 1997, is made by and between BAKER
HUGHES INCORPORATED, a Delaware corporation (the "Company"), and MAX L. LUKENS
(the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continued employment of key management
personnel; and
WHEREAS the Board recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in Consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last Section hereof.
2. Term of Agreement. Subject to the provisions of Section 12.2 hereof,
the Term of this Agreement shall commence on the date hereof and shall continue
in effect through December 31, 1999; provided, however, that commencing on
January 1, 1998 and each January 1 thereafter (an "Extension Date"), the
Term shall automatically be extended for one additional year (i.e., resulting
in a two-year Term on the Extension Date) unless, not later than September 30
of the year preceding the Extension Date, the Company or the Executive shall
have given notice not to extend the Term; and further provided, however, that
if a Change in Control shall have occurred during the Term, the Term shall
expire no earlier than twenty-four (24) months beyond the month in which such
Change in Control occurred.
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3. Company's Covenants Summarized. In order to induce the
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants set forth in Section 4 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the Severance Payments
and the other payments and benefits described herein. Except as provided in
Section 9.1 hereof, no Severance Payments shall be payable under this Agreement
unless there shall have been (or, under the terms of the second sentence of
Section 6.1 hereof, there shall be deemed to have been) a termination of the
Executive's employment with the Company following a Change in Control and
during the Term. This Agreement shall not be construed as creating an express
or implied contract of employment and, except as otherwise agreed in writing
between the Executive and the Company, the Executive shall not have any right
to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to the
terms and conditions of this Agreement, in the event of a Potential Change in
Control during the Term, the Executive will remain in the employ of the Company
until the earliest of (i) a date which is six (6) months from the date of such
Potential Change of Control, (ii) the date of a Change in Control, (iii) the
date of termination by the Executive of the Executive's employment for Good
Reason or by reason of death, Disability or Retirement, or (iv) the termination
by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during any
period that the Executive fails to perform the Executive's full-time duties
with the Company as a result of incapacity due to physical or mental illness,
the Company shall pay the Executive's full salary to the Executive at the rate
in effect at the commencement of any such period, together with all
compensation and benefits payable to the Executive under the terms of any
compensation or benefit plan, program or arrangement maintained by the Company
during such period, until the Executive's employment is terminated by the
Company for Disability.
5.2 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay the
Executive's full salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the
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Date of Termination or, if higher, the rate in effect immediately prior to the
first occurrence of an event or circumstance constituting Good Reason, together
with all compensation and benefits payable to the Executive through the Date of
Termination under the terms of the Company's compensation and benefit plans,
programs or arrangements as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance constituting Good
Reason.
5.3 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay to the
Executive the Executive's normal post-termination compensation and benefits as
such payments become due. Such post-termination compensation and benefits shall
be determined under, and paid in accordance with, the Company's retirement,
insurance and other compensation or benefit plans, programs and arrangements as
in effect immediately prior to the Date of Termination or, if more favorable to
the Executive, as in effect immediately prior to the occurrence of the first
event or circumstance constituting Good Reason.
5.4 Upon the occurrence of a Change in Control all options to acquire
shares of Company stock, all shares of restricted Company stock and all other
equity or phantom equity incentives held by the Executive under any plan of the
Company (including, but not limited to, the Company's 1995 Stock Award Plan
(and the Stock Matching Programs thereunder), 1993 Stock Option Plan, 1993
Stock Bonus Plan and 1991 Stock Bonus Plan) shall become immediately vested,
exercisable and nonforfeitable and all conditions thereof (including, but not
limited to, any required holding periods) shall be deemed to have been
satisfied.
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6. Severance Payments
6.1 If (i) the Executive's employment is terminated following a Change
in Control and during the Term, other than (A) by the Company for Cause, (B)
by reason of death or Disability, or (C) by the Executive without Good Reason,
or (ii) the Executive voluntarily terminates his employment for any reason
during the one-month period commencing on the first anniversary of the Change
in Control, then, the Company shall pay the Executive the amounts, and provide
the Executive the benefits, described in this Section 6.1 (" Severance
Payments") and Section 6.2, in addition to any payments and benefits to which
the Executive is entitled under Section 5 hereof For purposes of this
Agreement, the Executive's employment shall be deemed to have been terminated
following a Change in Control by the Company without Cause or by the Executive
with Good Reason, if (i) the Executive'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) the Executive terminates his
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 such Person described in
clause (i), or (iii) the Executive's employment is terminated by the Company
without Cause or by the Executive 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). For purposes of any determination regarding the
applicability of the immediately preceding sentence, any position taken by the
Executive shall be presumed to be correct unless the Company establishes to the
Committee by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination and in lieu of any
severance benefit otherwise payable to the Executive, the Company shall
pay to the Executive a lump sum severance payment, in cash, equal to
three times the sum of (i) the Executive's base salary as in effect
immediately prior to the Date of Termination or, if higher, in
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effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, and (ii) the average annual bonus
earned by the Executive pursuant to any annual bonus or incentive plan
maintained by the Company in respect of the three fiscal years ending
immediately prior to the fiscal year in which occurs the Date of
Termination or, if higher, immediately prior to the fiscal year in which
occurs the first event or circumstance constituting Good Reason;
provided, that if the Executive has not participated in an annual bonus
or incentive plan maintained by the Company for the entirety of such
three-year period, the amount referred to in this clause (ii) shall be
calculated using such lesser number of bonuses as have been actually
earned by the Executive in respect of such lesser period.
(B) For the thirty-six (36) month period immediately following
the Date of Termination, the Company shall arrange to provide the
Executive and his dependents life, disability, accident and health
insurance benefits and perquisites (including, but not limited to,
executive life insurance, club memberships, financial planning and tax
preparation, annual physical examination and charitable contributions),
in each case, substantially similar to those provided to the Executive
and his dependents immediately prior to the Date of Termination or, if
more favorable to the Executive, those provided to the Executive and his
dependents immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, at no greater cost to the
Executive than the cost to the Executive immediately prior to such date
or occurrence; provided, however, that, unless the Executive consents to
a different method (after taking into account the effect of such method
on the calculation of "parachute payments" pursuant to Section 6.2
hereof), such health insurance benefits shall be provided through a
third-party insurer. Benefits otherwise receivable by the Executive
pursuant to this Section 6. 1(B) shall be reduced to the extent benefits
of the same type are received by or made available to the Executive
during the thirty-six (36) month period following the Executive's
termination of employment (and any such benefits received by or made
available to the Executive shall be reported to the Company by the
Executive); provided however, that the Company shall reimburse the
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Executive for the excess, if any, of the cost of such benefits to the
Executive over such cost immediately prior to the Date of Termination
or, if more favorable to the Executive, the first occurrence of an event
or circumstance constituting Good Reason.
(C) Notwithstanding any provision of the Baker Hughes
Incorporated 1995 Employee Annual Incentive Compensation Plan (the
"Annual Incentive Plan"), the Company shall pay to the Executive a lump
sum amount, in cash, equal to the sum of (i) any unpaid incentive
compensation which has been allocated or awarded to the Executive for a
completed fiscal year or other measuring period preceding the Date of
Termination under the Annual Incentive Plan and which, as of the Date of
Termination, is contingent only upon the continued employment of the
Executive 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 Executive for all then uncompleted periods
under the Annual Incentive Plan, calculated as to each such award by
multiplying the award that the Executive would have earned on the last
day of the performance award period, assuming the achievement, at the
expected value target level, of the individual and corporate performance
goals established with respect to such award, by the fraction obtained
by dividing the number of full months and any fractional portion of a
month during such performance award period through the Date of
Termination by the total number of months contained in such performance
award period; provided, however, that if such termination of employment
occurs during the same year in which the Change in Control occurs, the
pro-rata bonus payment referred to in clause (ii) above shall be offset
by any payments received under the Annual Incentive Plan in connection
with such Change in Control.
(D) In addition to the retirement benefits to which the
Executive is entitled under the Company's Thrift Plan (the "Thrift
Plan") and the Company's Supplemental Retirement Plan ( the "SRP"), the
Company shall pay the Executive a lump sum amount, in cash, equal to the
present value of the employer-provided contributions, deferrals and
allocations the Executive would have received had he continued to
participate, after the Date of Termination, in the Thrift Plan and
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the SRP for three (3) additional years, assuming for this purpose that
(i) the Executive earned compensation for purposes of the Thrift Plan and
SRP during such three-year period the amount used to calculate the
Executive's severance payment under subparagraph (A) of this Section 6.1,
and (ii) the percentages of contributions, deferrals and allocations made
under the Thrift Plan and the SRP by or on behalf of the Executive during
such three-year period are the same percentages of contributions,
deferrals and allocations in effect on the date of the Change in Control
or the Date of Termination, whichever is more favorable to the Executive,
(E) If the Executive would have become entitled to benefits
under the Company's post-retirement health care or life insurance plans,
as in effect immediately prior to the Date of Termination or, if more
favorable to the Executive, as in effect immediately prior to the first
occurrence of an event or circumstance constituting Good Reason, had the
Executive's employment terminated at any time during the period of
thirty-six (36) months after the Date of Termination, the Company shall
provide such post-retirement health care or life insurance benefits to
the Executive and the Executive's dependents commencing on the later of
(i) the date on which such coverage would have first become available
and (h) the date on which benefits described in subsection (B) of this
Section 6.1 terminate.
(F) The Company shall provide the Executive with outplacement
services suitable to the Executive's position for a period of three
years or, if earlier, until the first acceptance by the Executive of an
offer of employment.
6.2 (A) Whether or not the Executive becomes entitled to the
Severance Payments, if any of the payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change in Control or any Person affiliated
with the Company or such Person) (such payments or benefits, excluding the
Gross-Up Payment, being hereinafter referred to as the "Total Payments") will
be subject to the Excise Tax, the Company shall pay to the Executive an
additional amount (the "Gross-Up
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Payment") such that the net amount retained by the Executive, after deduction
of any Excise Tax on the Total Payments and any federal, state and local income
and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal
to the Total Payments.
(B) For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(i) all of the Total Payments shall be treated as "parachute payments" (within
the meaning of section 28OG(b)(2) of the Code) unless, in the opinion of tax
counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by
the accounting firm which was, immediately prior to the Change in Control, the
Company's independent auditor (the "Auditor"), such payments or benefits (in
whole or in part) do not constitute parachute payments, including by reason of
section 28OG(b)(4)(A) of the Code, (ii) all "excess parachute payments" within
the meaning of section 28OG(b)(1) of the Code shall be treated as subject to
the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute
payments (in whole or in part) represent reasonable compensation for services
actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in
excess of the Base Amount allocable to such reasonable compensation, or are
otherwise not subject to the Excise Tax, and (iii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Auditor
in accordance with the principles of sections 28OG(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income tax at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment is
to be made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the Date of
Termination (or if there is no Date of Termination, then the date on which the
Gross-Up Payment is calculated for purposes of this Section 6.2), net of the
maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
(C) In the event that the Excise Tax is finally determined to
be less than the amount taken into account hereunder in calculating the
Gross-Up Payment, the Executive shall repay to the Company, within five (5)
business days following the time that the amount of such reduction in the
Excise Tax is finally determined, the portion of the Gross-Up
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<PAGE> 9
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive,
to the extent that such repayment results in a reduction in the Excise Tax and
a dollar-for-dollar reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and employment taxes, plus interest
on the amount of such repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder in calculating the Gross-Up
Payment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) within five (5) business days following the time that the amount of
such excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A), (C) and (D) of Section
6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day
following the Date of Termination; provided, however, that if the amounts of
such payments cannot be finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as determined in good faith
by the Executive or, in the case of payments under Section 6.2 hereof, in
accordance with Section 6.2 hereof, of the minimum amount of such payments to
which the Executive is clearly entitled and shall pay the remainder of such
payments (together with interest on the unpaid remainder (or on all such
payments to the extent the Company fails to make such payments when due) at
120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the
amount thereof can be determined but in no event later than the thirtieth
(30th) day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) business day after demand by the Company (together with
interest at 120% of the rate provided in section
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<PAGE> 10
1274(b)(2)(B) of the Code), but only to the extent such amount has not been
paid by the Executive pursuant to Section 6.2(C) above. At the time that
payments are made under this Agreement, the Company shall provide the Executive
with a written statement setting forth the manner in which such payments were
calculated and the basis for such calculations including, without limitation,
any opinions or other advice the Company has received from Tax Counsel, the
Auditor or other advisors or consultants (and any such opinions or advice which
are in writing shall be attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
7. Termination Procedures and Compensation During Dispute
7.1 Notice of Termination. After a Change in Control and during the
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from
one party hereto to the other party hereto in accordance with Section 10
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board which was called and held for the
purpose of considering such termination (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, the Executive was guilty of conduct
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set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
7.2 Date of Termination "Date of Termination," with respect to any
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other reason, the date specified
in the Notice of Termination (which in the case of a termination by the
Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive,
shall not be less than fifteen (15) days nor more than sixty (60) days,
respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days after
any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of
the parties or by a final judgment, order or decree of an arbitrator or a court
of competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that the Date of Termination shall be extended by a notice
of dispute given by the Executive only if such notice is given in good faith
and the Executive pursues the resolution of such dispute with reasonable
diligence.
7.4 Compensation During Dispute. If a purported termination occurs
following a Change in Control and during the Term and the Date of Termination
is extended in accordance with Section 7.3 hereof, the Company shall continue
to pay the Executive the full compensation in effect when the notice giving
rise to the dispute was given (including but not limited to, salary) and
continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when the notice giving
rise to the
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<PAGE> 12
dispute was given or those plans in which the Executive was participating
immediately prior to the first occurrence of an event or circumstance giving
rise to the Notice of Termination, if more favorable to the Executive, until
the Date of Termination, as determined in accordance with Section 7.3 hereof
Amounts paid under this Section 7.4 are in addition to all other amounts due
under this Agreement (other than those due under Section 52 hereof) and shall
not be offset against or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any
amounts payable to the Executive by the Company pursuant to Sections 5, 6 or
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof but including (but not limited to)
Section 7.4 hereof) shall not be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to
the, Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for
Good Reason after a Change in Control, except that, for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs,
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distributees, devisees and legatees. If the Executive shall die while any
amount would still be payable to the Executive hereunder (other than amounts
which, by their terms, terminate upon the death of the Executive) if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
executors, personal representatives or administrators of the Executive's
estate.
10. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to
the Executive, to the address inserted below the Executive's signature on the
final page hereof and, if to the Company, to the address set forth below, or to
such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon actual receipt:
To the Company:
3900 Essex Lane
Suite 1200
Houston, Texas 77027
Attention: General Counsel
11. Miscellaneous. Except as otherwise specifically provided in
Section 12.2 below, no provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
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<PAGE> 14
forth the terms and conditions of the Executive's employment with the Company
only in the event that the Executive's employment with the Company is
terminated on or following a Change in Control, by the Company other than for
Cause or by the Executive other than for Good Reason; and provided further that
all agreements otherwise superseded by this Agreement shall be automatically
reinstated with full force and effect to the extent this Agreement is
terminated or otherwise rendered inapplicable or amended in accordance with
Section 12.2 hereof. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of Texas. All
references to sections of the Exchange Act or the Code shall be deemed also to
refer to any successor provisions to such sections. Any payments provided for
hereunder shall be paid net of any applicable withholding required under
federal, state or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under
this Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without limitation,
those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity; Pooling.
12.1 Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12.2 Pooling. In the event that (A) the Company is party to a
transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of Section 15(G)(III) and (C) individuals who satisfy the
requirements in clauses (i) and (ii) below constitute more than two-thirds
(2/3) of the number of directors of the entity surviving such transaction and
the parent thereof, if any; individuals who (i) immediately prior to such
transaction constitute the Board and (ii) on the date hereof constitute the
Board 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 or nomination for election by the Company's stockholders was approved
or recommend-
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<PAGE> 15
ed, 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 (a) this Agreement shall, to the extent practicable, be interpreted so as
to permit such accounting treatment, and (b) to the extent that the application
of clause (a) of this Section 12.2 does not preserve the availability of such
accounting treatment then, to the extent that any provision or combination of
provisions of the Agreement disqualifies the transaction as a "pooling"
transaction (including, if applicable, the entire Agreement), the Board shall
have the right, by sending written notice to the Executive prior to the Change
in Control, to unilaterally amend (without the consent of the Executive) 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 under this Section 12.2 shall be made by the Board prior to the
Change in Control, 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.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
14.1 All claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Committee and shall be in writing.
Any denial by the Committee of a claim for benefits under this Agreement shall
be delivered to the Executive in writing within thirty (30) days after written
notice of the claim is provided to the Company in accordance with Section 10
and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Committee shall afford a
reasonable opportunity to the Executive for a review of the decision denying a
claim and shall further allow the Executive to appeal to the Committee a
decision of the Committee within sixty (60) days after notification by the
Committee that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in connection
with
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<PAGE> 16
this Agreement shall be settled exclusively by arbitration in Houston, Texas in
accordance with the rules of the American Arbitration Association then in
effect; provided, however, that the evidentiary standards set forth in this
Agreement shall apply. Judgment may be entered on the arbitrator's award in any
court having jurisdiction. Notwithstanding any provision of this Agreement to
the contrary, the Executive shall be entitled to seek specific performance of
the Executive's right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
15. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2 hereof
(C) "Base Amount" shall have the meaning set forth in section
280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive'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 Executive pursuant to Section
7.1 hereof) after a written demand for substantial performance is delivered to
the Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the Executive 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 Executive's part shall
be deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the
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<PAGE> 17
Executive'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,
(G) 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:
(I) 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
(III) below; or
(II) 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 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 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
(III) 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
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<PAGE> 18
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
(IV) 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.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(I) "Committee" shall mean (i) the individuals (not fewer than three
in number)
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who, on the date six months before a Change in Control, constitute the
Compensation Committee of the Board, 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).
(J) "Company" shall mean Baker Hughes Incorporated and, except in
determining under Section 15(G) hereof whether or not any Change in Control of
the Company has occurred, shall include any successor to its business and/or
assets which assumes and agrees to perform this Agreement by operation of law,
or otherwise.
(K) "Date of Termination" shall have the meaning set forth in Section
7.2 hereof.
(L) "Disability" shall be deemed the reason for the termination by the
Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the
Company for a period of six (6) consecutive months, the Company shall have
given the Executive a Notice of Termination for Disability, and, within thirty
(30) days after such Notice of Termination is given, the Executive shall not
have returned to the full-time performance of the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(N) "Excise Tax" shall mean any excise tax imposed under section 4999
of the Code.
(O) "Executive" shall mean the individual named in the first paragraph
of this Agreement.
(P) "Extension Date" shall have the meaning set forth in Section 2
hereof.
(Q) "Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) after any Change in Control, or prior to a Change in Control under the
circumstances described in
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clauses (ii) and (iii) of the second sentence of Section 6.1 hereof (treating
all references in paragraphs (I) through (VII) 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 (I), (V), (VI) or (VIII)
below, such act or failure to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect thereof
(I) the assignment to the Executive of any duties
inconsistent with the Executive's status as a senior executive officer
of the Company or a substantial adverse alteration in the nature or
status of the Executive's responsibilities from those in effect
immediately prior to the Change in Control;
(II) a reduction by the Company in the Executive'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 senior executives of the Company
and all senior executives of any Person in control of the Company;
(III) the relocation of the Executive's principal
place of employment to a location more than 50 miles from the
Executive's principal place of employment immediately prior to the
Change in Control or the Company's requiring the Executive 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 Executive's
present business travel obligations;
(IV) the failure by the Company to pay to the
Executive any portion of the Executive's current compensation except
pursuant to an across-the-board compensation deferral similarly
affecting all senior executives of the Company and all senior
executives of any Person in control of the Company, or to pay to the
Executive 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;
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(V) the failure by the Company to continue in effect
any compensation plan in which the Executive participates immediately
prior to the Change in Control which is material to the Executive's
total compensation, including but not limited to the Company's 1993
Stock Option Plan, 1993 Employee Stock Bonus Plan, 1991 Employee Stock
Bonus Plan, 1995 Stock Award Plan (and the 1995, 1996 and 1997 Stock
Matching Programs thereunder and any subsequent Stock Matching
Programs in which the Executive participates), 1987 Convertible
Debenture Plan and 1995 Employee Annual Incentive Compensation Plan or
any substitute plans adopted prior to the Change in Control, 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 Executive'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 Executive's
participation relative to other participants, as existed immediately
prior to the Change in Control;
(VI) the failure by the Company to continue to
provide the Executive with benefits substantially similar to those
enjoyed by the Executive under any of the Company's pension, savings,
life insurance, medical, health and accident, or disability plans in
which the Executive was participating immediately prior to the Change
in Control (except for across the board changes similarly affecting
all senior executives of the Company and all senior executives of any
Person in control of the Company), the taking of any other action by
the Company which would directly or indirectly materially reduce any
of such benefits or deprive the Executive of any material fringe
benefit or perquisite enjoyed by the Executive at the time of the
Change in Control, or the failure by the Company to provide the
Executive with the number of paid vacation days to which the Executive
is entitled on the basis of years of service with the Company in
accordance with the Company's normal vacation policy in
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effect at the time of the Change in Control; or
(VII) any purported termination of the Executives
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 7.1 hereof, for purposes of
this Agreement, no such purported termination shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive!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 Executive 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,
(R) "Gross-Up Payment" shall have the meaning set forth in Section 6.2
hereof.
(S) "Notice of Termination" shall have the meaning set forth in
Section 7.1 hereof.
(T) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Art, 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.
(U) "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:
(I) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an
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<PAGE> 23
intention to take or to consider taking actions which, if consummated,
would constitute a Change in Control;
(III ) 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
(IV) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(V) "Retirement" shall, for purposes of Section 4 hereof, be deemed the
reason for the termination by the Executive of the Executive's employment if
such employment is terminated after completion of ten (10) years of service
with the Company and attainment of age fifty-five (55).
(W) "Severance Payments" shall have the meaning set forth in Section
6.1 hereof.
(X) "SRP" shall have the meaning set forth in Section 6.1 hereof.
(Y) "Tax Counsel" shall have the meaning set forth in Section 6.2
hereof.
(Z) "Term" shall mean the period of time described in Section 2 hereof
(including any extension continuation or termination described therein).
(AA) "Thrift Plan" shall have the meaning set forth in Section 6.1
hereof.
(BB) "Total Payments" shall mean those payments so described in
Section 6.2 hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above first written.
BAKER HUGHES INCORPORATED
By: /s/ JOHN F. MAHER
-------------------------------
John F. Maher
Chairman - Compensation Committee
of the Board of Directors
EXECUTIVE:
/s/ MAX L. LUKENS
-------------------------------
MAX L. LUKENS
Address:
-------------------------------
-------------------------------
-------------------------------
(Please print carefully)
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<PAGE> 1
EXHIBIT 10.10
SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of July 23, 1997, is made by and between BAKER
HUGHES INCORPORATED, a Delaware corporation (the "Company"), and ERIC L.
MATTSON (the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continued employment of key management
personnel; and
WHEREAS, the Board recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in Consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last Section hereof.
2. Term of Agreement. Subject to the provisions of Section 12.2 hereof,
the Term of this Agreement shall commence on the date hereof and shall continue
in affect through December 31, 1999; provided, however, that commencing on
January 1, 1998 and each January 1 thereafter (an "Extension Date"), the Term
shall automatically be extended for one additional year (i.e., resulting in a
two-year Term on the Extension Date) unless, not later than September 30 of the
year preceding the Extension Date, the Company or the Executive shall have
given notice not to extend the Term; and further provided, however, that if a
Change in Control shall have occurred during the Term, the Term shall expire no
earlier than twenty-four (24) months beyond the month in which such Change in
Control occurred.
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3. Company's Covenants Summarized. In order to induce the Executive to
remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and
the other payments and benefits described herein. Except as provided in Section
9.1 hereof, no Severance Payments shall be payable under this Agreement unless
there shall have been (or, under the terms of the second sentence of Section
6.1 hereof, there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control and during the Term.
This Agreement shall not be construed as creating an express or implied
contract of employment and, except as otherwise agreed in writing between the
Executive and the Company, the Executive shall not have any right to be
retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to
the terms and conditions of this Agreement, in the event of a Potential Change
in Control during the Term, the Executive will remain in the employ of the
Company until the earliest of (i) a date which, is six (6) months from the date
of such Potential Change of Control, (ii) the date of a Change in Control,
(iii) the date of termination by the Executive of the Executive's employment
for Good Reason or by reason of death, Disability or Retirement, or (iv) the
termination by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during any
period that the Executive fails to perform the Executive's full-time duties
with the Company as a result of incapacity due to physical or mental illness,
the Company shall pay the Executive's full salary to the Executive at the rate
in effect at the commencement of any such period, together with all
compensation and benefits payable to the Executive under the terms of any
compensation or benefit plan, program or arrangement maintained by the Company
during such period, until the Executive's employment is terminated by the
Company for Disability.
5.2 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay the
Executive's full salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the
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Date of Termination or, if higher, the rate in effect immediately prior to the
first occurrence of an event or circumstance constituting Good Reason, together
with all compensation and benefits payable to the Executive through the Date of
Termination under the terms of the Company's compensation and benefit plans,
programs or arrangements as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance constituting Good
Reason.
5.3 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay to the
Executive the Executive's normal post-termination compensation and benefits as
such payments become due. Such post-termination compensation and benefits shall
be determined under, and paid in accordance with, the Company's retirement,
insurance and other compensation or benefit plans, programs and arrangements as
in effect immediately prior to the Date of Termination or, if more favorable to
the Executive, as in effect immediately prior to the occurrence of the first
event or circumstance constituting Good Reason.
5.4 Upon the occurrence of a Change in Control all options to acquire
shares of Company stock, all shares of restricted Company stock and all other
equity or phantom equity incentives held by the Executive under any plan of the
Company (including, but not limited to, the Company's 1995 Stock Award Plan
(and the Stock Matching Programs thereunder), 1993 Stock Option Plan, 1993
Stock Bonus Plan and 1991 Stock Bonus Plan) shall become immediately vested,
exercisable and nonforfeitable and all conditions thereof (including, but not
limited to, any required holding periods) shall be deemed to have been
satisfied.
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6. Severance Payments
6.1 If (i) the Executive's employment is terminated following a Change
in Control and during the Term, other than (A) by the Company for Cause, (B)
by reason of death or Disability, or (C) by the Executive without Good Reason,
or (ii) the Executive voluntarily terminates his employment for any reason
during the one-month period commencing on the first anniversary of the Change
in Control, then, the Company shall pay the Executive the amounts, and provide
the Executive the benefits, described in this Section 6.1 (" Severance
Payments") and Section 6.2, in addition to any payments and benefits to which
the Executive is entitled under Section 5 hereof. For purposes of this
Agreement, the Executive's employment shall be deemed to have been terminated
following a Change in Control by the Company without Cause or by the Executive
with Good Reason, if (i) the Executive'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) the Executive terminates his
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 such Person described in
clause (i), or (iii) the Executive's employment is terminated by the Company
without Cause or by the Executive 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). For purposes of any determination regarding the
applicability of the immediately preceding sentence, any position taken by the
Executive shall be presumed to be correct unless the Company establishes to the
Committee by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination and in lieu of any
severance benefit otherwise payable to the Executive, the Company shall
pay to the Executive a lump sum severance payment, in cash, equal to
three times the sum of (i) the Executive's base salary as in effect
immediately prior to the Date of Termination or, if higher, in
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effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, and (ii) the average annual bonus
earned by the Executive pursuant to any annual bonus or incentive plan
maintained by the Company in respect of the three fiscal years ending
immediately prior to the fiscal year in which occurs the Date of
Termination or, if higher, immediately prior to the fiscal year in which
occurs the first event or circumstance constituting Good Reason;
provided, that if the Executive has not participated in an annual bonus
or incentive plan maintained by the Company for the entirety of such
three-year period, the amount referred to in this clause (ii) shall be
calculated using such lesser number of bonuses as have been actually
earned by the Executive in respect of such lesser period.
(B) For the thirty-six (36) month period immediately following
the Date of Termination, the Company shall arrange to provide the
Executive and his dependents life, disability, accident and health
insurance benefits and perquisites (including, but not limited to,
executive life insurance, club memberships, financial planning and tax
preparation, annual physical examination and charitable contributions),
in each case, substantially similar to those provided to the Executive
and his dependents immediately prior to the Date of Termination or, if
more favorable to the Executive, those provided to the Executive and his
dependents immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, at no greater cost to the
Executive than the cost to the Executive immediately prior to such date
or occurrence; provided, however, that, unless the Executive consents to
a different method (after taking into account the effect of such method
on the calculation of "parachute payments" pursuant to Section 6.2
hereof), such health insurance benefits shall be provided through a
third-party insurer. Benefits otherwise receivable by the Executive
pursuant to this Section 6.1(B) shall be reduced to the extent benefits
of the same type are received by or made available to the Executive
during the thirty-six (36) month period following the Executive's
termination of employment (and any such benefits received by or made
available to the Executive shall be reported to the Company by the
Executive); provided, however, that the Company shall reimburse the
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Executive for the excess, if any, of the cost of such benefits to the
Executive over such cost immediately prior to the Date of Termination or,
if more favorable to the Executive, the first occurrence of an event or
circumstance constituting Good Reason.
(C) Notwithstanding any provision of the Baker Hughes
Incorporated 1995 Employee Annual Incentive Compensation Plan (the
"Annual Incentive Plan"), the Company shall pay to the Executive a lump
sum amount, in cash, equal to the sum of (i) any unpaid incentive
compensation which has been allocated or awarded to the Executive for a
completed fiscal year or other measuring period preceding the Date of
Termination under the Annual Incentive Plan and which, as of the Date of
Termination, is contingent only upon the continued employment of the
Executive 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 Executive for all then uncompleted periods
under the Annual Incentive Plan, calculated as to each such award by
multiplying the award that the Executive would have earned on the last
day of the performance award period, assuming the achievement, at the
expected value target level, of the individual and corporate performance
goals established with respect to such award, by the fraction obtained by
dividing the number of full months and any fractional portion of a month
during such performance award period through the Date of Termination by
the total number of months contained in such performance award period;
provided, however, that if such termination of employment occurs during
the some year in which the Change in Control occurs, the pro-rata bonus
payment referred to in clause (ii) above shall be offset by any payments
received under the Annual Incentive Plan in connection with such Change
in Control.
(D) In addition to the retirement benefits to which the
Executive is entitled under the Company's Thrift Plan (the "Thrift
Plan") and the Company's Supplemental Retirement Plan ( the "SRP"), the
Company shall pay the Executive a lump sum amount, in cash, equal to the
present value of the employer-provided contributions, deferrals and
allocations the Executive would have received had he continued to
participate, after the Date of Termination, in the Thrift Plan and
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the SRP for three (3) additional years, assuming for this purpose that
(i) the Executive earned compensation for purposes of the Thrift Plan and
SRP during such three-year period the amount used to calculate the
Executive's severance payment under subparagraph (A) of this Section 6.1,
and (ii) the percentages of contributions, deferrals and allocations made
under the Thrift Plan and the SRP by or on behalf of the Executive during
such three-year period are the same percentages of contributions,
deferrals and allocations in effect on the date of the Change in Control
or the Date of Termination, whichever is more favorable to the Executive.
(E) If the Executive would have become entitled to benefits
under the Company's post-retirement health care or life insurance plans,
as in effect immediately prior to the Date of Termination or, if more
favorable to the Executive, as in effect immediately prior to the first
occurrence of an event or circumstance constituting Good Reason, had the
Executive's employment terminated at any time during the period of
thirty-six (36) months after the Date of Termination, the Company shall
provide such post-retirement health care or life insurance benefits to
the Executive and the Executive's dependents commencing on the later of
(i) the date on which such coverage would have first become available
and (ii) the date on which benefits described in subsection (B) of this
Section 6.1 terminate.
(F) The Company shall provide the Executive with outplacement
services suitable to the Executive's position for a period of three
years or, if earlier, until the first acceptance by the Executive of an
offer of employment.
6.2 (A) Whether or not the Executive becomes entitled to the
Severance Payments, if any of the payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change in Control or any Person affiliated with
the Company or such Person) (such payments or benefits, excluding the Gross-Up
Payment, being hereinafter referred to as the "Total Payments") will be subject
to the Excise Tax, the Company shall pay to the Executive an additional amount
(the "Gross-Up
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Payment") such that the net amount retained by the Executive, after deduction
of any Excise Tax on the Total Payments and any federal, state and local income
and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal
to the Total Payments.
(B) For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(i) all of the Total Payments shall be treated as "parachute payments" (within
the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax
counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by
the accounting firm which was, immediately prior to the Change in Control, the
Company's independent auditor (the "Auditor"), such payments or benefits (in
whole or in part) do not constitute parachute payments, including by reason of
section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within
the meaning of section 280G(b)(1) of the Code shall be treated as subject to
the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute
payments (in whole or in part) represent reasonable compensation for services
actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in
excess of the Base Amount allocable to such reasonable compensation, or are
otherwise not subject to the Excise Tax, and (iii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Auditor
in accordance with the principles of sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income tax at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment is
to be made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the Date of
Termination (or if there is no Date of Termination, then the date on which the
Gross-Up Payment is calculated for purposes of this Section 6.2), net of the
maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
(C) In the event that the Excise Tax is finally determined to
be less than the amount taken into account hereunder in calculating the
Gross-Up Payment, the Executive shall repay to the Company, within five (5)
business days following the time that the amount of such reduction in the
Excise Tax is finally determined, the portion of the Gross-Up
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Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive,
to the extent that such repayment results in a reduction in the Excise Tax and
a dollar-for-dollar reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and employment taxes, plus interest
on the amount of such repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder in calculating the Gross-Up
Payment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) within five (5) business days following the time that the amount of
such excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A), (C) and (D) of Section
6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day
following the Date of Termination; provided, however, that if the amounts of
such payments cannot be finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as determined in good faith
by the Executive or, in the case of payments under Section 6.2 hereof, in
accordance with Section 6.2 hereof, of the minimum amount of such payments to
which the Executive is clearly entitled and shall pay the remainder of such
payments (together with interest on the unpaid remainder (or on all such
payments to the extent the Company fails to make such payments when due) at 120%
of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined but in no event later than the thirtieth (30th) day
after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable on the
fifth (5th) business day after demand by the Company (together with interest at
120% of the rate provided in section
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1274(b)(2)(B) of the Code), but only to the extent such amount has not been paid
by the Executive pursuant to Section 6.2(C) above. At the time that payments are
made under this Agreement, the Company shall provide the Executive with a
written statement setting forth the manner in which such payments were
calculated and the basis for such calculations including, without limitation,
any opinions or other advice the Company has received from Tax Counsel, the
Auditor or other advisors or consultants (and any such opinions or advice which
are in writing shall be attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executives employment, in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and during the
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 10 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. Further, a Notice of Termination for Cause is required
to include a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an opportunity
for the Executive, together with the Executive's counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive was
guilty of conduct
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set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other reason, the date specified
in the Notice of Termination (which in the case of a termination by the
Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive,
shall not be less than fifteen (15) days nor more than sixty (60) days,
respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days after
any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of
the parties or by a final judgment, order or decree of an arbitrator or a court
of competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that the Date of Termination shall be extended by a notice
of dispute given by the Executive only if such notice is given in good faith
and the Executive pursues the resolution of such dispute with reasonable
diligence.
7.4 Compensation During Dispute. If a purported termination occurs
following a Change in Control and during the Term and the Date of Termination
is extended in accordance with Section 7.3 hereof, the Company shall continue
to pay the Executive the full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, salary) and
continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when the notice giving
rise to the
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dispute was given or those plans in which the Executive was participating
immediately prior to the first occurrence of an event or circumstance giving
rise to the Notice of Termination, if more favorable to the Executive, until
the Date of Termination, as determined in accordance with Section 7.3 hereof.
Amounts paid under this Section 7.4 are in addition to all other amounts due
under this Agreement (other than those due under Section 52 hereof) and shall
not be offset against or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any
amounts payable to the Executive by the Company pursuant to Sections 5, 6 or
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(13) hereof but including (but not limited to)
Section 7.4 hereof) shall not be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to
the, Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for
Good Reason after a Change in Control, except that, for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs,
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distributees, devisees and legatees. If the Executive shall die while any
amount would still be payable to the Executive hereunder (other than amounts
which, by their terms, terminate upon the death of the Executive) if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
executors, personal representatives or administrators of the Executive's
estate.
10. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to
the Executive, to the address inserted below the Executive's signature on the
final page hereof and, if to the Company, to the address set forth below, or to
such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon actual receipt:
To the Company:
3900 Essex Lane
Suite 1200
Houston, Texas 77027
Attention: General Counsel
11. Miscellaneous. Except as otherwise specifically provided in
Section 12.2 below, no provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
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forth the terms and conditions of the Executive's employment with the Company
only in the event that the Executive's employment with the Company is
terminated on or following a Change in Control, by the Company other than for
Cause or by the Executive other than for Good Reason; and provided further that
all agreements otherwise superseded by this Agreement shall be automatically
reinstated with full force and effect to the extent this Agreement is
terminated or otherwise rendered inapplicable or amended in accordance with
Section 12.2 hereof. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of Texas. All
references to sections of the Exchange Act or the Code shall be deemed also to
refer to any successor provisions to such sections. Any payments provided for
hereunder shall be paid net of any applicable withholding required under
federal, state or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under
this Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without limitation,
those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity; Pooling.
12.1 Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement which shall remain in full force and effect.
12.2 Pooling. In the event that (A) the Company is party to a
transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of Section 15(G)(III) and (C) individuals who satisfy the
requirements in clauses (i) and (ii) below constitute more than two-thirds
(2/3) of the number of directors of the entity surviving such transaction and
the parent thereof, if any: individuals who (i) immediately prior to such
transaction constitute the Board and (ii) on the date hereof constitute the
Board 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 or nomination for election by the Company's stockholders was approved
or recommend-
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ed, 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 (a) this Agreement shall, to the extent practicable, be interpreted so as
to permit such accounting treatment, and (b) to the extent that the application
of clause (a) of this Section 12.2 does not preserve the availability of such
accounting treatment then, to the extent that any provision or combination of
provisions of the Agreement disqualifies the transaction as a "pooling"
transaction (including, if applicable, the entire Agreement), the Board shall
have the right, by sending written notice to the Executive prior to the Change
in Control, to unilaterally amend (without the consent of the Executive) 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 under this Section 12.2 shall be made by the Board prior to the
Change in Control, 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.
13. Counterpart. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14, Settlement of Disputes; Arbitration
14.1 All claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Committee and shall be in writing.
Any denial by the Committee of a claim for benefits under this Agreement shall
be delivered to the Executive in writing within thirty (30) days after written
notice of the claim is provided to the Company in accordance with Section 10
and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Committee shall afford a
reasonable opportunity to the Executive for a review of the decision denying a
claim and shall further allow the Executive to appeal to the Committee a
decision of the Committee within sixty (60) days after notification by the
Committee that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in connection
with
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this Agreement shall be settled exclusively by arbitration in Houston, Texas in
accordance with the rules of the American Arbitration Association then in
effect; provided, however that the evidentiary standards set forth in this
Agreement shall apply. Judgment may be entered on the arbitrator's award in any
court having jurisdiction. Notwithstanding any provision of this Agreement to
the contrary, the Executive shall be entitled to seek specific performance of
the Executive's right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
15. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in section
280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive'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 Executive pursuant to Section
7.1 hereof) after a written demand for substantial performance is delivered to
the Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the Executive 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 Executive's part shall
be deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the
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Executive'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.
(G) 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:
(I) 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
(III) below; or
(II) 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 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 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
(III) 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
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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
(IV) 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.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(I) "Committee" shall mean (i) the individuals (not fewer than three
in number)
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who, on the date six months before a Change in Control, constitute the
Compensation Committee of the Board, 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).
(J) "Company" shall mean Baker Hughes Incorporated and, except in
determining under Section 15(G) hereof whether or not any Change in Control of
the Company has occurred, shall include any successor to its business and/or
assets which assumes and agrees to perform this Agreement by operation of law,
or otherwise.
(K) "Date of Termination" shall have the meaning set forth in Section
7.2 hereof,
(L) "Disability" shall be deemed the reason for the termination by the
Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the
Company for a period of six (6) consecutive months, the Company shall have
given the Executive a Notice of Termination for Disability, and, within thirty
(30) days after such Notice of Termination is given, the Executive shall not
have returned to the full-time performance of the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(N) "Excise Tax" shall mean any excise tax imposed under section 4999
of the Code.
(O) "Executive" shall mean the individual named in the first paragraph
of this Agreement.
(P) "Extension Date" shall have the meaning set forth in Section 2
hereof.
(Q) "Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) after any Change in Control, or prior to a Change in Control under the
circumstances described in
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clauses (ii) and (iii) of the second sentence of Section 6.1 hereof (treating
all references in paragraphs (I) through (VII) 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 (I), (V), (VI) or (VIII)
below, such act or failure to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect thereof:
(I) the assignment to the Executive of any duties
inconsistent with the Executive's status as a senior executive officer
of the Company or a substantial adverse alteration in the nature or
status of the Executive's responsibilities from those in effect
immediately prior to the Change in Control;
(II) a reduction by the Company in the Executive'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 senior executives of the Company
and all senior executives of any Person in control of the Company;
(III) the relocation of the Executive's principal
place of employment to a location more than 50 miles from the
Executive's principal place of employment immediately prior to the
Change in Control or the Company's requiring the Executive 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 Executive's
present business travel obligations;
(IV) the failure by the Company to pay to the
Executive any portion of the Executive's current compensation except
pursuant to an across-the-board compensation deferral similarly
affecting all senior executives of the Company and all senior
executives of any Person in control of the Company, or to pay to the
Executive 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;
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(V) the failure by the Company to continue in effect
any compensation plan in which the Executive participates immediately
prior to the Change in Control which is material to the Executive's
total compensation, including but not limited to the Company's 1993
Stock Option Plan, 1993 Employee Stock Bonus Plan, 1991 Employee Stock
Bonus Plan, 1995 Stock Award Plan (and the 1995, 1996 and 1997 Stock
Matching Programs thereunder and any subsequent Stock Matching
Programs in which the Executive participates), 1987 Convertible
Debenture Plan and 1995 Employee Annual Incentive Compensation Plan or
any substitute plans adopted prior to the Change in Control, 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 Executive'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 Executive's
participation relative to other participants, as existed immediately
prior to the Change in Control;
(VI) the failure by the Company to continue to
provide the Executive with benefits substantially similar to those
enjoyed by the Executive under any of the Company's pension, savings,
life insurance, medical, health and accident, or disability plans in
which the Executive was participating immediately prior to the Change
in Control (except for across the board changes similarly affecting
all senior executives of the Company and all senior executives of any
Person in control of the Company), the taking of any other action by
the Company which would directly or indirectly materially reduce any
of such benefits or deprive the Executive of any material fringe
benefit or perquisite enjoyed by the Executive at the time of the
Change in Control, or the failure by the Company to provide the
Executive with the number of paid vacation days to which the Executive
is entitled on the basis of years of service with the Company in
accordance with the Company's normal vacation policy in
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effect at the time of the Change in Control; or
(VII) any purported termination of the Executives
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 7.1 hereof; for purposes of
this Agreement, no such purported termination shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive'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 Executive 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.
(R) "Gross-Up Payment" shall have the meaning set forth in Section 6.2
hereof.
(S) "Notice of Termination" shall have the meaning set forth in
Section 7.1 hereof.
(T) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Art, 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.
(U) "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:
(I) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an
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intention to take or to consider taking actions which, if consummated,
would constitute a Change in Control;
(III ) 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
(IV) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(V) "Retirement" shall, for purposes of Section 4 hereof, be deemed
the reason for the termination by the Executive of the Executive's employment
if such employment is terminated after completion of ten (10) years of service
with the Company and attainment of age fifty-five (55).
(W) "Severance Payments" shall have the meaning set forth in Section
6.1 hereof.
(X) "SRP" shall have the meaning set forth in Section 6.1 hereof.
(Y) "Tax Counsel" shall have the meaning set forth in Section 6.2
hereof.
(Z) "Term" shall mean the period of time described in Section 2 hereof
(including any extension, continuation or termination described therein).
(AA) "Thrift Plan" shall have the meaning set forth in Section 6.1
hereof.
(BB) "Total Payments" shall mean those payments so described in
Section 6.2 hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above first written.
BAKER HUGHES INCORPORATED
By: /s/ JOHN F. MAHER
-------------------------------
John F. Maher
Chairman-Compensation Committee
of the Board of Directors
EXECUTIVE:
----------
/s/ ERIC L. MATTISON
-------------------------------
ERIC L. MATTISON
Address:
-------------------------------
-------------------------------
-------------------------------
(Please print carefully)
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EXHIBIT 10.11
SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of July 23, 1997, is made by and between
BAKER HUGHES INCORPORATED, a Delaware corporation (the "Company"), and LAWRENCE
O'DONNELL, III (the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continued employment of key management personnel;
and
WHEREAS, the Board recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last Section hereof.
2. Term of Agreement. Subject to the provisions of Section 12.2
hereof, the Term of this Agreement shall commence on the date hereof and shall
continue in effect through December 31, 1999; provided, however, that commencing
on January 1, 1998 and each January 1 thereafter (an "Extension Date"), the Term
shall automatically be extended for one additional year (i.e., resulting in a
two-year Term on the Extension Date) unless, not later than September 30 of the
year preceding the Extension Date, the Company or the Executive shall have given
notice not to extend the Term; and further provided, however, that if a Change
in Control shall have occurred during the Term, the Term shall expire no earlier
than twenty-four (24) months beyond the month in which such Change in Control
occurred.
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3. Company's Covenants Summarized. In order to induce the Executive to
remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein. Except as provided in Section 9.1
hereof, no Severance Payments shall be payable under this Agreement unless there
shall have been (or, under the terms of the second sentence of Section 6.1
hereof, there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control and during the Term.
This Agreement shall not be construed as creating an express or implied contract
of employment and, except as otherwise agreed in writing between the Executive
and the Company, the Executive shall not have any right to be retained in the
employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to
the terms and conditions of this Agreement, in the event of a Potential Change
in Control during the Term, the Executive will remain in the employ of the
Company until the earliest of (i) a date which is six (6) months from the date
of such Potential Change of Control, (ii) the date of a Change in Control, (iii)
the date of termination by the Executive of the Executive's employment for Good
Reason or by reason of death, Disability or Retirement, or (iv) the termination
by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during any
period that the Executive fails to perform the Executive's full-time duties with
the Company as a result of incapacity due to physical or mental illness, the
Company shall pay the Executive's full salary to the Executive at the rate in
effect at the commencement of any such period, together with all compensation
and benefits payable to the Executive under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period, until the Executive's employment is terminated by the Company for
Disability.
5.2 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay the
Executive's full salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the Date of Termination or, if higher, the
rate in effect immediately prior to the first occurrence of
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an event or circumstance constituting Good Reason, together with all
compensation and benefits payable to the Executive through the Date of
Termination under the terms of the Company's compensation and benefit plans,
programs or arrangements as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance constituting Good
Reason.
5.3 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay to the
Executive the Executive's normal post-termination compensation and benefits as
such payments become due. Such post-termination compensation and benefits shall
be determined under, and paid in accordance with, the Company's retirement,
insurance and other compensation or benefit plans, programs and arrangements as
in effect immediately prior to the Date of Termination or, if more favorable to
the Executive, as in effect immediately prior to the occurrence of the first
event or circumstance constituting Good Reason.
5.4 Upon the occurrence of a Change in Control all options to acquire
shares of Company stock, all shares of restricted Company stock and all other
equity or phantom equity incentives held by the Executive under any plan of the
Company (including, but not limited to, the Company's 1995 Stock Award Plan (and
the Stock Matching Programs thereunder), 1993 Stock Option Plan, 1993 Stock
Bonus Plan and 1991 Stock Bonus Plan) shall become immediately vested,
exercisable and nonforfeitable and all conditions thereof (including, but not
limited to, any required holding periods) shall be deemed to have been
satisfied.
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6. Severance Payments.
6.1 If (i) the Executive's employment is terminated following a Change
in Control and during the Term, other than (A) by the Company for Cause, (B) by
reason of death or Disability, or (C) by the Executive without Good Reason, or
(ii) the Executive voluntarily terminates his employment for any reason during
the one-month period commencing on the first anniversary of the Change in
Control, then, the Company shall pay the Executive the amounts, and provide the
Executive the benefits, described in this Section 6.1 ("Severance Payments") and
Section 6.2, in addition to any payments and benefits to which the Executive is
entitled under Section 5 hereof. For purposes of this Agreement, the Executive's
employment shall be deemed to have been terminated following a Change in Control
by the Company without Cause or by the Executive with Good Reason, if (i) the
Executive'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) the Executive terminates his 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 such Person described in clause (i), or (iii) the Executive's
employment is terminated by the Company without Cause or by the Executive 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). For purposes of any
determination regarding the applicability of the immediately preceding sentence,
any position taken by the Executive shall be presumed to be correct unless the
Company establishes to the Committee by clear and convincing evidence that such
position is not correct.
(A) In lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination and in lieu of any
severance benefit otherwise payable to the Executive, the Company shall pay
to the Executive a lump sum severance payment, in cash, equal to three
times the sum of (i) the Executive's base salary as in effect immediately
prior to the Date of Termination or, if higher, in effect immediately prior
to the first occurrence of an event or circumstance constituting Good
Reason, and (ii) the average annual bonus earned by the Executive pursuant
to any annual bonus or incentive plan maintained by the Company in respect
of the three fiscal years ending immediately prior to the fiscal year in
which occurs the Date of Termination or, if higher, immediately prior to
the fiscal year in which occurs the first event or circumstance
constituting
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Good Reason; provided, that if the Executive has not participated in an
annual bonus or incentive plan maintained by the Company for the entirety
of such three-year period, the amount referred to in this clause (ii)
shall be calculated using such lesser number of bonuses as have been
actually earned by the Executive in respect of such lesser period.
(B) For the thirty-six (36) month period immediately
following the Date of Termination, the Company shall arrange to provide the
Executive and his dependents life, disability, accident and health
insurance benefits and perquisites (including, but not limited to,
executive life insurance, club memberships, financial planning and tax
preparation, annual physical examination and charitable contributions), in
each case, substantially similar to those provided to the Executive and his
dependents immediately prior to the Date of Termination or, if more
favorable to the Executive, those provided to the Executive and his
dependents immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, at no greater cost to the Executive
than the cost to the Executive immediately prior to such date or
occurrence; provided, however, that, unless the Executive consents to a
different method (after taking into account the effect of such method on
the calculation of "parachute payments" pursuant to Section 6.2 hereof),
such health insurance benefits shall be provided through a third-party
insurer. Benefits otherwise receivable by the Executive pursuant to this
Section 6.1(B) shall be reduced to the extent benefits of the same type are
received by or made available to the Executive during the thirty-six (36)
month period following the Executive's termination of employment (and any
such benefits received by or made available to the Executive shall be
reported to the Company by the Executive); provided, however, that the
Company shall reimburse the Executive for the excess, if any, of the cost
of such benefits to the Executive over such cost immediately prior to the
Date of Termination or, if more favorable to the Executive, the first
occurrence of an event or circumstance constituting Good Reason.
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(C) Notwithstanding any provision of the Baker Hughes
Incorporated 1995 Employee Annual Incentive Compensation Plan (the "Annual
Incentive Plan"), the Company shall pay to the Executive a lump sum amount,
in cash, equal to the sum of (i) any unpaid incentive compensation which
has been allocated or awarded to the Executive for a completed fiscal year
or other measuring period preceding the Date of Termination under the
Annual Incentive Plan and which, as of the Date of Termination, is
contingent only upon the continued employment of the Executive 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
Executive for all then uncompleted periods under the Annual Incentive Plan,
calculated as to each such award by multiplying the award that the
Executive would have earned on the last day of the performance award
period, assuming the achievement, at the expected value target level, of
the individual and corporate performance goals established with respect to
such award, by the fraction obtained by dividing the number of full months
and any fractional portion of a month during such performance award period
through the Date of Termination by the total number of months contained in
such performance award period; provided, however, that if such termination
of employment occurs during the same year in which the Change in Control
occurs, the pro-rata bonus payment referred to in clause (ii) above shall
be offset by any payments received under the Annual Incentive Plan in
connection with such Change in Control.
(D) In addition to the retirement benefits to which the
Executive is entitled under the Company's Thrift Plan (the "Thrift Plan")
and the Company's Supplemental Retirement Plan (the "SRP"), the Company
shall pay the Executive a lump sum amount, in cash, equal to the present
value of the employer-provided contributions, deferrals and allocations the
Executive would have received had he continued to participate, after the
Date of Termination, in the Thrift Plan and the SRP for three (3)
additional years, assuming for this purpose that (i) the Executive earned
compensation for purposes of the Thrift Plan and SRP during such three-year
period the amount used to calculate the Executive's severance payment under
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subparagraph (A) of this Section 6.1, and (ii) the percentages of
contributions, deferrals and allocations made under the Thrift Plan and the
SRP by or on behalf of the Executive during such three-year period are the
same percentages of contributions, deferrals and allocations in effect on
the date of the Change in Control or the Date of Termination, whichever is
more favorable to the Executive.
(E) If the Executive would have become entitled to benefits
under the Company's post-retirement health care or life insurance plans, as
in effect immediately prior to the Date of Termination or, if more
favorable to the Executive, as in effect immediately prior to the first
occurrence of an event or circumstance constituting Good Reason, had the
Executive's employment terminated at any time during the period of
thirty-six (36) months after the Date of Termination, the Company shall
provide such post-retirement health care or life insurance benefits to the
Executive and the Executive's dependents commencing on the later of (i) the
date on which such coverage would have first become available and (ii) the
date on which benefits described in subsection (B) of this Section 6.1
terminate.
(F) The Company shall provide the Executive with
outplacement services suitable to the Executive's position for a period of
three years or, if earlier, until the first acceptance by the Executive of
an offer of employment.
6.2 (A) Whether or not the Executive becomes entitled to the Severance
Payments, if any of the payments or benefits received or to be received by the
Executive in connection with a Change in Control or the Executive's termination
of employment (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, any Person whose actions result
in a Change in Control or any Person affiliated with the Company or such Person)
(such payments or benefits, excluding the Gross-Up Payment, being hereinafter
referred to as the "Total Payments") will be subject to the Excise Tax, the
Company shall pay to the Executive an additional amount (the "Gross-Up Payment")
such that the net amount retained by the Executive, after deduction of any
Excise Tax on the Total Payments and any federal, state and local income and
employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the
Total Payments.
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(B) For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of
the Total Payments shall be treated as "parachute payments" (within the meaning
of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax
Counsel") reasonably acceptable to the Executive and selected by the accounting
firm which was, immediately prior to the Change in Control, the Company's
independent auditor (the "Auditor"), such payments or benefits (in whole or in
part) do not constitute parachute payments, including by reason of section
280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the
meaning of section 280G(b)(l) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of
the Base Amount allocable to such reasonable compensation, or are otherwise not
subject to the Excise Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the Auditor in accordance
with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income tax at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's residence on the Date of Termination (or if there is
no Date of Termination, then the date on which the Gross-Up Payment is
calculated for purposes of this Section 6.2), net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes.
(C) In the event that the Excise Tax is finally determined to be
less than the amount taken into account hereunder in calculating the Gross-Up
Payment, the Executive shall repay to the Company, within five (5) business days
following the time that the amount of such reduction in the Excise Tax is
finally determined, the portion of the Gross-Up Payment attributable to such
reduction (plus that portion of the Gross-Up Payment attributable to the Excise
Tax and federal, state and local income and employment taxes imposed on the
Gross-Up Payment being repaid by the Executive, to the extent that such
repayment results in a reduction in the Excise Tax and a dollar-for-dollar
reduction in the Executive's taxable income and wages for purposes of federal,
state and local income and employment taxes, plus interest
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on the amount of such repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder in calculating the Gross- Up
Payment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) within five (5) business days following the time that the amount of such
excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A), (C) and (D) of Section
6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day
following the Date of Termination; provided, however, that if the amounts of
such payments cannot be finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as determined in good faith
by the Executive or, in the case of payments under Section 6.2 hereof, in
accordance with Section 6.2 hereof, of the minimum amount of such payments to
which the Executive is clearly entitled and shall pay the remainder of such
payments (together with interest on the unpaid remainder (or on all such
payments to the extent the Company fails to make such payments when due) at 120%
of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined but in no event later than the thirtieth (30th) day
after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable on the
fifth (5th) business day after demand by the Company (together with interest at
120% of the rate provided in section 1274(b)(2)(B) of the Code), but only to the
extent such amount has not been paid by the Executive pursuant to Section 6.2(C)
above. At the time that payments are made under this Agreement, the Company
shall provide the Executive with a written statement setting forth the manner in
which such payments were calculated and the basis for such calculations
including, without limitation, any opinions or other advice the Company has
received from Tax Counsel, the Auditor or other advisors or consultants (and any
such opinions or advice which are in writing shall be attached to the
statement).
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6.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5) business
days after delivery of the Executive's written requests for payment accompanied
with such evidence of fees and expenses incurred as the Company reasonably may
require.
Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and during the
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 10 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. Further, a Notice of Termination for Cause is required
to include a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an opportunity
for the Executive, together with the Executive's counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive was
guilty of conduct set forth in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if
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the Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a termination by
the Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive, shall
not be less than fifteen (15) days nor more than sixty (60) days, respectively,
from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days after
any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that the Date of Termination shall be extended by a notice of
dispute given by the Executive only if such notice is given in good faith and
the Executive pursues the resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs
following a Change in Control and during the Term and the Date of Termination is
extended in accordance with Section 7.3 hereof, the Company shall continue to
pay the Executive the full compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to, salary) and continue the
Executive as a participant in all compensation, benefit and insurance plans in
which the Executive was participating when the notice giving rise to the dispute
was given or those plans in which the Executive was participating immediately
prior to the first occurrence of an event or circumstance giving rise to the
Notice of Termination, if more favorable to the Executive, until the Date of
Termination, as determined in accordance with Section 7.3 hereof. Amounts paid
under this Section 7.4 are in addition to all other amounts due under this
Agreement (other than those due under Section 5.2 hereof) and shall not be
offset against or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
employment with the Company terminates during the Term, the Executive is not
requiqred to seek other
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employment or to attempt in any way to reduce any amounts payable to the
Executive by the Company pursuant to Sections 5, 6 or 7.4 hereof. Further, the
amount of any payment or benefit provided for in this Agreement (other than
Section 6.1(B) hereof but including (but not limited to) Section 7.4 hereof)
shall not be reduced by any compensation earned by the Executive as the result
of employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for Good
Reason after a Change in Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of the Executive)
if the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators of the Executive's
estate.
10. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to the
Executive, to the address inserted below the
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Executive's signature on the final page hereof and, if to the Company, to the
address set forth below, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon actual receipt:
To the Company:
3900 Essex Lane
Suite 1200
Houston, Texas 77027
Attention: General Counsel
11. Miscellaneous. Except as otherwise specifically provided in
Section 12.2 below, no provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by the Executive and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or of any lack of compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. This Agreement supersedes any other agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof which have been made by either party; provided, however,
that this Agreement shall supersede any agreement setting forth the terms and
conditions of the Executive's employment with the Company only in the event that
the Executive's employment with the Company is terminated on or following a
Change in Control, by the Company other than for Cause or by the Executive other
than for Good Reason; and provided further that all agreements otherwise
superseded by this Agreement shall be automatically reinstated with full force
and effect to the extent this Agreement is terminated or otherwise rendered
inapplicable or amended in accordance with Section 12.2 hereof. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Texas. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. Any payments provided for hereunder shall be paid net of any
applicable withholding
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required under federal, state or local law and any additional withholding to
which the Executive has agreed. The obligations of the Company and the Executive
under this Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without limitation,
those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity; Pooling.
12.1 Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12.2 Pooling. In the event that (A) the Company is party to a
transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of Section 15(G)(III) and (C) individuals who satisfy the
requirements in clauses (i) and (ii) below constitute more than two-thirds (2/3)
of the number of directors of the entity surviving such transaction and the
parent thereof, if any: individuals who (i) immediately prior to such
transaction constitute the Board and (ii) on the date hereof constitute the
Board 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 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 (a) this Agreement shall, to the extent practicable, be
interpreted so as to permit such accounting treatment, and (b) to the extent
that the application of clause (a) of this Section 12.2 does not preserve the
availability of such accounting treatment, then, to the extent that any
provision or combination of provisions of the Agreement disqualifies the
transaction as a "pooling" transaction (including, if applicable, the entire
Agreement), the Board shall have the right, by sending written notice to the
Executive prior to the Change in Control, to unilaterally amend (without the
consent of the Executive) 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
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accounted for as a "pooling of interests." All determinations under this Section
12.2 shall be made by the Board prior to the Change in Control, 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.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
14.1 All claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Committee and shall be in writing.
Any denial by the Committee of a claim for benefits under this Agreement shall
be delivered to the Executive in writing within thirty (30) days after written
notice of the claim is provided to the Company in accordance with Section 10
and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Committee shall afford a
reasonable opportunity to the Executive for a review of the decision denying a
claim and shall further allow the Executive to appeal to the Committee a
decision of the Committee within sixty (60) days after notification by the
Committee that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Houston, Texas in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following
terms shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2 hereof.
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(C) "Base Amount" shall have the meaning set forth in section
280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive'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 Executive pursuant to Section 7.1 hereof)
after a written demand for substantial performance is delivered to the Executive
by the Board, which demand specifically identifies the manner in which the Board
believes that the Executive has not substantially performed the Executive's
duties, or (ii) the willful engaging by the Executive 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 Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive'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.
(G) 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:
(I) 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 (III) below; or
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(II) 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 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 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
(III) 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
(IV) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is
consummated
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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.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(I) "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, 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).
(J) "Company" shall mean Baker Hughes Incorporated and, except in
determining under Section 15(G) hereof whether or not any Change in Control of
the Company has occurred, shall include any successor to its business and/or
assets which assumes and agrees to perform this Agreement by operation of law,
or otherwise.
(K) "Date of Termination" shall have the meaning set forth in Section
7.2 hereof.
(L) "Disability" shall be deemed the reason for the termination by the
Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance
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of the Executive's duties with the Company for a period of six (6) consecutive
months, the Company shall have given the Executive a Notice of Termination for
Disability, and, within thirty (30) days after such Notice of Termination is
given, the Executive shall not have returned to the full-time performance of the
Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(N) "Excise Tax" shall mean any excise tax imposed under section 4999
of the Code.
(O) "Executive" shall mean the individual named in the first paragraph
of this Agreement.
(P) "Extension Date" shall have the meaning set forth in Section 2
hereof.
(Q) "Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive'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 the second sentence of
Section 6.1 hereof (treating all references in paragraphs (I) through (VII)
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 (I), (V), (VI) or (VII) below, such act or failure to act is corrected
prior to the Date of Termination specified in the Notice of Termination given in
respect thereof:
(I) the assignment to the Executive of any duties
inconsistent with the Executive's status as a senior executive officer
of the Company or a substantial adverse alteration in the nature or
status of the Executive's responsibilities from those in effect
immediately prior to the Change in Control;
(II) a reduction by the Company in the Executive'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 senior executives of the Company
and all senior executives of any Person in control of the Company;
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(III) the relocation of the Executive's principal place of
employment to a location more than 50 miles from the Executive's
principal place of employment immediately prior to the Change in
Control or the Company's requiring the Executive 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 Executive's present business
travel obligations;
(IV) the failure by the Company to pay to the Executive any
portion of the Executive's current compensation except pursuant to an
across-the-board compensation deferral similarly affecting all senior
executives of the Company and all senior executives of any Person in
control of the Company, or to pay to the Executive 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;
(V) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately
prior to the Change in Control which is material to the Executive's
total compensation, including but not limited to the Company's 1993
Stock Option Plan, 1993 Employee Stock Bonus Plan, 1991 Employee Stock
Bonus Plan, 1995 Stock Award Plan (and the 1995, 1996 and 1997 Stock
Matching Programs thereunder and any subsequent Stock Matching
Programs in which the Executive participates), 1987 Convertible
Debenture Plan and 1995 Employee Annual Incentive Compensation Plan or
any substitute plans adopted prior to the Change in Control, 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 Executive'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 Executive's
participation relative to other participants, as existed immediately
prior to the Change in Control;
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(VI) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's pension, savings, life insurance,
medical, health and accident, or disability plans in which the
Executive was participating immediately prior to the Change in Control
(except for across the board changes similarly affecting all senior
executives of the Company and all senior executives of any Person in
control of the Company), the taking of any other action by the Company
which would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit or
perquisite enjoyed by the Executive at the time of the Change in
Control, or the failure by the Company to provide the Executive with
the number of paid vacation days to which the Executive 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
(VII) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 7.1 hereof; for purposes of
this Agreement, no such purported termination shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive'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 Executive 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.
(R) "Gross-Up Payment" shall have the meaning set forth in Section 6.2
hereof.
(S) "Notice of Termination" shall have the meaning set forth in
Section 7.1 hereof.
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(T) "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.
(U) "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:
(I) the Company enters into an agreement, the consummation
of which would result in the occurrence of a Change in Control;
(II) 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;
(III) 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
(IV) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(V) "Retirement" shall, for purposes of Section 4 hereof, be deemed
the reason for the termination by the Executive of the Executive's employment if
such employment is terminated after completion of ten (10) years of service with
the Company and attainment of age fifty-five (55).
(W) "Severance Payments" shall have the meaning set forth in Section
6.1 hereof.
(X) "SRP" shall have the meaning set forth in Section 6.1 hereof.
(Y) "Tax Counsel" shall have the meaning set forth in Section 6.2
hereof.
(Z) "Term" shall mean the period of time described in Section 2 hereof
(including any extension, continuation or termination described therein).
(AA) "Thrift Plan" shall have the meaning set forth in Section 6.1
hereof.
(BB) "Total Payments" shall mean those payments so described in
Section 6.2 hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date above first written.
BAKER HUGHES INCORPORATED
By: /s/ JOHN F. MAHER
------------------------------------
John F. Maher
Chairman - Compensation Committee
of the Board of Directors
EXECUTIVE:
/s/ LAWRENCE O'DONNELL, III
---------------------------------------
---------------------------------------
LAWRENCE O'DONNELL, III
Address:
---------------------------------------
---------------------------------------
---------------------------------------
(Please print carefully)
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<PAGE> 1
EXHIBIT 10.12
SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of July 23, 1997, is made by and
between BAKER HUGHES INCORPORATED, a Delaware corporation (the "Company"), and
TIMOTHY J. PROBERT (the "Executive").
WHEREAS, the Company considers it essential to the best
interests of its stockholders to foster the continued employment of key
management personnel; and
WHEREAS, the Board recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the Company and the Executive hereby agree
as follows:
1. Defined Terms. The definitions of capitalized terms used
in this Agreement are provided in the last Section hereof.
2. Term of Agreement. Subject to the provisions of Section
12.2 hereof, the Term of this Agreement shall commence on the date hereof and
shall continue in effect through December 31, 1999; provided, however, that
commencing on January 1, 1998 and each January 1 thereafter (an "Extension
Date"), the Term shall automatically be extended for one additional year (i.e.,
resulting in a two-year Term on the Extension Date) unless, not later than
September 30 of the year preceding the Extension Date, the Company or the
Executive shall have given notice not to extend the Term; and further provided,
however, that if a Change in Control shall have occurred during the Term, the
Term shall expire no earlier than twenty-four (24) months beyond the month in
which such Change in Control occurred.
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<PAGE> 2
3. Company's Covenants Summarized. In order to induce the
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants set forth in Section 4 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the Severance Payments
and the other payments and benefits described herein. Except as provided in
Section 9.1 hereof, no Severance Payments shall be payable under this Agreement
unless there shall have been (or, under the terms of the second sentence of
Section 6.1 hereof, there shall be deemed to have been) a termination of the
Executive's employment with the Company following a Change in Control and
during the Term. This Agreement shall not be construed as creating an express
or implied contract of employment and, except as otherwise agreed in writing
between the Executive and the Company, the Executive shall not have any right
to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that,
subject to the terms and conditions of this Agreement, in the event of a
Potential Change in Control during the Term, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six (6) months
from the date of such Potential Change of Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason or by reason of death, Disability or Retirement, or
(iv) the termination by the Company of the Executive's employment for any
reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during
any period that the Executive fails to perform the Executive's full-time duties
with the Company as a result of incapacity due to physical or mental illness,
the Company shall pay the Executive's full salary to the Executive at the rate
in effect at the commencement of any such period, together with all
compensation and benefits payable to the Executive under the terms of any
compensation or benefit plan, program or arrangement maintained by the Company
during such period, until the Executive's employment is terminated by the
Company for Disability.
5.2 If the Executive's employment shall be terminated for any
reason following a Change in Control and during the Term, the Company shall pay
the
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<PAGE> 3
Executive's full salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the Date of Termination or, if higher, the
rate in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of the Company's compensation and benefit plans, programs or arrangements
as in effect immediately prior to the Date of Termination or, if more favorable
to the Executive, as in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason.
5.3 If the Executive's employment shall be terminated for any
reason following a Change in Control and during the Term, the Company shall pay
to the Executive the Executive's normal post-termination compensation and
benefits as such payments become due. Such post-termination compensation and
benefits shall be determined under, and paid in accordance with, the Company's
retirement, insurance and other compensation or benefit plans, programs and
arrangements as in effect immediately prior to the Date of Termination or, if
more favorable to the Executive, as in effect immediately prior to the
occurrence of the first event or circumstance constituting Good Reason.
5.4 Upon the occurrence of a Change in Control all options to
acquire shares of Company stock, all shares of restricted Company stock and all
other equity or phantom equity incentives held by the Executive under any plan
of the Company (including, but not limited to, the Company's 1995 Stock Award
Plan (and the Stock Matching Programs thereunder), 1993 Stock Option Plan, 1993
Stock Bonus Plan and 1991 Stock Bonus Plan) shall become immediately vested,
exercisable and nonforfeitable and all conditions thereof (including, but not
limited to, any required holding periods) shall be deemed to have been
satisfied.
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<PAGE> 4
6. Severance Payments.
6.1 If the Executive's employment is terminated following a
Change in Control and during the Term, other than (A) by the Company for Cause,
(B) by reason of death or Disability, or (C) by the Executive without Good
Reason, then, the Company shall pay the Executive the amounts, and provide the
Executive the benefits, described in this Section 6.1 ("Severance Payments")
and Section 6.2, in addition to any payments and benefits to which the
Executive is entitled under Section 5 hereof. For purposes of this Agreement,
the Executive's employment shall be deemed to have been terminated following a
Change in Control by the Company without Cause or by the Executive with Good
Reason, if (i) the Executive'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) the Executive terminates his 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 such Person described in clause
(i), or (iii) the Executive's employment is terminated by the Company without
Cause or by the Executive 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). For purposes of any determination regarding the
applicability of the immediately preceding sentence, any position taken by the
Executive shall be presumed to be correct unless the Company establishes to the
Committee by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments
to the Executive for periods subsequent to the Date of Termination and
in lieu of any severance benefit otherwise payable to the Executive,
the Company shall pay to the Executive a lump sum severance payment,
in cash, equal to three times the sum of (i) the Executive's base
salary as in effect immediately prior to the Date of Termination or,
if higher, in effect immediately prior to the first occurrence of an
event or
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<PAGE> 5
circumstance constituting Good Reason, and (ii) the average annual
bonus earned by the Executive pursuant to any annual bonus or incentive
plan maintained by the Company in respect of the three fiscal years
ending immediately prior to the fiscal year in which occurs the Date of
Termination or, if higher, immediately prior to the fiscal year in
which occurs the first event or circumstance constituting Good Reason;
provided, that if the Executive has not participated in an annual bonus
or incentive plan maintained by the Company for the entirety of such
three-year period, the amount referred to in this clause (ii) shall be
calculated using such lesser number of bonuses as have been actually
earned by the Executive in respect of such lesser period.
(B) For the thirty-six (36) month period
immediately following the Date of Termination, the Company shall
arrange to provide the Executive and his dependents life, disability,
accident and health insurance benefits and perquisites (including, but
not limited to, executive life insurance, club memberships, financial
planning and tax preparation, annual physical examination and
charitable contributions), in each case, substantially similar to
those provided to the Executive and his dependents immediately prior
to the Date of Termination or, if more favorable to the Executive,
those provided to the Executive and his dependents immediately prior
to the first occurrence of an event or circumstance constituting Good
Reason, at no greater cost to the Executive than the cost to the
Executive immediately prior to such date or occurrence; provided,
however, that, unless the Executive consents to a different method
(after taking into account the effect of such method on the
calculation of "parachute payments" pursuant to Section 6.2 hereof),
such health insurance benefits shall be provided through a third-party
insurer. Benefits otherwise receivable by the Executive pursuant to
this Section 6.1(B) shall be reduced to the extent benefits of the
same type are received by or made available to the Executive during
the thirty-six (36) month period following the Executive's termination
of employment (and any such benefits received by or made available to
the Executive shall be reported to the Company by the Executive);
provided, however, that the Company shall reimburse the
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Executive for the excess, if any, of the cost of such benefits to the
Executive over such cost immediately prior to the Date of Termination
or, if more favorable to the Executive, the first occurrence of an
event or circumstance constituting Good Reason.
(C) Notwithstanding any provision of the
Baker Hughes Incorporated 1995 Employee Annual Incentive Compensation
Plan (the "Annual Incentive Plan"), the Company shall pay to the
Executive a lump sum amount, in cash, equal to the sum of (i) any
unpaid incentive compensation which has been allocated or awarded to
the Executive for a completed fiscal year or other measuring period
preceding the Date of Termination under the Annual Incentive Plan and
which, as of the Date of Termination, is contingent only upon the
continued employment of the Executive 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 Executive for all
then uncompleted periods under the Annual Incentive Plan, calculated
as to each such award by multiplying the award that the Executive
would have earned on the last day of the performance award period,
assuming the achievement, at the expected value target level, of the
individual and corporate performance goals established with respect to
such award, by the fraction obtained by dividing the number of full
months and any fractional portion of a month during such performance
award period through the Date of Termination by the total number of
months contained in such performance award period; provided, however,
that if such termination of employment occurs during the same year in
which the Change in Control occurs, the pro-rata bonus payment
referred to in clause (ii) above shall be offset by any payments
received under the Annual Incentive Plan in connection with such
Change in Control.
(D) In addition to the retirement benefits
to which the Executive is entitled under the Company's Thrift Plan
(the "Thrift Plan") and the Company's Supplemental Retirement Plan
(the "SRP"), the Company shall pay the Executive a lump sum amount, in
cash, equal to the present value of the employer-provided
contributions, deferrals and allocations the Executive would have re-
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ceived had he continued to participate, after the Date of Termination,
in the Thrift Plan and the SRP for three (3) additional years,
assuming for this purpose that (i) the Executive earned compensation
for purposes of the Thrift Plan and SRP during such three-year period
the amount used to calculate the Executive's severance payment under
subparagraph (A) of this Section 6.1, and (ii) the percentages of
contributions, deferrals and allocations made under the Thrift Plan
and the SRP by or on behalf of the Executive during such three-year
period are the same percentages of contributions, deferrals and
allocations in effect on the date of the Change in Control or the Date
of Termination, whichever is more favorable to the Executive.
(E) If the Executive would have become
entitled to benefits under the Company's post-retirement health care
or life insurance plans, as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect
immediately prior to the first occurrence of an event or circumstance
constituting Good Reason, had the Executive's employment terminated at
any time during the period of thirty-six (36) months after the Date of
Termination, the Company shall provide such post-retirement health
care or life insurance benefits to the Executive and the Executive's
dependents commencing on the later of (i) the date on which such
coverage would have first become available and (ii) the date on which
benefits described in subsection (B) of this Section 6.1 terminate.
(F) The Company shall provide the Executive
with outplacement services suitable to the Executive's position for a
period of three years or, if earlier, until the first acceptance by
the Executive of an offer of employment.
6.2 (A) Whether or not the Executive becomes entitled
to the Severance Payments, if any of the payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change
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<PAGE> 8
in Control or any Person affiliated with the Company or such Person) (such
payments or benefits, excluding the Gross-Up Payment, being hereinafter
referred to as the "Total Payments") will be subject to the Excise Tax, the
Company shall pay to the Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Executive, after deduction
of any Excise Tax on the Total Payments and any federal, state and local income
and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal
to the Total Payments.
(B) For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (i) all of the Total Payments shall be treated as "parachute
payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the
opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive
and selected by the accounting firm which was, immediately prior to the Change
in Control, the Company's independent auditor (the "Auditor"), such payments or
benefits (in whole or in part) do not constitute parachute payments, including
by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute
payments" within the meaning of section 280G(b)(l) of the Code shall be treated
as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess
parachute payments (in whole or in part) represent reasonable compensation for
services actually rendered (within the meaning of section 280G(b)(4)(B) of the
Code) in excess of the Base Amount allocable to such reasonable compensation,
or are otherwise not subject to the Excise Tax, and (iii) the value of any
noncash benefits or any deferred payment or benefit shall be determined by the
Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the
Code. For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income tax at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Executive's residence on the
Date of Termination (or if there is no Date of Termination, then the date on
which the Gross-Up Payment is calculated for purposes of this Section 6.2), net
of the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
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(C) In the event that the Excise Tax is finally
determined to be less than the amount taken into account hereunder in
calculating the Gross-Up Payment, the Executive shall repay to the Company,
within five (5) business days following the time that the amount of such
reduction in the Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive,
to the extent that such repayment results in a reduction in the Excise Tax and
a dollar-for-dollar reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and employment taxes, plus interest
on the amount of such repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder in calculating the Gross-Up
Payment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) within five (5) business days following the time that the amount of
such excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A), (C) and (D) of
Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the
fifth day following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before such day,
the Company shall pay to the Executive on such day an estimate, as determined
in good faith by the Executive or, in the case of payments under Section 6.2
hereof, in accordance with Section 6.2 hereof, of the minimum amount of such
payments to which the Executive is clearly entitled and shall pay the remainder
of such payments (together with interest on the unpaid remainder (or on all
such payments to the extent the Company fails to make such payments when due)
at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be deter-
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<PAGE> 10
mined but in no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to the Executive, payable on the fifth (5th)
business day after demand by the Company (together with interest at 120% of the
rate provided in section 1274(b)(2)(B) of the Code), but only to the extent
such amount has not been paid by the Executive pursuant to Section 6.2(C)
above. At the time that payments are made under this Agreement, the Company
shall provide the Executive with a written statement setting forth the manner
in which such payments were calculated and the basis for such calculations
including, without limitation, any opinions or other advice the Company has
received from Tax Counsel, the Auditor or other advisors or consultants (and
any such opinions or advice which are in writing shall be attached to the
statement).
6.4 The Company also shall pay to the Executive all legal
fees and expenses incurred by the Executive in disputing in good faith any
issue hereunder relating to the termination of the Executive's employment, in
seeking in good faith to obtain or enforce any benefit or right provided by
this Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
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7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and
during the Term, any purported termination of the Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party hereto to the other party hereto in accordance with Section 10
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board which was called and held for the
purpose of considering such termination (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, the Executive was guilty of conduct set forth in clause (i) or
(ii) of the definition of Cause herein, and specifying the particulars thereof
in detail.
7.2 Date of Termination. "Date of Termination," with respect
to any purported termination of the Executive's employment after a Change in
Control and during the Term, shall mean (i) if the Executive's employment is
terminated for Disability, thirty (30) days after Notice of Termination is
given (provided that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day period), and
(ii) if the Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a termination by
the Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive,
shall not be less than fifteen (15) days nor more than sixty (60) days,
respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15)
days after any Notice of Termination is given, or, if later, prior to the Date
of Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies
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the other party that a dispute exists concerning the termination, the Date of
Termination shall be extended until the earlier of (i) the date on which the
Term ends or (ii) the date on which the dispute is finally resolved, either by
mutual written agreement of the parties or by a final judgment, order or decree
of an arbitrator or a court of competent jurisdiction (which is not appealable
or with respect to which the time for appeal therefrom has expired and no
appeal has been perfected); provided, however, that the Date of Termination
shall be extended by a notice of dispute given by the Executive only if such
notice is given in good faith and the Executive pursues the resolution of such
dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination
occurs following a Change in Control and during the Term and the Date of
Termination is extended in accordance with Section 7.3 hereof, the Company
shall continue to pay the Executive the full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to,
salary) and continue the Executive as a participant in all compensation,
benefit and insurance plans in which the Executive was participating when the
notice giving rise to the dispute was given or those plans in which the
Executive was participating immediately prior to the first occurrence of an
event or circumstance giving rise to the Notice of Termination, if more
favorable to the Executive, until the Date of Termination, as determined in
accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in
addition to all other amounts due under this Agreement (other than those due
under Section 5.2 hereof) and shall not be offset against or reduce any other
amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the
Executive's employment with the Company terminates during the Term, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to Sections
5, 6 or 7.4 hereof. Further, the amount of any payment or benefit provided for
in this Agreement (other than Section 6.1(B) hereof but including (but not
limited to) Section 7.4 hereof) shall not be reduced by any compensation earned
by the Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to
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the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control, except that, for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death
of the Executive) if the Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the executors, personal representatives or administrators of
the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed,
if to the Executive, to the address inserted below the Executive's signature on
the final page hereof and, if to the Company, to the address set forth below,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be
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effective only upon actual receipt:
To the Company:
3900 Essex Lane
Suite 1200
Houston, Texas 77027
Attention: General Counsel
11. Miscellaneous. Except as otherwise specifically provided
in Section 12.2 below, no provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
forth the terms and conditions of the Executive's employment with the Company
only in the event that the Executive's employment with the Company is
terminated on or following a Change in Control, by the Company other than for
Cause or by the Executive other than for Good Reason; and provided further that
all agreements otherwise superseded by this Agreement shall be automatically
reinstated with full force and effect to the extent this Agreement is
terminated or otherwise rendered inapplicable or amended in accordance with
Section 12.2 hereof. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas. All references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law and any additional withholding to
which the Executive has agreed. The obligations of the Company and the
Executive under this Agreement which
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by their nature may require either partial or total performance after the
expiration of the Term (including, without limitation, those under Sections 6
and 7 hereof) shall survive such expiration.
12. Validity; Pooling.
12.1 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
12.2 Pooling. In the event that (A) the Company is party to
a transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of Section 15(G)(III) and (C) individuals who satisfy the
requirements in clauses (i) and (ii) below constitute more than two-thirds
(2/3) of the number of directors of the entity surviving such transaction and
the parent thereof, if any: individuals who (i) immediately prior to such
transaction constitute the Board and (ii) on the date hereof constitute the
Board 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 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 (a) this Agreement shall, to the extent practicable, be
interpreted so as to permit such accounting treatment, and (b) to the extent
that the application of clause (a) of this Section 12.2 does not preserve the
availability of such accounting treatment, then, to the extent that any
provision or combination of provisions of the Agreement disqualifies the
transaction as a "pooling" transaction (including, if applicable, the entire
Agreement), the Board shall have the right, by sending written notice to the
Executive prior to the Change in Control, to unilaterally amend (without the
consent of the Executive) 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 under this Section 12.2 shall
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be made by the Board prior to the Change in Control, 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.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
14.1 All claims by the Executive for benefits under this
Agreement shall be directed to and determined by the Committee and shall be in
writing. Any denial by the Committee of a claim for benefits under this
Agreement shall be delivered to the Executive in writing within thirty (30)
days after written notice of the claim is provided to the Company in accordance
with Section 10 and shall set forth the specific reasons for the denial and the
specific provisions of this Agreement relied upon. The Committee shall afford
a reasonable opportunity to the Executive for a review of the decision denying
a claim and shall further allow the Executive to appeal to the Committee a
decision of the Committee within sixty (60) days after notification by the
Committee that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Houston, Texas in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
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(A) "Affiliate" shall have the meaning set forth in Rule
12b-2 promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in
Section 6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in
section 280G(b)(3) of the Code.
(D) Beneficial Owner" shall have the meaning set forth in Rule
13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive'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 Executive pursuant to Section
7.1 hereof) after a written demand for substantial performance is delivered to
the Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the Executive 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 Executive's part shall
be deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive'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.
(G) 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:
(I) 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
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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 (III) below; or
(II) 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 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 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
(III) 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 Bene-
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ficially 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
(IV) 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.
(H) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(I) "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, 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
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shall not exceed six (6).
(J) "Company" shall mean Baker Hughes Incorporated and,
except in determining under Section 15(G) hereof whether or not any Change in
Control of the Company has occurred, shall include any successor to its
business and/or assets which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(K) "Date of Termination" shall have the meaning set forth in
Section 7.2 hereof.
(L) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, as a result of
the Executive's incapacity due to physical or mental illness, the Executive
shall have been absent from the full-time performance of the Executive's duties
with the Company for a period of six (6) consecutive months, the Company shall
have given the Executive a Notice of Termination for Disability, and, within
thirty (30) days after such Notice of Termination is given, the Executive shall
not have returned to the full-time performance of the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(N) "Excise Tax" shall mean any excise tax imposed under
section 4999 of the Code.
(O) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(P) "Extension Date" shall have the meaning set forth in
Section 2 hereof.
(Q) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive'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 the
second sentence of Section 6.1 hereof (treating all references in paragraphs
(I) through (VII) 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 (I), (V), (VI) or (VII) below, such act or failure
to act is corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
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(I) the assignment to the Executive of any
duties inconsistent with the Executive's status as a senior
executive officer of the Company or a substantial adverse
alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the
Change in Control;
(II) a reduction by the Company in the
Executive'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
senior executives of the Company and all senior executives of
any Person in control of the Company;
(III) the relocation of the Executive's
principal place of employment to a location more than 50 miles
from the Executive's principal place of employment immediately
prior to the Change in Control or the Company's requiring the
Executive 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 Executive's present business
travel obligations;
(IV) the failure by the Company to pay to
the Executive any portion of the Executive's current
compensation except pursuant to an across-the-board
compensation deferral similarly affecting all senior
executives of the Company and all senior executives of any
Person in control of the Company, or to pay to the Executive
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;
(V) the failure by the Company to continue
in effect any compensation plan in which the Executive
participates immediately prior to the Change in Control which
is material to the Executive's total compensation, including
but not limited to the Company's 1993 Stock Option Plan, 1993
Employee Stock Bonus Plan, 1991 Employee Stock
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Bonus Plan, 1995 Stock Award Plan (and the 1995, 1996 and 1997
Stock Matching Programs thereunder and any subsequent Stock
Matching Programs in which the Executive participates), 1987
Convertible Debenture Plan and 1995 Employee Annual Incentive
Compensation Plan or any substitute plans adopted prior to the
Change in Control, 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 Executive'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 Executive's
participation relative to other participants, as existed
immediately prior to the Change in Control;
(VI) the failure by the Company to continue
to provide the Executive with benefits substantially similar
to those enjoyed by the Executive under any of the Company's
pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was
participating immediately prior to the Change in Control
(except for across the board changes similarly affecting all
senior executives of the Company and all senior executives of
any Person in control of the Company), the taking of any other
action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive the
Executive of any material fringe benefit or perquisite enjoyed
by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the
number of paid vacation days to which the Executive 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
(VII) any purported termination of the
Executive's employment which is not effected pursuant to a
Notice of Termination satisfying the requirements of Section
7.1 hereof; for purposes of this
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Agreement, no such purported termination shall be effective.
The Executive's right to terminate the Executive's employment
for Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive'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 Executive 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.
(R) "Gross-Up Payment" shall have the meaning set forth in
Section 6.2 hereof.
(S) "Notice of Termination" shall have the meaning set forth
in Section 7.1 hereof.
(T) "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.
(U) "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:
(I) the Company enters into an agreement,
the consummation of which would result in the occurrence of a
Change in Control;
(II) 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;
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(III) 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
(IV) the Board adopts a resolution to the
effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(V) "Retirement" shall, for purposes of Section 4 hereof, be
deemed the reason for the termination by the Executive of the Executive's
employment if such employment is terminated after completion of ten (10) years
of service with the Company and attainment of age fifty-five (55).
(W) "Severance Payments" shall have the meaning set forth in
Section 6.1 hereof.
(X) "SRP" shall have the meaning set forth in Section 6.1
hereof.
(Y) "Tax Counsel" shall have the meaning set forth in Section
6.2 hereof.
(Z) "Term" shall mean the period of time described in Section
2 hereof (including any extension, continuation or termination described
therein).
(AA) "Thrift Plan" shall have the meaning set forth in
Section 6.1 hereof.
(BB) "Total Payments" shall mean those payments so described
in Section 6.2 hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above first written.
BAKER HUGHES INCORPORATED
By: /s/ JOHN F. MAHER
---------------------------------
John F. Maher
Chairman - Compensation Committee
of the Board of Directors
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EXECUTIVE:
---------
/s/ TIMOTHY J. PROBERT
-----------------------------------
TIMOTHY J. PROBERT
Address:
-----------------------------------
-----------------------------------
-----------------------------------
(Please print carefully)
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EXHIBIT 10.13
SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of July 23, 1997, is made by and between BAKER
HUGHES INCORPORATED, a Delaware corporation (the "Company"), and ANDREW J.
SZESCILA (the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continued employment of key management
personnel; and
WHEREAS the Board recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members of
the Company's management, including the Executive, to their assigned duties
without distraction in the face of potentially disturbing circumstances arising
from the possibility of a Change in Control;
NOW, THEREFORE, in Consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last Section hereof.
2. Term of Agreement. Subject to the provisions of Section 12.2 hereof,
the Term of this Agreement shall commence on the date hereof and shall continue
in effect through December 31, 1999; provided, however, that commencing on
January 1, 1998 and each January 1 thereafter (an "Extension Date"), the
Term shall automatically be extended for one additional year (i.e., resulting
in a two-year Term on the Extension Date) unless, not later than September 30
of the year preceding the Extension Date, the Company or the Executive shall
have given notice not to extend the Term; and further provided, however, if a
Change in that Control shall have occurred during the Term, the Term shall
expire no earlier than twenty-four (24) months beyond the month in which such
Change in Control occurred.
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3. Company's Covenants Summarized. In order to induce the Executive
to remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and
the other payments and benefits described herein. Except as provided in Section
9.1 hereof, no Severance Payments shall be payable under this Agreement unless
there shall have been (or, under the terms of the second sentence of Section
6.1 hereof there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control and during the Term.
This Agreement shall not be construed as creating an express or implied
contract of employment and, except as otherwise agreed in writing between the
Executive and the Company, the Executive shall not have any right to be
retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to the
terms and conditions of this Agreement, in the event of a Potential Change in
Control during the Term, the Executive will remain in the employ of the Company
until the earliest of (i) a date which is six (6) months from the date of such
Potential Change of Control, (ii) the date of a Change in Control, (iii) the
date of termination by the Executive of the Executive's employment for Good
Reason or by reason of death, Disability or Retirement, or (iv) the termination
by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments
5.1 Following a Change in Control and during the Term, during any
period that the Executive fails to perform the Executive's full-time duties
with the Company as a result of incapacity due to physical or mental illness,
the Company shall pay the Executive's full salary to the Executive at the rate
in effect at the commencement of any such period, together with all
compensation and benefits payable to the Executive under the terms of any
compensation or benefit plan, program or arrangement maintained by the Company
during such period, until the Executive's employment is terminated by the
Company for Disability.
5.2 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay the
Executive's full salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the
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Date of Termination or, if higher, the rate in effect immediately prior to the
first occurrence of an event or circumstance constituting Good Reason, together
with all compensation and benefits payable to the Executive through the Date of
Termination under the terms of the Company's compensation and benefit plans,
programs or arrangements as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance constituting Good
Reason.
5.3 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay to the
Executive the Executive's normal post-termination compensation and benefits as
such payments become due. Such post-termination compensation and benefits shall
be determined under, and paid in accordance with, the Company's retirement,
insurance and other compensation or benefit plans, programs and arrangements as
in effect immediately prior to the Date of Termination or, if more favorable to
the Executive, as in effect immediately prior to the occurrence of the first
event or circumstance constituting Good Reason.
5.4 Upon the occurrence of a Change in Control all options to acquire
shares of Company stock, all shares of restricted Company stock and all other
equity or phantom equity incentives held by the Executive under any plan of the
Company (including, but not limited to, the Company's 1995 Stock Award Plan
(and the Stock Matching Programs thereunder), 1993 Stock Option Plan, 1993
Stock Bonus Plan and 1991 Stock Bonus Plan) shall become immediately vested,
exercisable and nonforfeitable and all conditions thereof (including, but not
limited to, any required holding periods) shall be deemed to have been
satisfied.
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6. Severance Payments
6.1 If (i) the Executive's employment is terminated following a Change
in Control and during the Term, other than (A) by the Company for Cause, (B)
by reason of death or Disability, or (C) by the Executive without Good Reason,
or (ii) the Executive voluntarily terminates his employment for any reason
during the one-month period commencing on the first anniversary of the Change
in Control, then, the Company shall pay the Executive the amounts, and provide
the Executive the benefits, described in this Section 6.1 ("Severance
Payments") and Section 6.2, in addition to any payments and benefits to which
the Executive is entitled under Section 5 hereof. For purposes of this
Agreement, the Executive's employment shall be deemed to have been terminated
following a Change in Control by the Company without Cause or by the Executive
with Good Reason, if (i) the Executive'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) the Executive terminates his
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 such Person described in
clause (i), or (iii) the Executive's employment is terminated by the Company
without Cause or by the Executive 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). For purposes of any determination regarding the
applicability of the immediately preceding sentence, any position taken by the
Executive shall be presumed to be correct unless the Company establishes to the
Committee by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination and in lieu of any
severance benefit otherwise payable to the Executive, the Company shall
pay to the Executive a lump sum severance payment, in cash, equal to
three times the sum of (i) the Executive's base salary as in effect
immediately prior to the Date of Termination or, if higher, in
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effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, and (ii) the average annual bonus
earned by the Executive pursuant to any annual bonus or incentive plan
maintained by the Company in respect of the three fiscal years ending
immediately prior to the fiscal year in which occurs the Date of
Termination or, if higher, immediately prior to the fiscal year in which
occurs the first event or circumstance constituting Good Reason;
provided, that if the Executive has not participated in an annual bonus
or incentive plan maintained by the Company for the entirety of such
three-year period, the amount referred to in this clause (ii) shall be
calculated using such lesser number of bonuses as have been actually
earned by the Executive in respect of such lesser period.
(B) For the thirty-six (36) month period immediately following
the Date of Termination, the Company shall arrange to provide the
Executive and his dependents life, disability, accident and health
insurance benefits and perquisites (including, but not limited to,
executive life insurance, club memberships, financial planning and tax
preparation, annual physical examination and charitable contributions),
in each case, substantially similar to those provided to the Executive
and his dependents immediately prior to the Date of Termination or, if
more favorable to the Executive, those provided to the Executive and his
dependents immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, at no greater cost to the
Executive than the cost to the Executive immediately prior to such date
or occurrence; provided, however, that, unless the Executive consents to
a different method (after taking into account the effect of such method
on the calculation of "parachute payments" pursuant to Section 6.2
hereof, such health insurance benefits shall be provided through a
third-party insurer. Benefits otherwise receivable by the Executive
pursuant to this Section 6.1(B) shall be reduced to the extent benefits
of the same type are received by or made available to the Executive
during the thirty-six (36) month period following the Executive's
termination of employment (and any such benefits received by or made
available to the Executive shall be reported to the Company by the
Executive); provided however, that the Company shall reimburse the
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Executive for the excess, if any, of the cost of such benefits to the
Executive over such cost immediately prior to the Date of Termination or,
if more favorable to the Executive, the first occurrence of an event or
circumstance constituting Good Reason.
(C) Notwithstanding any provision of the Baker Hughes
Incorporated 1995 Employee Annual Incentive Compensation Plan (the
"Annual Incentive Plan"), the Company shall pay to the Executive a lump
sum amount, in cash, equal to the sum of (i) any unpaid incentive
compensation which has been allocated or awarded to the Executive for a
completed fiscal year or other measuring period preceding the Date of
Termination under the Annual Incentive Plan and which, as of the Date of
Termination, is contingent only upon the continued employment of the
Executive 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 Executive for all then uncompleted periods
under the Annual Incentive Plan, calculated as to each such award by
multiplying the award that the Executive would have earned on the last
day of the performance award period, assuming the achievement, at the
expected value target level, of the individual and corporate performance
goals established with respect to such award, by the fraction obtained by
dividing the number of full months and any fractional portion of a month
during such performance award period through the Date of Termination by
the total number of months contained in such performance award period;
provided, however, that if such termination of employment occurs during
the some year in which the Change in Control occurs, the pro-rata bonus
payment referred to in clause (ii) above shall be offset by any payments
received under the Annual Incentive Plan in connection with such Change
in Control.
(D) In addition to the retirement benefits to which the
Executive is entitled under the Company's Thrift Plan (the "Thrift Plan")
and the Company's Supplemental Retirement Plan ( the "SRP"), the Company
shall pay the Executive a lump sum amount, in cash, equal to the present
value of the employer-provided contributions, deferrals and allocations
the Executive would have received had he continued to participate, after
the Date of Termination, in the Thrift Plan and
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the SRP for three (3) additional years, assuming for this purpose that
(i) the Executive earned compensation for purposes of the Thrift Plan and
SRP during such three-year period the amount used to calculate the
Executive's severance payment under subparagraph (A) of this Section 6.1,
and (ii) the percentages of contributions, deferrals and allocations made
under the Thrift Plan and the SRP by or on behalf of the Executive during
such three-year period are the same percentages of contributions,
deferrals and allocations in effect on the date of the Change in Control
or the Date of Termination, whichever is more favorable to the Executive.
(E) If the Executive would have become entitled to benefits
under the Company's post-retirement health care or life insurance plans,
as in effect immediately prior to the Date of Termination or, if more
favorable to the Executive, as in effect immediately prior to the first
occurrence of an event or circumstance constituting Good Reason, had the
Executive's employment terminated at any time during the period of
thirty-six (36) months after the Date of Termination, the Company shall
provide such post-retirement health care or life insurance benefits to
the Executive and the Executive's dependents commencing on the later of
(i) the date on which such coverage would have first become available
and (ii) the date on which benefits described in subsection (B) of this
Section 6.1 terminate.
(F) The Company shall provide the Executive with outplacement
services suitable to the Executive's position for a period of three
years or, if earlier, until the first acceptance by the Executive of an
offer of employment.
6.2 (A) Whether or not the Executive becomes entitled to the
Severance Payments, if any of the payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change in Control or any Person affiliated
with the Company or such Person) (such payments or benefits, excluding the
Gross-Up Payment, being hereinafter referred to as the "Total Payments") will
be subject to the Excise Tax, the Company shall pay to the Executive an
additional amount (the "Gross-Up
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<PAGE> 8
Payment") such that the net amount retained by the Executive, after deduction
of any Excise Tax on the Total Payments and any federal, state and local income
and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal
to the Total Payments.
(B) For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(i) all of the Total Payments shall be treated as "parachute payments" (within
the meaning of section 28OG(b)(2) of the Code) unless, in the opinion of tax
counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by
the accounting firm which was, immediately prior to the Change in Control, the
Company's independent auditor (the "Auditor"), such payments or benefits (in
whole or in part) do not constitute parachute payments, including by reason of
section 28OG(b)(4)(A) of the Code, (ii) all "excess parachute payments" within
the meaning of section 28OG(b)(1) of the Code shall be treated as subject to
the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute
payments (in whole or in part) represent reasonable compensation for services
actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in
excess of the Base Amount allocable to such reasonable compensation, or are
otherwise not subject to the Excise Tax, and (iii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Auditor
in accordance with the principles of sections 28OG(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income tax at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment is
to be made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the Date of
Termination (or if there is no Date of Termination, then the date on which the
Gross-Up Payment is calculated for purposes of this Section 6.2), net of the
maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
(C) In the event that the Excise Tax is finally determined to
be less than the amount taken into account hereunder in calculating the
Gross-Up Payment, the Executive shall repay to the Company, within five (5)
business days following the time that the amount of such reduction in the
Excise Tax is finally determined, the portion of the Gross-Up
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<PAGE> 9
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive,
to the extent that such repayment results in a reduction in the Excise Tax and
a dollar-for-dollar reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and employment taxes, plus interest
on the amount of such repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder in calculating the Gross-Up
Payment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) within five (5) business days following the time that the amount of
such excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A), (C) and (D) of Section
6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day
following the Date of Termination; provided however that if the amounts of such
payments cannot be finally determined on or before such day, the Company shall
pay to the Executive on such day an estimate, as determined in good faith by
the Executive or, in the case of payments under Section 6.2 hereof, in
accordance with Section 6.2 hereof, of the minimum amount of such payments to
which the Executive is clearly entitled and shall pay the remainder of such
payments (together with interest on the unpaid remainder (or on all such
payments to the extent the Company fails to make such payments when due) at
120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the
amount thereof can be determined but in no event later than the thirtieth
(30th) day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) business day after demand by the Company (together with
interest at 120% of the rate provided in section
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1274(b)(2)(B) of the Code), but only to the extent such amount has not been
paid by the Executive pursuant to Section 6.2(C) above. At the time that
payments are made under this Agreement, the Company shall provide the Executive
with a written statement setting forth the manner in which such payments were
calculated and the basis for such calculations including, without limitation,
any opinions or other advice the Company has received from Tax Counsel, the
Auditor or other advisors or consultants (and any such opinions or advice which
are in writing shall be attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and during the
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from
one party hereto to the other party hereto in accordance with Section 10 hereof
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board which was called and held for the
purpose of considering such termination (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, the Executive was guilty of conduct
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set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other reason, the date specified
in the Notice of Termination (which, in the case of a termination by the
Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive,
shall not be less than fifteen (15) days nor more than sixty (60) days,
respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days after
any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of
the parties or by a final judgment, order or decree of an arbitrator or a court
of competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that the Date of Termination shall be extended by a notice
of dispute given by the Executive only if such notice is given in good faith
and the Executive pursues the resolution of such dispute with reasonable
diligence.
7.4 Compensation During Dispute. If a purported termination occurs
following a Change in Control and during the Term and the Date of Termination
is extended in accordance with Section 7.3 hereof, the Company shall continue
to pay the Executive the full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, salary) and
continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when the notice giving
rise to the
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dispute was given or those plans in which the Executive was participating
immediately prior to the first occurrence of an event or circumstance giving
rise to the Notice of Termination, if more favorable to the Executive, until the
Date of Termination, as determined in accordance with Section 7.3 hereof.
Amounts paid under this Section 7.4 are in addition to all other amounts due
under this Agreement (other than those due under Section 5.2 hereof) and shall
not be offset against or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any
amounts payable to the Executive by the Company pursuant to Sections 5, 6 or
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof but including (but not limited to)
Section 7.4 hereof) shall not be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to
the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for
Good Reason after a Change in Control, except that, for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs,
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distributees, devisees and legatees. If the Executive shall die while any
amount would still be payable to the Executive hereunder (other than amounts
which, by their terms, terminate upon the death of the Executive), if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
executors, personal representatives or administrators of the Executive's
estate.
10. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to
the Executive, to the address inserted below the Executive's signature on the
final page hereof and, if to the Company, to the address set forth below, or to
such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon actual receipt:
To the Company:
3900 Essex Lane
Suite 1200
Houston, Texas 77027
Attention: General Counsel
11. Miscellaneous. Except as otherwise specifically provided in
Section 12.2 below, no provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
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<PAGE> 14
forth the terms and conditions of the Executive's employment with the Company
only in the event that the Executive's employment with the Company is
terminated on or following a Change in Control, by the Company other than for
Cause or by the Executive other than for Good Reason; and provided further that
all agreements otherwise superseded by this Agreement shall be automatically
reinstated with full force and effect to the extent this Agreement is
terminated or otherwise rendered inapplicable or amended in accordance with
Section 12.2 hereof. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of Texas. All
references to sections of the Exchange Act or the Code shall be deemed also to
refer to any successor provisions to such sections. Any payments provided for
hereunder shall be paid net of any applicable withholding required under
federal, state or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under
this Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without limitation,
those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity; Pooling.
12.1 Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12.2 Pooling. In the event that (A) the Company is party to a
transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of Section 15(G)(III) and (C) individuals who satisfy the
requirements in clauses (i) and (ii) below constitute more than two-thirds
(2/3) of the number of directors of the entity surviving such transaction and
the parent thereof, if any: individuals who (i) immediately prior to such
transaction constitute the Board and (ii) on the date hereof constitute the
Board 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 or nomination for election by the Company's stockholders was approved
or recommend-
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ed, 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 (a) this Agreement shall, to the extent practicable, be interpreted so as
to permit such accounting treatment, and (b) to the extent that the application
of clause (a) of this Section 12.2 does not preserve the availability of such
accounting treatment, then, to the extent that any provision or combination of
provisions of the Agreement disqualifies the transaction as a "pooling"
transaction (including, if applicable, the entire Agreement), the Board shall
have the right, by sending written notice to the Executive prior to the Change
in Control, to unilaterally amend without the consent of the Executive) 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 under this Section 12.2 shall be made by the Board prior to the
Change in Control, 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.
13. Counterpart. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration
14.1 All claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Committee and shall be in writing.
Any denial by the Committee of a claim for benefits under this Agreement shall
be delivered to the Executive in writing within thirty (30) days after written
notice of the claim is provided to the Company in accordance with Section 10
and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Committee shall afford a
reasonable opportunity to the Executive for a review of the decision denying a
claim and shall further allow the Executive to appeal to the Committee a
decision of the Committee within sixty (60) days after notification by the
Committee that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in connection
with
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this Agreement shall be settled exclusively by arbitration in Houston, Texas in
accordance with the rules of the American Arbitration Association then in
effect; provided, however, that the evidentiary standards set forth in this
Agreement shall apply. Judgment may be entered on the arbitrator's award in any
court having jurisdiction. Notwithstanding any provision of this Agreement to
the contrary, the Executive shall be entitled to seek specific performance of
the Executive's right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
15. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in section
28OG(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive'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 Executive pursuant to Section
7.1 hereof) after a written demand for substantial performance is delivered to
the Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the Executive 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 Executive's part shall
be deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the
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Executive'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.
(G) 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:
(I) 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
(III) below; or
(II) 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 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 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
(III) 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
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<PAGE> 18
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
(IV) 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.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(I) "Committee" shall mean (i) the individuals (not fewer than three
in number)
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who, on the date six months before a Change in Control, constitute the
Compensation Committee of the Board, 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).
(J) "Company" shall mean Baker Hughes Incorporated and, except in
determining under Section 15(G) hereof whether or not any Change in Control of
the Company has occurred, shall include any successor to its business and/or
assets which assumes and agrees to perform this Agreement by operation of law,
or otherwise.
(K) "Date of Termination" shall have the meaning set forth in Section
7.2 hereof.
(L) "Disability" shall be deemed the reason for the termination by the
Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the
Company for a period of six (6) consecutive months, the Company shall have
given the Executive a Notice of Termination for Disability, and, within thirty
(30) days after such Notice of Termination is given, the Executive shall not
have returned to the full-time performance of the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(N) "Excise Tax" shall mean any excise tax imposed under section 4999
of the Code.
(O) "Executive" shall mean the individual named in the first paragraph
of this Agreement.
(P) "Extension Date" shall have the meaning set forth in Section 2
hereof.
(Q) "Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) after any Change in Control, or prior to a Change in Control under the
circumstances described in
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clauses (ii) and (iii) of the second sentence of Section 6.1 hereof (treating
all references in paragraphs (I) through (VII) 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 (I), (V), (VI) or (VIII)
below, such act or failure to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect thereof
(I) the assignment to the Executive of any duties
inconsistent with the Executive's status as a senior executive officer
of the Company or a substantial adverse alteration in the nature or
status of the Executive's responsibilities from those in effect
immediately prior to the Change in Control;
(II) a reduction by the Company in the Executive'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 senior executives of the Company
and all senior executives of any Person in control of the Company;
(III) the relocation of the Executive's principal
place of employment to a location more than 50 miles from the
Executive's principal place of employment immediately prior to the
Change in Control or the Company's requiring the Executive 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 Executive's
present business travel obligations;
(IV) the failure by the Company to pay to the
Executive any portion of the Executive's current compensation except
pursuant to an across-the-board compensation deferral similarly
affecting all senior executives of the Company and all senior
executives of any Person in control of the Company, or to pay to the
Executive 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;
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(V) the failure by the Company to continue in effect
any compensation plan in which the Executive participates immediately
prior to the Change in Control which is material to the Executive's
total compensation, including but not limited to the Company's 1993
Stock Option Plan, 1993 Employee Stock Bonus Plan, 1991 Employee Stock
Bonus Plan, 1995 Stock Award Plan (and the 1995, 1996 and 1997 Stock
Matching Programs thereunder and any subsequent Stock Matching
Programs in which the Executive participates), 1987 Convertible
Debenture Plan and 1995 Employee Annual Incentive Compensation Plan or
any substitute plans adopted prior to the Change in Control, 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 Executive'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 Executive's
participation relative to other participants, as existed immediately
prior to the Change in Control;
(VI) the failure by the Company to continue to
provide the Executive with benefits substantially similar to those
enjoyed by the Executive under any of the Company's pension, savings,
life insurance, medical, health and accident, or disability plans in
which the Executive was participating immediately prior to the Change
in Control (except for across the board changes similarly affecting
all senior executives of the Company and all senior executives of any
Person in control of the Company), the taking of any other action by
the Company which would directly or indirectly materially reduce any
of such benefits or deprive the Executive of any material fringe
benefit or perquisite enjoyed by the Executive at the time of the
Change in Control, or the failure by the Company to provide the
Executive with the number of paid vacation days to which the Executive
is entitled on the basis of years of service with the Company in
accordance with the Company's normal vacation policy in
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effect at the time of the Change in Control; or
(VII) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 7.1 hereof, for purposes of
this Agreement no such purported termination shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive'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 Executive 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,
(R) "Gross-Up Payment" shall have the meaning set forth in Section 6.2
hereof.
(S) "Notice of Termination" shall have the meaning set forth in
Section 7.1 hereof.
(T) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Art, 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.
(U) "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:
(I) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an
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intention to take or to consider taking actions which, if consummated,
would constitute a Change in Control;
(III ) 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
(IV) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(V) "Retirement" shall, for purposes of Section 4 hereof be deemed the
reason for the termination by the Executive of the Executive's employment if
such employment is terminated after completion of ten (10) years of service
with the Company and attainment of age fifty-five (55).
(W) "Severance Payments" shall have the meaning set forth in Section
6.1 hereof.
(X) "SRP" shall have the meaning set forth in Section 6.1 hereof.
(Y) "Tax Counsel" shall have the meaning set forth in Section 6.2
hereof.
(Z) "Term" shall mean the period of time described in Section 2 hereof
(including any extension, continuation or termination described therein).
(AA) "Thrift Plan" shall have the meaning set forth in Section 6.1
hereof.
(BB) "Total Payments" shall mean those payments so described in
Section 6.2 hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above first written.
BAKER HUGHES INCORPORATED
By: /s/ JOHN F. MAHER
-------------------------------
John F. Maher
Chairman - Compensation Committee
of the Board of Directors
EXECUTIVE:
----------
/s/ ANDREW J. SZESCILA
-------------------------------
ANDREW J. SZESCILA
Address:
-------------------------------
-------------------------------
-------------------------------
(Please print carefully)
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EXHIBIT 10.14
SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of July 23, 1997, is made by and between BAKER
HUGHES INCORPORATED, a Delaware corporation (the "Company"), and JAY P. TRAHAN
(the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continued employment of key management
personnel; and
WHEREAS the Board recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in Consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last Section hereof
2. Term of Agreement Subject to the provisions of Section 12.2 hereof
the Term of this Agreement shall commence on the date hereof and shall continue
in effect through December 31, 1999; provided, however that commencing on
January 1, 1998 and each January 1 thereafter (an "Extension Date"), the Term
shall automatically be extended for one additional year (i.e., resulting in a
two-year Term on the Extension Date) unless, not later than September 30 of the
year preceding the Extension Date, the Company or the Executive shall have
given notice not to extend the Term; and further provide, however if a Change
in Control shall have occurred during the Term, the Term shall expire no
earlier than twenty-four (24) months beyond the month in which such Change in
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Control occurred.
3. Company's Covenants Summarized. In order to induce
the Executive to remain in the employ of the Company and in consideration of
the Executive's covenants set forth in Section 4 hereof, the Company agrees,
under the conditions described herein, to pay the Executive the Severance
Payments and the other payments and benefits described herein. Except as
provided in Section 9.1 hereof no Severance Payments shall be payable under
this Agreement unless there shall have been (or, under the terms of the second
sentence of Section 6.1 hereof there shall be deemed to have been) a
termination of the Executive's employment with the Company following a Change
in Control and during the Term. This Agreement shall not be construed as
creating an express or implied contract of employment and, except as otherwise
agreed in writing between the Executive and the Company, the Executive shall
not have any right to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to
the terms and conditions of this Agreement, in the event of a Potential Change
in Control during the Term, the Executive will remain in the employ of the
Company until the earliest of (i) a date which is six (6) months from the date
of such Potential Change of Control, (ii) the date of a Change in Control,
(iii) the date of termination by the Executive of the Executive's employment
for Good Reason or by reason of death, Disability or Retirement, or (iv) the
termination by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during any
period that the Executive fails to perform the Executive's full-time duties
with the Company as a result of incapacity due to physical or mental illness,
the Company shall pay the Executive's full salary to the Executive at the rate
in effect at the commencement of any such period, together with all
compensation and benefits payable to the Executive under the terms of any
compensation or benefit plan, program or arrangement maintained by the Company
during such period, until the Executive's employment is terminated by the
Company for Disability.
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5.2 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay the
Executive's full salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the Date of Termination at the rate in
effect immediately prior to the Date of Termination or, if higher, the rate in
effect immediately prior to the first occurrence of an event or circumstance
constituting Good Reason, together with all compensation and benefits payable
to the Executive through the Date of Termination under the terms of the
Company's compensation and benefit plans, programs or arrangements as in effect
immediately prior to the Date of Termination or, if more favorable to the
Executive, as in effect immediately prior to the first occurrence of an event
or circumstance constituting Good Reason.
5.3 If the Executive's employment shall be terminated for any reason
following a Change in Control, and during the Term, the Company shall pay to the
Executive the Executive's normal post-termination compensation and benefits as
such payments become due. Such post-termination compensation and benefits shall
be determined under, and paid in accordance with, the Company's retirement,
insurance and other compensation or benefit plan% programs and arrangements as
in effect immediately prior to the Date of Termination or, if more favorable to
the Executive, as in effect immediately prior to the occurrence of the first
event or circumstance constituting Good Reason.
5.4 Upon the occurrence of a Change in Control all options to acquire
shares of Company stock, all shares of restricted Company stock and all other
equity or phantom equity incentives held by the Executive under any plan of the
Company (including, but not limited to, the Company's 1995 Stock Award Plan
(and the Stock Matching Programs thereunder), 1993 Stock Option Plan, 1993
Stock Bonus Plan and 1991 Stock Bonus Plan) shall become immediately vested,
exercisable and nonforfeitable and all conditions thereof (including, but not
limited to, any required holding periods) shall be deemed to have been
satisfied.
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6. Severance Payments
6.1 If (i) the Executive's employment is terminated following a Change
in Control and during the Term, other than (A) by the Company for Cause, (B)
by reason of death or Disability, or (C) by the Executive without Good Reason,
then, the Company shall pay the Executive the amounts, and provide the
Executive the benefits, described in this Section 6.1 ("Severance Payments")
and Section 6.2, in addition to any payments and benefits to which the
Executive is entitled under Section 5 hereof. For purposes of this Agreement,
the Executive's employment shall be deemed to have been terminated following a
Change in Control by the Company without Cause or by the Executive with Good
Reason, if (i) the Executive'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) the Executive terminates his 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 such Person described in clause
(i), or (iii) the Executive's employment is terminated by the Company without
Cause or by the Executive 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). For purposes of any determination regarding the
applicability of the immediately preceding sentence, any position taken by the
Executive shall be presumed to be correct unless the Company establishes to the
Committee by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination and in lieu of any
severance benefit otherwise payable to the Executive, the Company shall
pay to the Executive a lump sum severance payment, in cash, equal to
three times the sum of (i) the Executive's base salary as in effect
immediately prior to the Date of Termination
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or, if higher, in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason, and (ii) the average
annual bonus earned by the Executive pursuant to any annual bonus or
incentive plan maintained by the Company in respect of the three fiscal
years ending immediately prior to the fiscal year in which occurs the
Date of Termination or, if higher, immediately prior to the fiscal year
in which occurs the first event or circumstance constituting Good
Reason; provided, that if the Executive has not participated in an
annual bonus or incentive plan maintained by the Company for the
entirety of such three-year period, the amount referred to in this
clause (ii) shall be calculated using such lesser number of bonuses as
have been actually earned by the Executive in respect of such lesser
period.
(B) For the thirty-six (36) month period immediately following
the Date of Termination, the Company shall arrange to provide the
Executive and his dependents life, disability, accident and health
insurance benefits and perquisites (including, but not limited to,
executive life insurance, club memberships, financial planning and tax
preparation, annual physical examination and charitable contributions),
in each case, substantially similar to those provided to the Executive
and his dependents immediately prior to the Date of Termination or, if
more favorable to the Executive, those provided to the Executive and his
dependents immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, at no greater cost to the
Executive than the cost to the Executive immediately prior to such date
or occurrence; provided, however, that, unless the Executive consents to
a different method (after taking into account the effect of such method
on the calculation of "parachute payments" pursuant to Section 6.2
hereof), such health insurance benefits shall be provided through a
third-party insurer. Benefits otherwise receivable by the Executive
pursuant to this Section 6.1(B) shall be reduced to the extent benefits
of the same type are received by or made available to the Executive
during the thirty-six (36) month period following the Executive's
termination of employment (and any such benefits
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received by or made available to the Executive shall be reported to the
Company by the Executive); provided, however, that the Company shall
reimburse the Executive for the excess, if any, of the cost of such
benefits to the Executive over such cost immediately prior to the Date
of Termination or, if more favorable to the Executive the first
occurrence of an event or circumstance constituting Good Reason.
(C) Notwithstanding any provision of the Baker Hughes
Incorporated 1995 Employee Annual Incentive Compensation Plan (the
"Annual Incentive Plan"), the Company shall pay to the Executive a lump
sum amount, in cash equal to the sum of (i) any unpaid incentive
compensation which has been allocated or awarded to the Executive for a
completed fiscal year or other measuring period preceding the Date of
Termination under the Annual Incentive Plan and which, as of the Date of
Termination, is contingent only upon the continued employment of the
Executive 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 Executive for all then uncompleted periods
under the Annual Incentive Plan, calculated as to each such award by
multiplying the award that the Executive would have earned on the last
day of the performance award period, assuming the achievement, at the
expected value target level, of the individual and corporate performance
goals established with respect to such award, by the fraction obtained
by dividing the number of full months and any fractional portion of a
month during such performance award period through the Date of
Termination by the total number of months contained in such performance
award period; provided, however, that if such termination of employment
occurs during the same year in which the Change in Control occurs, the
pro rata bonus payment referred to in clause (ii) above shall be offset
by any payments received under the Annual Incentive Plan in connection
with such Change in Control.
(D) In addition to the retirement benefits to which the
Executive is entitled under the Company's Thrift Plan (the "Thrift
Plan") and the
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Company's Supplemental Retirement Plan (the "SRP"), the Company shall
pay the Executive a lump sum amount, in cash, equal to the present value
of the employer-provided contributions, deferrals and allocations the
Executive would have received had he continued to participate, after the
Date of Termination, in the Thrift Plan and the SRP for three (3)
additional years, assuming for this purpose that (i) the Executive
earned compensation for purposes of the Thrift Plan and SRP during such
three-year period the amount used to calculate the Executive's severance
payment under subparagraph (A) of this Section 6.1, and (ii) the
percentages of contributions, deferrals and allocations made under the
Thrift Plan and the SRP by or on behalf of the Executive during such
three-year period are the same percentages of contributions, deferrals
and allocations in effect on the date of the Change in Control or the
Date of Termination, whichever is more favorable to the Executive.
(E) If the Executive would have become entitled to benefits
under the Company's post-retirement health care or life insurance plans,
as in effect immediately prior to the Date of Termination or, if more
favorable to the Executive, as in effect immediately prior to the first
occurrence of an event or circumstance constituting Good Reason, had the
Executive's employment terminated at any time during the period of
thirty-six (36) months after the Date of Termination, the Company shall
provide such post-retirement health care or life insurance benefits to
the Executive and the Executive's dependents commencing on the later of
(i) the date on which such coverage would have first become available
and (ii) the date on which benefits described in subsection (B) of this
Section 6.1 terminate.
(F) The Company shall provide the Executive with outplacement
services suitable to the Executive's position for a period of three
years or, if earlier, until the first acceptance by the Executive of an
offer of employment.
6.2 (A) Whether or not the Executive becomes entitled to the
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Severance Payments, if any of the payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change in Control or any Person affiliated
with the Company or such Person) (such payments or benefits, excluding the
Gross-Up Payment, being hereinafter referred to as the "Total Payments") will
be subject to the Excise Tax, the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive, after deduction of any Excise Tax on the Total Payments and any
federal, state and local income and employment taxes and Excise Tax upon the
Gross-Up Payment, shall be equal to the Total Payments.
(B) For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(i) all of the Total Payments shall be treated as "parachute payments" (within
the meaning of section 28OG(b)(2) of the Code) unless, in the opinion of tax
counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by
the accounting firm which was, immediately prior to the Change in Control, the
Company's independent auditor (the "Auditor"), such payments or benefits (in
whole or in part) do not constitute parachute payments, including by reason of
section 28OG(b)(4)(A) of the Code, (ii) all "excess parachute payments" within
the meaning of section 28OG(b)(1) of the Code shall be treated as subject to
the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute
payments (in whole or in pad) represent reasonable compensation for services
actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in
excess of the Base Amount allocable to such reasonable compensation, or are
otherwise not subject to the Excise Tax, and (iii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Auditor
in accordance with the principles of sections 28OG(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income tax at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up
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Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Executive's residence on the
Date of Termination (or if there is no Date of Termination, then the date on
which the Gross-Up Payment is calculated for purposes of this Section 6.2), net
of the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
(C) In the event that the Excise Tax is finally determined to
be less than the amount taken into account hereunder in calculating the
Gross-Up Payment, the Executive shall repay to the Company, within five (5)
business days following the time that the amount of such reduction in the
Excise Tax is finally determined, the portion of the Gross-Up Payment
attributable to such reduction (plus that portion of the Gross-Up Payment
attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive,
to the extent that such repayment results in a reduction in the Excise Tax and
a dollar-for-dollar reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and employment taxes, plus interest
on the amount of such repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder in calculating the Gross-Up
Payment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) within five (5) business days following the time that the amount of
such excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A), (C) and (D) of Section
6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day
following the Date of Termination; provided, however, that if the amounts of
such payments cannot be finally determined on or before such day, the Company
shall pay to the Executive on such
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day an estimate, as determined in good faith by the Executive or, in the case
of payments under Section 6.2 hereof, in accordance with Section 6.2 hereof, of
the minimum amount of such payments to which the Executive is clearly entitled
and shall pay the remainder of such payments (together with interest on the
unpaid remainder (or on all such payments to the extent the Company fails to
make such payments when due) at 120% of the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but
in no event later than the thirtieth (30th) day after the Date of Termination.
In the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan
by the Company to the Executive, payable on the fifth (5th) business day after
demand by the Company (together with interest at 120% of the rate provided in
section 1274(b)(2)(B) of the Code), but only to the extent such amount has not
been paid by the Executive pursuant to Section 6.2(C) above. At the time that
payments are made under this Agreement, the Company shall provide the Executive
with a written statement setting forth the manner in which such payments were
calculated and the basis for such calculations including, without limitation,
any opinions or other advice the Company has received from Tax Counsel, the
Auditor or other advisors or consultants (and any such opinions or advice which
are in writing shall be attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
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7. Termination Procedures and Compensation During Dispute
7.1 Notice of Termination. After a Change in Control and during the
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from
one party hereto to the other party hereto in accordance with Section 10
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean
a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board which was called and held for the
purpose of considering such termination (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, the Executive was guilty of conduct set forth in clause (i) or
(ii) of the definition of Cause herein, and specifying the particulars thereof
in detail.
7.2 Date of Termination "Date of Termination," with respect to any
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other reason, the date specified
in the Notice of Termination (which, in the case of a termination by the
Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive,
shall not be less than fifteen (15) days nor more than sixty (60) days,
respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days after
any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined
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without regard to this Section 7.3), the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be extended until the earlier of (i)
the date on which the Term ends or (ii) the date on which the dispute is
finally resolved, either by mutual written agreement of the parties or by a
final judgment, order or decree of an arbitrator or a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided,
however, that the Date of Termination shall be extended by a notice of dispute
given by the Executive only if such notice is given in good faith and the
Executive pursues the resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs
following a Change in Control and during the Term and the Date of Termination
is extended in accordance with Section 7.3 hereof, the Company shall continue
to pay the Executive the full compensation in effect when the notice giving
rise to the dispute was given (including but not limited to, salary) and
continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when the notice giving
rise to the dispute was given or those plans in which the Executive was
participating immediately prior to the first occurrence of an event or
circumstance giving rise to the Notice of Termination, if more favorable to the
Executive, until the Date of Termination, as determined in accordance with
Section 7.3 hereof Amounts paid under this Section 7.4 are in addition to all
other amounts due under this Agreement (other than those due under Section 5.2
hereof) and shall not be offset against or reduce any other amounts due under
this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any
amounts payable to the Executive by the Company pursuant to Sections 5, 6 or
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof but including (but not limited to)
Section 7.4 hereof) shall not be reduced by any compensation
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earned by the Executive as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by the
Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for
Good Reason after a Change in Control, except that, for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of the Executive),
if the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement
to the executors, personal representatives or administrators of the Executive's
estate.
10. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to
the Executive, to the address inserted
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below the Executive's signature on the final page hereof and, if to the Company,
to the address set forth below, or to such other address as either party may
have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon actual receipt:
To the Company:
3900 Essex Lane
Suite 1200
Houston, Texas 77027
Attention: General Counsel
11. Miscellaneous. Except as otherwise specifically provided in
Section 12.2 below, no provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
forth the terms and conditions of the Executive's employment with the Company
only in the event that the Executive's employment with the Company is
terminated on or following a Change in Control, by the Company other than for
Cause or by the Executive other than for Good Reason; and provided further that
all agreements otherwise superseded by this Agreement shall be automatically
reinstated with full force and effect to the extent this Agreement is
terminated or otherwise rendered inapplicable or amended in accordance with
Section 12.2 hereof. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of Texas. All
references to sections of the Exchange Act or the Code shall be
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<PAGE> 15
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under
this Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without limitation,
those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity Pooling.
12.1 Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12.2 Pooling. In the event that (A) the Company is party to a
transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of Section 15(G)(III) and (C) individuals who satisfy the
requirements in clauses (i) and (ii) below constitute more than two-thirds
(2/3) of the number of directors of the entity surviving such transaction and
the parent thereof, if any: individuals who (i) immediately prior to such
transaction constitute the Board and (ii) on the date hereof constitute the
Board 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 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 (a) this Agreement shall, to the extent practicable, be
interpreted so as to permit such accounting treatment, and (b) to the extent
that the application of clause (a) of this Section 12.2 does not preserve the
availability of such accounting treatment then, to the extent that any
provision or combination of provisions of the Agreement disqualifies the
transaction as a "pooling" transaction (including, if applicable, the entire
Agreement),
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<PAGE> 16
the Board shall have the right, by sending written notice to the Executive
prior to the Change in Control, to unilaterally amend (without the consent of
the Executive) such provision or provisions if and to the went 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 under this Section 12.2 shall be made by the
Board prior to the Change in Control, 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.
13. Counterpart. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14, Settlement of Disputes; Arbitration.
14.1 All claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Committee and shall be in writing.
Any denial by the Committee of a claim for benefits under this Agreement shall
be delivered to the Executive in writing within thirty (30) days after written
notice of the claim is provided to the Company in accordance with Section 10
and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Committee shall afford a
reasonable opportunity to the Executive for a review of the decision denying a
claim and shall further allow the Executive to appeal to the Committee a
decision of the Committee within sixty (60) days after notification by the
Committee that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Houston,
Texas in accordance with the rules of the American Arbitration Association then
in effect; provided, however, that the evidentiary, standards set forth in this
Agreement shall apply. Judgment may be entered on the arbitrator's award in any
court having jurisdiction. Notwithstanding any provision of this Agreement to
the contrary, the Executive shall be entitled to seek specific performance of
the Executive's right to be paid until the Date of Termination
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<PAGE> 17
during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2 hereof
(C) "Base Amount" shall have the meaning set forth in section
28OG(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive'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 Executive pursuant to Section
7.1 hereof) after a written demand for substantial performance is delivered to
the Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the Executive 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 Executive's part shall
be deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive'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
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<PAGE> 18
clear and convincing evidence that Cause exists.
(G) 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:
(I) 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
(III) below; or
(II) 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 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 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
(III) 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
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<PAGE> 19
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
(IV) 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.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended
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<PAGE> 20
from time to time.
(I) "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, 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).
(J) "Company" shall mean Baker Hughes Incorporated and, except in
determining under Section 15(G) hereof whether or not any Change in Control of
the Company has occurred, shall include any successor to its business and/or
assets which assumes and agrees to perform this Agreement by operation of law,
or otherwise.
(K) "Date of Termination" shall have the meaning set forth in Section
7.2 hereof.
(L) "Disability" shall be deemed the reason for the termination by the
Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the
Company for a period of six (6) consecutive months, the Company shall have
given the Executive a Notice of Termination for Disability, and, within thirty
(30) days after such Notice of Termination is given, the Executive shall not
have returned to the full-time performance of the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(N) "Excise Tax" shall mean any excise tax imposed under section 4999
of the Code.
(O) "Executive" shall mean the individual named in the first paragraph
of this Agreement.
(P) "Extension Date" shall have the meaning set forth in Section 2
hereof.
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<PAGE> 21
(Q) "Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive'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 the second sentence of
Section 6.1 hereof (treating all references in paragraphs (I) through (VII)
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 (I), (V), (VI) or (VII) below, such act or failure to act is
corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof;
(I) the assignment to the Executive of any duties
inconsistent with the Executive's status as a senior executive officer
of the Company or a substantial adverse alteration in the nature or
status of the Executive's responsibilities from those in effect
immediately prior to the Change in Control;
(II) a reduction by the Company in the Executive'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 senior executives of the Company
and all senior executives of any Person in control of the Company;
(III) the relocation of the Executive's principal
place of employment to a location more than 50 miles from the
Executive's principal place of employment immediately prior to the
Change in Control or the Company's requiring the Executive 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 Executive's
present business travel obligations;
(IV) the failure by the Company to pay to the
Executive any portion of the Executive's current compensation except
pursuant to an across-the-board compensation deferral similarly
affecting all senior
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<PAGE> 22
executives of the Company and all senior executives of any Person in
control of the Company, or to pay to the Executive 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;
(V) the failure by the Company to continue in effect
any compensation plan in which the Executive participates immediately
prior to the Change in Control which is material to the Executive's
total compensation, including but not limited to the Company's' 1993
Stock Option Plan, 1993 Employee Stock Bonus Plan, 1991 Employee Stock
Bonus Plan, 1995 Stock Award Plan (and the 1995, 1996 and 1997 Stock
Matching Programs thereunder and any subsequent Stock Matching
Programs in which the Executive participates), 1987 Convertible
Debenture Plan and 1995 Employee Annual Incentive Compensation Plan or
any substitute plans adopted prior to the Change in Control, 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 Executive'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 Executive's
participation relative to other participants, as existed immediately
prior to the Change in Control;
(VI) the failure by the Company to continue to
provide the Executive with benefits substantially similar to those
enjoyed by the Executive under any of the Company's pension, savings,
fife insurance, medical, health and accident, or disability plans in
which the Executive was participating immediately prior to the Change
in Control (except for across the board changes similarly affecting
all senior executives of the Company and all senior executives of any
Person in control of the Company), the
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<PAGE> 23
taking of any other action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive the
Executive of any material fringe benefit or perquisite enjoyed by the
Executive at the time of the Change in Control, or the failure by the
Company to provide the Executive with the number of paid vacation days
to which the Executive is entitled on the basis of years of service
with the Company in accordance with the any in accordance with the
Company's normal vacation policy in effect at the time of the Change
in Control; or
(VII) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 7.1 hereof; for purposes of
this Agreement no such purported termination shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive'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 Executive 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.
(R) "Gross-Up Payment" shall have the meaning set forth in Section 6.2
hereof
(S) "Notice of Termination" shall have the meaning set forth in
Section 7.1 hereof.
(T) "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
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<PAGE> 24
Company.
(U) "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:
(I) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(II) 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;
(III) 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
(IV) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(V) "Retirement" shall, for purposes of Section 4 hereof, be deemed the
reason for the termination by the Executive of the Executive's employment if
such employment is terminated after completion of ten (10) years of service
with the Company and attainment of age fifty-five (55).
(W) "Severance Payments" shall have the meaning set forth in Section
6.1 hereof.
(X) "SRP" shall have the meaning set forth in Section 6.1 hereof.
(Y) "Tax Counsel" shall have the meaning set forth in Section 6.2
hereof.
(Z) "Term" shall mean the period of time described in Section 2 hereof
(including any extension, continuation or termination described therein).
(AA) "Thrift Plan" shall have the meaning set forth in Section 6.1
hereof.
(BB) "Total Payments" shall mean those payments so described in
Section 6.2 hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date above first written.
BAKER HUGHES INCORPORATED
By: /s/ JOHN F. MAHER
-------------------------------
John F. Maher
Chairman-Compensation Committee
of the Board of Directors
EXECUTIVE:
/s/ JAY P. TRAHAN
-------------------------------
JAY P. TRAHAN
Address:
-------------------------------
-------------------------------
-------------------------------
(Please print carefully)
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<PAGE> 1
Exhibit 10.15
AMENDED AND RESTATED
BAKER HUGHES INCORPORATED
1991 EMPLOYEE STOCK BONUS PLAN
1. Purpose of the Plan. The Baker Hughes Incorporated 1991 Employee
Stock Bonus Plan (the "Plan") is intended to promote the interests of Baker
Hughes Incorporated (the "Company"), its subsidiaries and affiliated entities
and its stockholders by encouraging certain key employees of the Company, its
subsidiaries and affiliated entities to increase their equity interests in the
Company, thereby giving them an added incentive to work toward the continued
growth and success of the Company. The Plan provides an incentive to such
employees who have been granted options under the Baker Hughes Incorporated
Restated 1987 Stock Option Plan (the "Stock Option Plan") and/or who have been
offered debentures under the Baker Hughes Incorporated 1987 Convertible
Debenture Plan (the "Convertible Debenture Plan") to encourage such employees to
remain in the employ of the Company and to retain the shares acquired by the
exercise of such options ("Option Shares") and/or by the exercise of the
conversion privilege of such debentures ("Conversion Shares") for a minimum of
three years from the issuance of such Option Shares and/or Conversion Shares,
respectively. Accordingly, the Company may issue to such employees shares of
common stock of the Company, $1 par value ("Stock"), subject to certain
restrictions in accordance with the terms and conditions herein established
("Stock Awards").
2. Administration of the Plan. The Plan shall be administered by the
Compensation Committee ("Committee") of the Board of Directors of the Company.
Subject to the provisions of the Plan, the Committee shall interpret the Plan,
shall make such rules as it deems necessary for the proper administration of the
Plan, shall make all other determinations necessary or advisable for the
administration of the Plan and shall correct any defect or supply any omission
or reconcile any inconsistency in the Plan or in any Stock Award granted under
the Plan in the manner and to the extent that the Committee deems desirable to
carry the Plan into effect. Any action taken or determination made by the
Committee pursuant to this and the other paragraphs of the Plan shall be
conclusive on all parties. The act or determination of a majority of the
Committee at a meeting where a quorum is present shall be deemed to be the act
or determination of the Committee.
The Committee shall consist of at least three members of the Board of
Directors of the Company appointed by and holding office for a term determined
by and in the discretion of the Board of Directors of the Company. No Stock
Awards may be granted under the Plan to any member of the Committee during the
term of his membership on the Committee. No person shall be eligible to serve on
the Committee unless he is then a "disinterested person" within
<PAGE> 2
the meaning of Paragraph (d) (3) of Rule 16b-3 of the Securities and Exchange
Commission ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934,
as amended (the "Act"), if and as such Rule is then in effect.
3. Eligibility to Receive Stock Awards. Stock Awards shall be issued
under Paragraph 5 of the Plan to those employees of the Company, its
subsidiaries and affiliated entities (excluding non-employee directors) who are
issued Option Shares under the Stock Option Plan and/or Conversion Shares under
the Convertible Debenture Plan during the Company's 1991 fiscal year and
thereafter. A Stock Award may be issued to the same employee on more than one
occasion.
4. Shares Subject to the Plan. The aggregate number of shares of
Stock which may be issued to employees under Paragraph 5 of the Plan shall not
exceed 1,000,000 shares of Stock. Such shares of Stock may consist of
authorized but unissued shares or previously issued shares reacquired by the
Company. Any of such shares of Stock which remain unissued at the termination
of the Plan shall cease to be subject to the Plan, but until termination of the
Plan, the Company shall at all times make available sufficient number of shares
of Stock to meet the requirements of the Plan. If shares of Stock issued under
Paragraph 5 of the Plan are forfeited to the Company, such shares of Stock
shall again become available for issuance under the Plan. The aggregate number
of shares of Stock which may be issued under the Plan may be adjusted to
reflect a change in capitalization of the Company, such as a stock dividend or
stock split.
5. Issuance of Stock Awards. Stock Awards shall be issued to eligible
employees in the form of shares of stock ("Stock Award Shares") in an amount
equal to (a) one Stock Award Share for every five Option Shares acquired by
exercise pursuant to options (whether nonqualified or incentive) granted under
the Stock Option Plan and (b) one Stock Award Share for every five conversion
shares acquired by exercise of a conversation privilege of debentures under the
Convertible Debenture Plan on the third anniversary of the issuance of Option
Shares issued pursuant to the exercise of an option granted under the Stock
Option Plan and/or the underlying Conversion Shares issued pursuant to the
exercise of a conversion privilege of debentures issued under the Convertible
Debenture Plan, to the extent such eligible employee has not violated the
Forfeiture Restrictions defined in paragraph 6 below. The Committee or the
Company shall notify in writing each employee entitled to receive a Stock Award
hereunder of the number of Stock Awards Shares issued or to be issued prior to
the 31st day of December of each calendar year. In addition to a Stock Award, at
the time of the issuance of the Stock Award Shares the Company will pay to the
Employee the dividends attributable to the Stock Award Shares as though such
shares had been issued and outstanding for the three years, without interest.
<PAGE> 3
6. Forfeiture Restrictions. The obligation of the Company to issue
Stock Award Shares is subject to the restrictions as described in this Paragraph
6 and shall hereinafter be referred to as the "Forfeiture Restrictions." If an
employee who is issued a Stock Award based upon underlying Option Shares issued
pursuant to the exercise of an option granted under the Stock Option Plan and/or
underlying Conversion Shares issued pursuant to the exercise of a conversion
privilege of debentures issued under the Convertible Debenture Plan, sells or
otherwise transfers (other than by gift, devise or descent) such underlying
Option Shares and/or Conversion Shares within three years of the date of
issuance of such Option Shares and/or Conversion Shares, respectively, such
Stock Award shall be forfeited on a prorated basis of the one such Stock Award
Share per five such Option Shares and/or Conversion Shares sold or otherwise
transferred; provided that, in the event such employee sells or otherwise
transfers more than fifty percent of such underlying Option Shares and/or
Conversion Shares within three years of the date of issuance of such Option
Shares and/or Conversion Shares, respectively, all such Stock Award Shares shall
be forfeited. Moreover, in the event of termination of the employee's employment
with the Company, its subsidiaries and affiliated entities for any reason other
than retirement at or after age sixty-five, death or total and permanent
disability within three years of the date of issuance of underlying Option
Shares and/or Conversion Shares, respectively, upon which the issuance of Stock
Award Shares are based, all such Stock Award Shares shall be forfeited. An
employee shall be considered to be in the employment of an employer as long as
he remains an employee of the employer, whether active or on an authorized leave
of absence. Any question as to whether and when there has been a termination
of such employment, and the cause of such termination, shall be determined by
the Committee and its determination shall be final.
7. Lapse of Forfeiture Restrictions. The Forfeiture with respect to
Stock Awards not otherwise forfeited pursuant to the provisions of Paragraph 6
and issued to an employee based upon underlying Option Shares issued pursuant to
the exercise of an option granted under the Stock Option Plan or underlying
Conversion Shares issued pursuant to the exercise of the conversion privilege of
debentures issued under the Convertible Debentures Plan shall lapse and be of no
further force and effect upon the expiration of three years following the date
of issuance of such Option Shares and/or Conversion Shares, respectively.
Moreover, the Forfeiture Restrictions with respect to Stock Awards issued to an
Employee and not otherwise forfeited pursuant to the provisions of Paragraph 6
shall lapse and be of no further force and effect upon the termination of the
employee's employment with the Company, its subsidiaries and affiliated entities
by reason of retirement at or after age sixty-five, death or total and permanent
disability.
8. Shares Received in Reorganization or Stock Split. The provisions
of Paragraph 6 shall not apply to the transfer of Stock Awards or Stock Award
Shares pursuant to a plan of
<PAGE> 4
reorganization of the Company, but the stock or securities received in exchange
therefor, and any Stock Award received as a result of a stock split with respect
to Stock Award Shares, shall also become subject to the Forfeiture Restrictions
for all purposes of the Plan. Notwithstanding the foregoing, if the Company is
to be merged into or consolidated with one or more corporations and the Company
is not to be the surviving corporation, if the Company is to be dissolved and
liquidated, or if substantially all of the assets and business of the Company
are to be sold, the Committee may fix a date, prior to the effective time of
such merger, consolidation, dissolution and liquidation, or sale, on which date
all Forfeiture Restrictions with respect to all Stock Awards shall lapse.
9. Term of Plan. The Plan shall be effective as of October 24, 1990.
Unless sooner terminated under the provisions of Paragraph 12, no further Stock
Awards shall be issued under Paragraph 5 after the issuance of the last
underlying Option Shares pursuant to the exercise of an option granted under the
Stock Option Plan and/or underlying conversion Shares pursuant to the exercise
of a conversion privilege of debentures issued under the Convertible Debenture
Plan, and the Plan shall terminate when all Stock Award Shares (and dividends
thereon) theretofore issued either have been forfeited to the Company or the
Forfeiture Restrictions thereon have lapsed.
10. Rights of Stockholder. Upon the issuance of Stock Award Shares to
an employee, such employee shall have all of the rights of a stockholder of the
Company with respect to such Restricted Shares, including the right to vote such
Stock Award Shares and the right to receive all dividends or other distributions
paid with respect to such Stock Award Shares.
11. Withholding of Tax. To the extent the issuance of Stock Award
Shares or the lapse of Forfeiture Restrictions results in the receipt of
compensation by an employee, the employer is authorized to withhold from any
other cash compensation then or thereafter payable to such employee any tax
required to be withheld by reason of the receipt of compensation resulting from
the issuance of Stock Award Shares or the lapse of Forfeiture Restrictions. In
the alternative, the employer may, in its discretion, at the request of the
employee, satisfy any withholding requirements by retaining the number of shares
of Stock (for which Forfeiture Restrictions have lapsed) necessary to satisfy
any such withholding obligation.
12. Amendment or Termination of the Plan. The Board of Directors of
the Company in its discretion may terminate the Plan at any time with respect
to any Restricted Shares which have not theretofore been issued. The Board of
Directors shall have the right to alter or amend the Plan or any part thereof
from time to time; provided, that no change may be made which would impair the
rights of an employee to whom Stock Award Shares have theretofore been issued
without the consent of such employee.
<PAGE> 1
Exhibit 10.16
AMENDMENT NO. 1997-1 TO THE
AMENDED AND RESTATED
1991 EMPLOYEE STOCK BONUS PLAN
This Amendment No. 1997-1 is made to the Baker Hughes
Incorporated Amended and Restated 1991 Employee Stock Bonus Plan ("the Plan").
Capitalized terms used but not defined herein shall have the meanings ascribed
to them in the Plan.
WHEREAS, Baker Hughes Incorporated (the "Company") has determined
that it is in its best interest and that of its stockholders to amend the Plan
as set forth herein;
NOW, THEREFORE, the Plan is amended as follows:
1. The first sentence of Paragraph 5 of the Plan is amended
(A) to insert, immediately following the phrase "(b) one Stock Award Share for
every five conversion shares acquired by exercise of a conversion privilege of
debentures under the Convertible Debenture Plan on" the phrase "the earliest to
occur of (i)" and (B) to insert, immediately prior to the "." at the end
thereof, the following:
", (ii) the occurrence of a Change in Control, and (iii) the
termination of the eligible employee's employment if (a) such
eligible 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, (b) such eligible 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 (a), or (c) such eligible employee's employment is
terminated by the Company without Cause or by the eligible
<PAGE> 2
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). A termination of employment
described in clause (iii) is hereinafter referred to as a
"Qualifying Termination"
2. Paragraph 5 of the Plan is amended by adding at the end
thereof a new paragraph as follows:
For purposes of the Plan:
"Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Act.
"Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 promulgated under the Act.
"Cause" for termination by the Company of the eligible
employee's employment shall mean (i) the willful and continued
failure by the eligible employee to substantially perform the
eligible employee's duties with the Company (other than any such
failure resulting from the eligible 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 eligible employee) after a written demand for
substantial performance is delivered to the eligible employee by
the CIC Committee, which demand specifically identifies the
manner in which the CIC Committee believes that the eligible
employee has not substantially performed the eligible employee's
duties, or (ii) the willful engaging by the eligible 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
2
<PAGE> 3
this definition, (x) no act, or failure to act, on the eligible
employee's part shall be deemed "willful" unless done, or omitted
to be done, by the eligible employee not in good faith and
without reasonable belief that the eligible 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 CIC Committee
by clear and convincing evidence that Cause exists.
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:
(i) 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 (a) of paragraph (iii) below; or
(ii) 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
3
<PAGE> 4
hereof or whose appointment, election or nomination for election
was previously so approved or recommended; or
(iii) 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 (a) 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 (b) 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
(iv) 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
4
<PAGE> 5
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.
"CIC 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).
"Good Reason" for termination by the eligible employee of
the eligible employee's employment shall mean the occurrence
(without the eligible employee's express written consent) after
any Change in Control, or prior to a Change in Control under the
circumstances described in clauses (iii)(b) and (c) of the first
sentence of this Paragraph 5 (treating all references in
paragraphs (i) through (vii) below to a "Change in Control" as
references to a "Potential Change in Control"), of any one of the
following acts by the
5
<PAGE> 6
Company, or failures by the Company to act, unless, in the case
of any act or failure to act described in paragraph (i), (v),
(vi) or (vii) below, such act or failure to act is corrected
prior to the effective date of the eligible employee's
termination for Good Reason:
(i) the assignment to the eligible employee of any
duties inconsistent with the status of the eligible employee's
position with the Company or a substantial adverse alteration in
the nature or status of the eligible employee's responsibilities
from those in effect immediately prior to the Change in Control;
(ii) a reduction by the Company in the eligible
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;
(iii) the relocation of the eligible employee's
principal place of employment to a location more than 50 miles
from the eligible employee's principal place of employment
immediately prior to the Change in Control or the Company's
requiring the eligible 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 eligible employee's
present business travel obligations;
(iv) the failure by the Company to pay to the
eligible employee any portion of the eligible employee's current
compensation except pursuant to an across-the-board compensation
deferral similarly affecting all individuals having a similar
level of authority and respon-
6
<PAGE> 7
sibility 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 eligible 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;
(v) the failure by the Company to continue in
effect any compensation plan in which the eligible employee
participates immediately prior to the Change in Control which is
material to the eligible 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 eligible 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 eligible employee's participation relative to other
participants, as existed immediately prior to the Change in
Control;
(vi) the failure by the Company to continue to
provide the eligible employee with benefits substantially similar
to those enjoyed by the eligible employee under any of the
Company's pension, savings, life insurance, medical, health and
accident, or disability plans in which the eligible 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 Company),
the taking of any other action by the Company which would
directly or indirectly materially reduce any of such benefits or
deprive the eligible employee of any material fringe benefit or
perquisite enjoyed by the eligible employee at the time of the
Change in Control, or the fail-
7
<PAGE> 8
ure by the Company to provide the eligible employee with the
number of paid vacation days to which the eligible 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
(vii) if the eligible employee is party to an
individual employment, severance or other similar agreement with
the Company, any purported termination of the eligible employee's
employment which is not effected pursuant to the notice of
termination and other procedures specified therein.
The eligible employee's right to terminate the eligible
employee's employment for Good Reason shall not be affected by
the eligible employee's incapacity due to physical or mental
illness. The eligible 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 eligible employee that Good Reason
exists shall be presumed to be correct unless the Company
establishes to the CIC Committee by clear and convincing evidence
that Good Reason does not exist.
"Person" shall have the meaning given in Section 3(a)(9)
of the 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.
8
<PAGE> 9
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:
(i) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change
in Control;
(ii) 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;
(iii) 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
(iv) the Board adopts a resolution to the effect that,
for purposes of this Plan, a Potential Change in Control has
occurred.
3. The second sentence of Paragraph 6 of the Plan is amended
by inserting immediately prior to the "." at the end thereof the following:
; and provided further, that the provisions of this sentence
shall be inapplicable to any sale of Option Shares or Conversion
Shares by an employee holding a Stock Award if such sale occurs
in connection with, or at any time following, a Change in
Control.
4. The third sentence of Paragraph 6 of the Plan is amended
by deleting at the beginning thereof the word "Moreover" and inserting in lieu
thereof the phrase "Subject to the lapse of forfeiture provisions following a
Change in Control or a Qualifying Termination provided under Paragraph 7".
9
<PAGE> 10
5. Paragraph 7 of the Plan is amended (A) by inserting
immediately following the phrase "and be of no further force and effect upon"
the phrase "the earliest to occur of (i)" and (B) by inserting immediately
prior to the "." at the end thereof the following:
, (ii) the occurrence of a Change in Control, and (iii) the
occurrence of a Qualifying Termination
The effective date of this Amendment No. 1997-1 shall be July 23,
1997; provided, however, that, in the event that (A) the Company is party to a
transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of the Plan and (C) 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 (a) this Amendment No. 1997-1 shall, to the extent practicable, be
interpreted so as to permit such accounting treatment, and (b) to the extent
that the application of clause (a) 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 Amendment No. 1997-1
disqualifies the transaction as a "pooling" transaction (including, if
applicable, this entire Amendment No. 1997-1), 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 deter-
10
<PAGE> 11
minations 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. Except as herein modified, the Plan shall remain in full force
and effect.
BAKER HUGHES INCORPORATED
By: /s/ G.S. FINLEY
--------------------------------
Title: CHIEF ADMINISTRATIVE OFFICER
11
<PAGE> 1
EXHIBIT 10.17
BAKER HUGHES INCORPORATED
RESTATED 1987 STOCK OPTION PLAN
(Amended as of October 24, 1990)
ARTICLE I
INTRODUCTION
1. Purpose. This Restated 1987 Stock Option Plan, which
shall be known as the "1987 Stock Option Plan" and which is hereinafter
referred to as the "Plan," is intended to promote the interests of Baker Hughes
Incorporated ("Company") and its stockholders by encouraging employees of the
Company, its subsidiaries and affiliated entities and non-employee directors of
the Company to acquire or increase their equity interest in the Company,
thereby giving them an added incentive to work toward the continued growth and
success of the Company. The Board of Directors also contemplates that through
the adoption of the Plan, the Company, its subsidiaries and affiliated entities
will be better able to compete for the services of personnel needed for the
continued growth and success of the Company. The Plan is a restatement of the
Baker Hughes Incorporated 1987 Employee Stock Option Plan and incorporates
amendments thereto which become effective upon approval by the Company's
stockholders.
2. Shares Subject to the Plan. Subject to adjustment as
provided in Article II, Paragraph 3(e), Article III, Paragraph 3(e), and
Article IV, Paragraph 5(e), the aggregate number of shares of Common Stock, $1
par value per share, of the Company ("Common Stock") to be delivered upon
exercise of all options granted under the Plan shall not exceed 6,500,000
shares. In the event the number of shares to be delivered upon the exercise in
full of any option granted under the Plan is reduced for any reason whatsoever
or in the event any option granted under the Plan can no longer under any
circumstances be exercised, the number of shares no longer subject to such
option shall thereupon be released from such option and shall thereafter be
available to be re-optioned under the Plan. Shares issued pursuant to the
exercise of options granted under the Plan shall be fully paid and
non-assessable.
3. Administration of the Plan. Subject to the provisions
of the Plan, the Compensation Committee of the Board of Directors of the
Company (the "Committee") shall interpret the Plan and all options granted
under the Plan, shall make such rules as it deems necessary for the proper
administration of the Plan, shall make all other determinations necessary or
advisable for the administration of the Plan and shall correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any
<PAGE> 2
option granted under the Plan in the manner and to the extent that the
Committee deems desirable to carry the Plan or any option into effect. Any
action taken or determination made by the Committee pursuant to this and the
other paragraphs of the Plan shall be conclusive on all parties. The act or
determination of a majority of the Committee shall be deemed to be the act or
determination of the Committee.
The Committee shall consist of at least three members of the
Board of Directors of the Company appointed by and holding office during the
pleasure of the Board of Directors of the Company. Other than options granted
to Non-Employee Directors (as hereinafter defined) pursuant to Article IV, no
options may be granted under the Plan to any member of the Committee during the
term of his membership on the Committee. No person shall be eligible to serve
on the Committee unless he is then a "disinterested person" within the meaning
of Paragraph (d)(3) of Rule 16b-3 of the Securities and Exchange Commission
("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as
amended (the "Act"), if and as the Rule is then in effect.
4. Amendment and Discontinuance of the Plan. The Board of
Directors of the Company may amend, suspend or terminate the Plan; provided,
however, that each such amendment of the Plan (a) extending the period within
which options may be granted under the Plan, (b) increasing the number of
shares of Common Stock to be optioned under the Plan except as provided in
Article II, Paragraph 3(e), Article III, Paragraph 3(e), and Article IV,
Paragraph 5(e), (c) reducing the exercise prices per share provided in the
Plan, (d) changing the class of employees to whom options may be granted under
Article II or III, (e) modifying the provisions of Article IV, or (f) granting
options to Non-Employee Directors other than pursuant to Article IV, shall, in
each case, be subject to approval by the stockholders of the Company; provided,
further, however, that no amendment, suspension or termination of the Plan may
cause the Plan to fail to meet the requirements of Rule 16b-3 or may, without
the consent of the holder of an option granted under Article II, III, or IV,
terminate such option or adversely affect such person's rights in any material
respect.
5. Granting of Options to Employees. The Committee shall
have authority to grant, prior to the expiration date of the Plan, to such
eligible employees and officers as may be selected by it ("Employee
Optionees"), options to purchase, on the terms and conditions hereinafter set
forth in Articles II and III, authorized but unissued, or reacquired, shares of
Common Stock. The Committee shall also have authority to determine whether such
options granted to Employee Optionees are granted pursuant to Article II or
Article III, as hereinafter set forth. Options granted to Employee Optionees
under Article III shall be "incentive stock options" as
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<PAGE> 3
defined in Section 422A of the Internal Revenue Code of 1986, as amended
("Code"), and are hereinafter referred to as "incentive stock options." All
other options granted to Employee Optionees under the Plan shall be granted
pursuant to Article II, and are hereinafter referred to as "nonqualified
options." In selecting Employee Optionees, and in determining the number of
shares to be covered by each option granted to Employee Optionees the Committee
may consider the office or position held by the Employee Optionee, the Employee
Optionee's degree of responsibility for and contribution to the growth and
success of the Company, the Employee Optionee's length of service, age,
promotions, potential and any other factors which it may consider relevant.
6. Granting of Options to Non-Employee Directors.
All options granted to Non-Employee Directors shall be options to purchase, on
the terms and conditions hereinafter set forth in Article IV, authorized but
unissued, or reacquired, shares of Common Stock and shall be nonqualified
options.
7. Effective Date. The Plan shall become effective as of
January 28, 1987 and shall expire on November 15, 1996.
8. Miscellaneous. All references in the Plan to
"Articles," "Paragraphs," and other subdivisions refer to the corresponding
Articles, Paragraphs, and subdivisions of the Plan.
9. Rule 16b-3 Compliance. The Company intends:
(a) that the Plan meet the requirements of Rule
16b-3;
(b) that participation by Non-Employee Directors
under Article IV of the Plan will not prohibit them from being
"disinterested persons" within the meaning of Rule 16b-3(d)(3) with
respect to administration of the Plan or with respect to
administration of any other plan of the Company;
(c) that transactions of the type specified in the
first paragraph of Rule 16b-3 by Non-Employee Directors pursuant to
Article IV of the Plan will be exempt from the operation of Section
16(b) of the Act; and
(d) that transactions of the type specified in the
first paragraph of Rule 16b-3 by officers of the Company (whether or
not they are directors) pursuant to the Plan will be exempt from the
operation of Section 16(b) of the Act. In all cases, the terms,
provisions, conditions and limitations of the Plan shall be construed
and interpreted consistent with the Company's intent as stated in this
Article I, Paragraph 9.
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<PAGE> 4
ARTICLE II
NONQUALIFIED STOCK OPTIONS
1. Eligible Employees. Key employees and officers (whether
or not they are directors) of the Company, its subsidiaries and affiliated
entities shall be eligible to receive nonqualified options under this Article
II.
2. Calculation of Exercise Price. The exercise price to be
paid for each share of Common Stock deliverable upon exercise of each
nonqualified option granted under Article II shall be equal to the fair market
value per share of Common Stock at the time of grant as determined by the
Committee, based on the composite transactions in the Common Stock as reported
by The Wall Street Journal, and shall not be less than the lesser of (i) the
per share price of the last sale of Common Stock on the trading day prior to
the grant of such option, and (ii) the arithmetic average of the closing prices
per share of the Common Stock on all days on which such stock was traded during
the 90-day period before the date of grant. The exercise price for each
nonqualified option granted under Article II shall be subject to adjustment as
provided in Article II, Paragraph 3(e).
3. Terms and Conditions of Options. Nonqualified options
granted under Article II shall be in such form as the Committee may from time
to time approve. Options granted under Article II shall be subject to the
following terms and conditions and may contain such additional terms and
conditions, not inconsistent with Article II, as the Committee shall deem
desirable:
(a) Option Period and Conditions and limitations on
Exercise. Subject to Article II, Paragraph 4, no nonqualified option
granted under Article II shall be exercisable with respect to any of
the shares subject to the option later than the date which is ten
years after the date of grant (the "Nonqualified Option Expiration
Date"). To the extent not prohibited by other provisions of the Plan,
each nonqualified option granted under Article II shall be exercisable
at such time or times as the Committee in its discretion may determine
at or prior to the time such option is granted; provided, however,
that unless the Committee determines otherwise, each nonqualified
option granted under Article II shall be exercisable from time to
time, in whole or in part, at any time prior to the Nonqualified
Option Expiration Date.
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<PAGE> 5
(b) Termination of Employment and Death. For purposes
of Article II and each nonqualified option granted under Article II,
an Employee Optionee's employment shall be deemed to have terminated
at the close of business on the day preceding the first date on which
he is no longer for any reason whatsoever (including his death)
employed by the Company or a subsidiary or affiliated entity of the
Company. If an Employee Optionee's employment is terminated for any
reason whatsoever (including his death), each nonqualified option
granted to him under Article II and all of his rights thereunder shall
wholly and completely terminate:
(1) At the time the Employee Optionee's
employment is terminated, with respect to options not then
exercisable; or
(2) At the time the Employee Optionee's
employment is terminated if his employment is terminated
because he is discharged for fraud, theft or embezzlement
committed against the Company or a subsidiary, affiliated
entity or customer of the Company, or for conflict of
interest (other than legitimate competition); or
(3) At the expiration of a period of one year
after the Employee Optionee's death (but in no event later
than the Nonqualified Option Expiration Date) if the Employee
Optionee's employment is terminated by reason of his death.
To the extent exercisable, a nonqualified option granted
under Article II may be exercised by the Employee Optionee'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
(4) Unless it is otherwise provided in the option
agreement, at the expiration of a period of three years after
the Employee Optionee's employment is terminated because of
retirement or disability (but in no event later than the
Nonqualified Option Expiration Date); or
(5) At the expiration of a period of three months
after the Employee Optionee's employment is terminated (but
in no event later than the Nonqualified Option Expiration
Date) if the Employee Optionee's employment is terminated for
any reason other than his death, retirement, disability or
the reasons specified in Article II, Paragraph (b)(2), with
respect to options then exercisable.
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<PAGE> 6
(c) Manner of Exercise. In order to exercise a
nonqualified option granted under Article II, the person or persons
entitled to exercise it shall deliver to the Company payment in full
for the shares being purchased, together with any required withholding
tax. The payment of the exercise price for each option granted under
Article II and any required withholding tax shall either be in cash or
through delivery to the Company of shares of Common Stock, or by any
combination of cash or shares; the value of each share of Common Stock
delivered shall be deemed to be equal to the per share price of the
last sale of Common Stock on the trading day prior to the date the
option is exercised, based on the composite transactions in the Common
Stock as reported in The Wall Street Journal. If the Committee so
requires, such person or persons shall also deliver a written
representation that all shares being purchased are being acquired for
investment and not with a view to, or for resale in connection with,
any distribution of such shares.
(d) Options Not Transferable. No nonqualified option
granted under Article II shall be transferable otherwise than by will
or by the laws of descent and distribution and, during the lifetime of
the Employee Optionee to whom any such option is granted, it shall be
exercisable only by the Employee Optionee. Any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of, or to subject to
execution, attachment or similar process, any nonqualified option
granted under Article II, or any right thereunder, contrary to the
provisions hereof, shall be void and ineffective, shall give no right
to the purported transferee, and shall, at the sole discretion of the
Committee, result in forfeiture of the option with respect to the
shares involved in such attempt.
(e) Adjustment of Shares. In the event that at any
time after the effective date of the Plan the outstanding shares of
Common Stock are changed into or exchanged for a different number or
kind of shares of the Company or other securities of the Company by
reason of merger, consolidation, recapitalization, reclassifica- tion,
stock split, stock dividend, or combination of shares, the Committee
shall make an appropriate and equitable adjustment in the number and
kind of shares subject to Article II (including shares as to which all
outstanding nonqualified options granted under Article II, or portions
thereof then unexercised, shall be exercisable), to the end that after
such event the shares subject to Article II of the Plan and each
Employee Optionee's proportionate interest shall be maintained as
before the occurrence of such event. Such adjustment in an outstanding
nonqualified option granted under Article II
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<PAGE> 7
shall be made without change in the total price applicable to the
option or the unexercised portion of the option (except for any change
in the aggregate price resulting from rounding-off of share quantities
or prices) and with any necessary corresponding adjustment in exercise
price per share. Any such adjustment made by the Committee shall be
final and binding upon all Employee Optionees, the Company, and all
other interested persons.
(f) Listing and Registration of Shares. Each
nonqualified option granted under Article II shall be subject to the
requirement that if at any time the Committee determines, in its
discretion, that the listing, registration, or qualification of the
shares subject to such option under any securities exchange or under
any state or Federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition
of, or in connection with, the issue or purchase of shares thereunder,
such option may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall have
been effected or obtained and the same shall have been free of any
conditions not acceptable to the Committee.
4. Amendment. The Committee may, with the consent of the
person or persons entitled to exercise any outstanding nonqualified option
granted under Article II, amend such nonqualified option; provided, however,
that any such amendment increasing the number of shares of Common Stock subject
to such option (except as provided in Article II, Paragraph 3(e)) or reducing
the exercise price per share of such option (except as provided in Article II,
Paragraph 3(e)) shall in each case be subject to approval by the stockholders
of the Company. The Committee may at any time or from time to time, in its
discretion, in the case of any nonqualified option previously granted under
Article II which is not then immediately exercisable in full, accelerate the
time or times at which such option may be exercised to any earlier time or
times. The Committee, in its absolute discretion, may grant to holders of
outstanding nonqualified options granted under Article II, in exchange for the
surrender and cancellation of such options, new options having exercise prices
lower (or higher) than the exercise price provided in the options so
surrendered and cancelled and containing such other terms and conditions as the
Committee may deem appropriate.
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<PAGE> 8
5. Other Provisions.
(a) The person or persons entitled to exercise,
or who have exercised, a nonqualified option granted under Article II
shall not be entitled to any rights as a stockholder of the Company
with respect to any shares subject to such option until he shall have
become the holder of record of such shares.
(b) No nonqualified option granted under Article
II shall be construed as limiting any right which the Company or any
subsidiary or affiliated entity of the Company may have to terminate
at any time, with or without cause, the employment of any person to
whom such option has been granted.
(c) Notwithstanding any provision of the Plan or
the terms of any nonqualified option granted under Article II, the
Company shall not be required to issue any shares hereunder if such
issuance would, in the judgment of the Committee, constitute a
violation of any state or Federal law or of the rules or regulations
of any governmental regulatory body.
ARTICLE III
INCENTIVE STOCK OPTIONS
1. Eligible Employees. Key employees and officers
(whether or not they are directors) of the Company, its subsidiaries and
affiliated entities shall be eligible to receive incentive stock options under
this Article III. As used in this Article III, the terms "Parent Corporation"
and "Subsidiary Corporation" shall have the meanings ascribed to them in
Section 425 of the Code.
2. Calculation of Exercise Price. The exercise price to be
paid for each share of Common Stock deliverable upon exercise of each incentive
stock option granted under Article III shall be equal to the fair market value
per share of Common Stock at the time of grant as determined by the Committee,
based on the composite transactions in the Common Stock as reported by The Wall
Street Journal, and shall not be less than the per share price of the last sale
of Common Stock on the trading day prior to the grant of such option; provided,
however, that in the case of an Employee Optionee who, at the time such option
is granted, owns (within the meaning of Section 425(d) of the Code) more than
10% of the total combined voting power of all classes of stock of the Company
or of its Parent Corporation or any Subsidiary Corporation, then the exercise
price per share shall be at least 110% of the fair market value per share of
Common Stock at the time of grant. The exercise price for each incentive stock
option shall be subject to adjustment as provided in Article III, Paragraph
3(e).
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<PAGE> 9
3. Terms and Conditions of Options. Incentive stock
options granted under Article III shall be in such form as the Committee may
from time to time approve. Options granted under Article III shall be subject
to the following terms and conditions and may contain such additional terms and
conditions, not inconsistent with Article III, as the Committee shall deem
desirable:
(a) Option Period and Conditions and Limitations on
Exercise. Subject to Article III, Paragraph 4, no incentive stock
option granted under Article III shall be exercisable with respect to
any of the shares subject to such option later than the date which is
ten years after the date of grant; provided, however, that in the case
of an Employee Optionee who, at the time such option is granted, owns
(within the meaning of Section 425(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company
or of its Parent Corporation or any Subsidiary Corporation, then such
option shall not be exercisable with respect to any of the shares
subject to such option later than five years after the date of grant.
The date on which an incentive stock option ultimately becomes
unexercisable under the previous sentence is hereinafter referred to
as the "ISO Expiration Date." To the extent not prohibited by other
provisions of the Plan, each incentive stock option granted under
Article III shall be exercisable at such time or times as the
Committee in its discretion may determine at or prior to the time such
option is granted; provided, however, that unless the Committee
determines otherwise, each incentive stock option granted under
Article III shall be exercisable from time to time, in whole or in
part, subject to the dollar limitations set forth in Article III,
Paragraph 3(g), at any time prior to the ISO Expiration Date.
(b) Termination of Employment and Death. For purposes
of Article III and each incentive stock option granted under Article
III, an Employee Optionee's employment shall be deemed to have
terminated at the close of business on the day preceding the first
date on which he is no longer for any reason whatsoever (including his
death) employed by the Company or a subsidiary or affiliated entity of
the Company. If an Employee Optionee's employment is terminated by any
reason whatsoever (including his death), each incentive stock option
granted to him and all of his rights thereunder shall wholly and
completely terminate:
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<PAGE> 10
(1) At the time the Employee Optionee's
employment is terminated, with respect to options not then
exercisable; or
(2) At the time the Employee Optionee's
employment is terminated if his employment is terminated
because he is discharged for fraud, theft or embezzlement
committed against the Company or a subsidiary, affiliated
entity or customer of the Company, or for conflict of
interest (other than legitimate competition); or
(3) At the expiration of a period of one year
after the Employee Optionee's death (but in no event later
than the ISO Expiration Date) if the Employee Optionee's
employment is terminated by reason of his death. To the
extent exercisable, an incentive stock option granted under
Article III of the Plan may be exercised by the Employee
Optionee'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
(4) Unless it is otherwise provided in the option
agreement, at the expiration of a period of three years after
the Employee Optionee's employment is terminated because of
retirement or disability (but in no event later than the ISO
Expiration Date); or
(5) At the expiration of a period of three months
after the Employee Optionee's employment is terminated (but
in no event later than the ISO Expiration Date) if the
Employee Optionee's employment is terminated for any other
reason than his death, retirement, disability or the reasons
specified in Article III, Paragraph (b)(2), with respect to
options then exercisable.
In the event and to the extent that an incentive
stock option granted under Article III is not exercised (i)
within three months after the Employee Optionee's employment
is terminated because of retirement or disability not within
the meaning of Section 22(e)(3) of the Code or (ii) within
one year after the Employee Optionee's employment is
terminated because of disability within the meaning of
Section 22(e)(3) of the Code, such option shall be taxed as a
nonqualified option and shall be subject to the manner of
exercise provisions described in Article II, Paragraph 3(c).
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<PAGE> 11
(c) Manner of Exercise. In order to exercise an
incentive stock option granted under Article III, the person or
persons entitled to exercise it shall deliver to the Company payment
in full for the shares being purchased. The payment of the exercise
price for each option granted under Article III shall either be in
cash or through delivery to the Company of shares of Common Stock, or
by any combination of cash or shares; the value of each share of
Common Stock delivered shall be deemed to be equal to the per share
price of the last sale of Common Stock on the trading day prior to the
date the option is exercised, based on the composite transactions in
the Common Stock as reported in The Wall Street Journal. If the
Committee so requires, such person or persons shall also deliver a
written representation that all shares being purchased are being
acquired for investment and not with a view to, or for resale in
connection with, any distribution of such shares.
(d) Options Not Transferable. No incentive stock
option granted under Article III shall be transferable otherwise than
by will or by the laws of descent and distribution and, during the
lifetime of the Employee Optionee to whom any option is granted, it
shall be exercisable only by such Employee Optionee. Any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of, or to
subject to execution, attachment or similar process, any incentive
stock option granted under Article III, or any right thereunder,
contrary to the provisions hereof, shall be void and ineffective,
shall give no right to the purported transferee, and shall, at the
sole discretion of the Committee, result in forfeiture of the option
with respect to the shares involved in such attempt.
(e) Adjustment of Shares. In the event that at any
time after the effective date of the Plan the outstanding shares of
Common Stock are changed into or exchanged for a different number or
kind of shares of the Company or other securities of the Company by
reason of merger, consolidation, recapitalization, reclassifica-,
tion, stock split, stock dividend, or combination of shares, the
Committee shall make an appropriate and equitable adjustment in the
number and kind of shares subject to Article III (including shares as
to which all outstanding incentive stock options granted under Article
III, or portions thereof then unexercised, shall be exercisable), to
the end that after such event the shares subject to Article III of the
Plan and each Employee Optionee's proportionate interest shall be
maintained as before the occurrence of such event. Such adjustment in
an outstanding incentive stock option shall be made without change in
the total price applicable to the option or the unexercised portion of
the option (except
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<PAGE> 12
for any change in the aggregate price resulting from rounding-off of
share quantities or prices) and with any necessary corresponding
adjustment in exercise price per share. Any such adjustment made by
the Committee shall be final and binding upon all Employee Optionees,
the Company, and all other interested persons. Any adjustment of an
incentive stock option under this paragraph shall be made in such
manner as not to constitute a "modification" within the meaning of
Section 425(h)(3) of the Code.
(f) Listing and Registration of Shares. Each incentive
stock option granted under Article III shall be subject to the
requirement that if at any time the Committee determines, in its
discretion, that the listing, registration, or qualification of the
shares subject to such option upon any securities exchange or under
any state or Federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition
of, or in connection with, the issue or purchase of shares thereunder,
such option may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall have
been effected or obtained and the same shall have been free of any
conditions not acceptable to the Committee.
(g) Limitation on Amount. Notwithstanding any other
provision of the Plan, the aggregate fair market value (determined as
of the time the incentive stock option is granted) of the Common Stock
with respect to which incentive stock options are exercisable for the
first time by an Employee Optionee during any calendar year cannot
exceed $100,000 as provided under Section 422A(b)(7) of the Code.
4. Amendment. The Committee may, with the consent of the
person or persons entitled to exercise any outstanding incentive stock option
granted under Article III, amend such incentive stock option; provided,
however, that any such amendment increasing the number of shares of Common
Stock subject to such option (except as provided in Article III, Paragraph
3(e)) or reducing the exercise price per share of such option (except as
provided in Article III, Paragraph 3(e)) shall in each case be subject to
approval by the stockholders of the Company. Subject to Article III, Paragraph
3(g), the Committee may at any time or from time to time, in its discretion, in
the case of any incentive stock option previously granted under Article III
which is not then immediately exercisable in full, accelerate the time or times
at which such option may be exercised to any earlier time or times.
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<PAGE> 13
5. Other Provisions.
(a) The person or persons entitled to exercise,
or who have exercised, an incentive stock option granted under Article
III shall not be entitled to any rights as a stockholder of the
Company with respect to any shares subject to such option until he
shall have become the holder of record of such shares.
(b) No incentive stock option granted under
Article III shall be construed as limiting any right which the Company
or any subsidiary or affiliated entity of the Company may have to
terminate at any time, with or without cause, the employment of any
person to whom such option has been granted.
(c) Notwithstanding any provision of the Plan or
the terms of any incentive stock option granted under Article III, the
Company shall not be required to issue any shares hereunder if such
issuance would, in the judgment of the Committee, constitute a
violation of any state or Federal law or of the rules or regulations
of any governmental regulatory body.
(d) The Committee may require any person who
exercises an incentive stock option to give prompt notice to the
Company of any disposition of shares of Common Stock acquired upon
exercise of an incentive stock option within one year after the
transfer of shares to such person.
ARTICLE IV
NON-EMPLOYEE DIRECTOR STOCK OPTIONS
1. Eligible Persons. Persons who are members of the Board
of Directors of the Company but are neither employees nor officers of the
Company, its subsidiaries or affiliated entities ("Non-Employee Directors")
shall be eligible to receive options under, and solely under, this Article IV.
2. Initial Granting of Options to Non-Employee Directors.
Subject to the limitation of the number of shares of Common Stock set forth in
Article I, Paragraph 2, each person who is a Class I or II Non-Employee
Director on the date of the Company's 1989 Annual Meeting of Stockholders and
each Class III Non-Employee Director elected at such meeting (collectively the
"1989 Non-Employee Directors"), is hereby granted, effective on such date
(which date shall be the date
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<PAGE> 14
of grant for purposes hereof), a nonqualified option to purchase 2,000 shares
of Common Stock. Subject to the limitation of the number of shares of Common
Stock set forth in Article I, Paragraph 2, each Non-Employee Director who is
elected to the Board of Directors of the Company after the date of the
Company's 1989 Annual Meeting of Stockholders (excluding the 1989 Non-Employee
Directors), is hereby granted, effective on the date of his initial election
(which date shall be the date of grant for purposes hereof), a nonqualified
option to purchase 2,000 shares of Common Stock.
3. Annual Granting of Options to Non-Employee Directors.
Subject to the limitation of the number of shares of Common Stock set forth in
Article I, Paragraph 2, a nonqualified option to purchase 1,000 shares of
Common Stock is hereby granted, effective the fourth Wednesday of October of
1989 and each year thereafter until the expiration of the Plan, to each person
who is a Non-Employee Director on each such date (which date shall be the date
of grant for purposes hereof).
4. Calculation of Exercise Price. The exercise price to be
paid for each share of Common Stock deliverable upon exercise of each option
granted under Article IV shall be equal to the lesser of (a) the per share
price of the last sale of Common Stock on the trading day prior to the grant of
such option, based on the composite transactions in the Common Stock as
reported by The Wall Street Journal, and (b) the arithmetic average of the
closing prices per share of Common Stock on all days in which such stock was
traded during the 90-day period before the date of grant, based on the
composite transactions in the Common Stock as reported by The Wall Street
Journal. The exercise price for each option granted under Article IV shall be
subject to adjustment as provided in Article IV, Paragraph 5(e).
5. Terms and Conditions of Options. Subject to the
provisions of this Article IV, Paragraph 5, options granted under Article IV
shall be in such form as the Committee may from time to time approve. Options
granted under Article IV shall be subject to the following terms and
conditions:
(a) Option Period and Conditions and Limitations on
Exercise. Each option granted under Article IV shall be exercisable
from time to time, in whole or in part, at any time after one year
from the date of grant and prior to the date which is seven years
after the date of grant (the "Option Expiration Date").
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<PAGE> 15
(b) Termination of Directorship and Death. For
purposes of Article IV and each option granted under Article IV, a
Non-Employee 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
Non-Employee Director's directorship is terminated for any reason
whatsoever (including his death), each option granted to him under
Article IV and all of his rights thereunder shall wholly and
completely terminate:
(1) At the time the Non-Employee Director's
directorship is terminated if termination occurs within the
one-year period following the date of grant; or
(2) At the time the Non-Employee Director's
directorship is terminated if his directorship is terminated
as a result of his removal from the Board of Directors for
cause (other than disability or in accordance with the
provisions of the Company's Bylaws regarding automatic
termination of directors' terms of office); or
(3) At the expiration of a period of one year
after the Non-Employee Director's death (but in no event
later than the Option Expiration Date) if the Non-Employee
Director's directorship is terminated by reason of his death.
To the extent exercisable, an option granted under Article IV
may be exercised by the Non-Employee 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
(4) At the expiration of a period of three years
after the Non-Employee 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 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
(5) At the expiration of a period of three months
after the Non-Employee Director's directorship is terminated
(but in no event later than the Option Expiration Date) if
the Non-Employee Director's directorship is terminated for
any reason other than the reasons specified in Article IV,
Paragraphs (b)(2) through (b)(4).
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<PAGE> 16
(c) Manner of Exercise. In order to exercise an option
granted under Article IV, the person or persons entitled to exercise
it shall deliver to the Company payment in full for the shares being
purchased, together with any required withholding tax. The payment of
the exercise price for each option granted under Article IV and any
required withholding tax shall either be in cash or through delivery
to the Company of shares of Common Stock, or by any combination of
cash or shares; the value of each share of Common Stock delivered
shall be deemed to be equal to the per share price of the last sale of
Common Stock on the trading day prior to the date the option is
exercised, based on the composite transactions in the Common Stock as
reported in The Wall Street Journal. If the Committee so requires,
such person or persons shall also deliver a written representation
that all shares being purchased are being acquired for investment and
not with a view to, or for resale in connection with, any distribution
of such shares.
(d) Options Not Transferable. No option granted under
Article IV shall be transferable otherwise than by will or by the laws
of descent and distribution and, during the lifetime of the
Non-Employee Director to whom any such option is granted, it shall be
exercisable only by such Non-Employee Director. Any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of, or to
subject to execution, attachment or similar process, any option
granted under Article IV, or any right thereunder, contrary to the
provisions hereof, shall be void and ineffective, shall give no right
to the purported transferee, and shall, at the sole discretion of the
Committee, result in forfeiture of the option with respect to the
shares involved in such attempt.
(e) Adjustment of Shares. In the event that at any
time after the effective date of the Plan the outstanding shares of
Common Stock are changed into or exchanged for a different number or
kind of shares of the Company or other securities of the Company by
reason of merger, consolidation, recapitalization, reclassifica- tion,
stock split, stock dividend, or combination of shares, the Committee
shall make an appropriate and equitable adjustment in the number and
kind of shares subject to Article IV (including shares as to which all
outstanding options granted under Article IV, or portions thereof then
unexercised, shall be exercisable), to the end that after such event
the shares subject to Article IV of the Plan and each Non-Employee
Director's proportionate interest shall be maintained as before the
occurrence of such event. Such adjustment in an outstanding option
granted under Article IV shall be made without change in the total
price applicable to the option or the unexercised portion of the
option (except
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<PAGE> 17
for any change in the aggregate price resulting from rounding-off of
share quantities or prices) and with any necessary corresponding
adjustment in exercise price per share. Any such adjustment made by
the Committee shall be final and binding upon all Non-Employee
Directors, the Company, and all other interested persons.
(f) Listing and Registration of Shares. Each option
granted under Article IV shall be subject to the requirement that if
at any time the Committee determines, in its discretion, that the
listing, registration, or qualification of the shares subject to such
option under any securities exchange or under any state or Federal
law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection with,
the issue or purchase of shares thereunder, such option may not be
exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or
obtained and the same shall have been free of any conditions not
acceptable to the Committee.
6. Other Provisions.
(a) The person or persons entitled to exercise, or who
have exercised, an option granted under Article IV shall not be
entitled to any rights as a stockholder of the Company with respect to
any shares subject to such option until he shall have become the
holder of record of such shares.
(b) No option granted under Article IV shall be
construed as limiting any right which either the stockholders of the
Company or the Board of Directors of the Company may have to remove at
any time, with or without cause, any person to whom such option has
been granted from the Board of Directors of the Company.
(c) Notwithstanding any provision of the Plan or the
terms of any option granted under Article IV, the Company shall not be
required to issue any shares hereunder if such issuance would, in the
judgment of the Committee, constitute a violation of any state or
Federal law or of the rules or regulations of any governmental
regulatory body.
<PAGE> 1
Exhibit 10.18
BAKER HUGHES INCORPORATED
1987 CONVERTIBLE DEBENTURE PLAN
(AMENDED AS OF OCTOBER 24, 1990)
1. Purpose. This plan, which shall be known as the Baker Hughes
Incorporated 1987 Convertible Debenture Plan and which is hereinafter referred
to as the "Plan," is intended to promote the interests of Baker Hughes
Incorporated (the "Company") and its stockholders by allowing officers and other
key personnel of the Company and its subsidiaries (the "Purchasers") the
opportunity to invest in high yield corporate debt in the form of the Company's
floating interest rate subordinated Debentures (the "Debentures") which are
convertible into shares of $1.00 Par Value Preferred Stock of the Company (the
"Preferred Stock"), which shares of Preferred Stock are convertible into shares
of common stock, $1.00 par value, of the Company (the "Common Stock"), thereby
giving key personnel added incentive to work toward the continued growth and
success of the Company. The Company's Board of Directors also contemplates that
the Plan will enable the Company and its subsidiaries to compete more
effectively for the services of management personnel needed for the continued
growth and success of the Company.
2. Issuance-of the Debentures. The Debentures are to be issued pursuant
to an indenture and any supplemental indenture thereto (collectively, an
"Indenture"). The Debentures are to be issued in series; each series may be
issued under a separate Indenture, or two or more series may be issued under a
single Indenture. Each series will be due not earlier than seven years from the
date of issuance, or such earlier date as the Company redeems a series of
Debentures or repays an individual Debenture (with respect to such series or
individual Debenture, the "Due Date"). The Company's Board of Directors or its
Compensation Committee (the "Committee") may extend the term of a series for any
period of time from seven years up to ten years as determined by the Board of
Directors or Committee without shareholder approval, as set forth in the
Indenture for the series. The Debentures shall be issuable in such form and
denominations as the Company may from time to time approve.
3. General Terms and Conditions of the Debentures. The Debentures will
be convertible into fully paid and nonassessable shares of Preferred Stock which
will be immediately convertible into fully paid and nonassessable shares of
Common Stock of the Company at such time or times as the Committee in its
discretion may determine at or prior to the time such Debentures are issued
until the close of business on the Due Date, at the conversion price in effect
at
<PAGE> 2
the time of conversion. Each series of Debentures shall be convertible into a
separate series of Preferred Stock.
After a Debenture becomes convertible, a Purchaser who retires or who
becomes disabled and discontinues his or her employment with the Company must
exercise the privilege to convert within three years after retirement or
disability. If a Purchaser dies owning a Debenture or Debentures, the estate of
the deceased Purchaser or a beneficiary of the estate to whom the Debenture is
distributed must exercise the privilege to convert such Debenture or Debentures
during the one year period following the Purchaser's death. A Purchaser
discharged by the Company for fraud, theft or embezzlement committed against the
Company or a customer, or for a conflict of interest (other than legitimate
competition) must exercise the conversion privilege prior to such termination of
employment. A Purchaser who terminates his or her employment with the Company
for any reason other than those described above must exercise any conversion
privilege of any and all Debentures held by such Purchaser within three months
after termination of employment. If the conversion privilege is not exercised
within these periods, the privilege terminates and the Company will prepay any
Debenture the conversion privilege of which terminates as a result of the
Purchaser's retirement, disability, death or discharge. In no event may any
Purchaser, or the estate of a deceased Purchaser or a beneficiary under such
estate, exercise the conversion privilege associated with the Debenture prior to
the time the Debenture becomes convertible or after the end of the term of the
Debenture, as determined by the Committee.
A Purchaser may not sell, assign, transfer, pledge or otherwise
hypothecate a Debenture except by will or the laws of descent and distribution.
However, in certain cases, Purchasers may pledge Debentures as a security for
loans which will provide all or part of the financing necessary to purchase the
Debentures, and such pledges may be made without the Company's consent by
providing the Company with written notice of the pledge. The conversion right of
any Debenture shall be exercisable only by the Purchaser thereof, his estate or
the beneficiaries of such estate.
If a Purchaser pledges a Debenture in the permitted manner described
above, the conversion privilege will not be exercisable during such time as the
Debenture is pledged. Upon notice from the Purchaser and the lender to which the
Debenture was pledged that the obligation has been discharged, the conversion
privilege will again be exercisable. If a Purchaser sells, assigns, transfers,
pledges (except pledges requiring only written notice to the Company) or
otherwise hypothecates a Debenture without the Company's consent, the conversion
right will permanently cease to exist. Should the conversion right of a
Debenture so terminate, the Company has the option, but not the obligation, to
prepay that Debenture.
<PAGE> 3
4. Authorized Amount of Debenture. The Company may issue up to
$30,000,000 in aggregate principal amount of all Debentures.
5. Effective Date. The Plan shall become effective as of January 28,
1987, and shall expire when all of the Company's obligations with respect to all
of the outstanding Debentures have been discharged; provided, however, that no
Debenture shall be issued after January 27, 1997.
6. Eligible Employees. The Committee shall have authority to sell
Debentures to such officers and other key employees of the Company or any
subsidiary of the Company as may be selected by it (the "Purchasers"). As used
in the Plan, the term "subsidiary" shall have the meaning ascribed to it in
Section 425 of the Internal Revenue Code of 1986, as amended.
7. Sales Price of Debentures. The Debentures shall be sold by the
Company at face value plus any accrued interest to the date of sale. In the
event that the Internal Revenue service determines that the value of a Debenture
at the time of sale exceeded its face value and if (a) the Company receives a
tax benefit as a result of that determination and (b) the Purchaser is taxed to
the extent of the excess, then the Company will pay to the Purchaser as
compensation the lesser of the Company's tax benefit with respect to the
Purchaser or the Purchaser's tax liability resulting from such determination,
provided the Purchaser has contested the imposition of such liability in a
manner which the Company determines to be appropriate under the circumstances.
8. Conversion Price. The price at which each share of Preferred Stock
shall be delivered upon conversion of a series of Debentures (the "conversion
price") shall be set (and not thereafter adjusted) at a price equal to the fair
market value per share of the Common Stock at the date of sale of such series of
Debentures, as determined by the Committee, based on the composite transactions
in the Common Stock as reported by the Wall Street Journal, and shall not be
less than the lesser of (i) the per share price of the last sale of the Common
Stock on the trading day prior to the date of sale of such series of Debentures
and (ii) the arithmetic average of the closing prices per share of the Common
Stock on all days on which the Common Stock was traded during the 90-day period
before the date of sale of such series of Debentures.
9. Administration. The Committee, consisting of persons appointed by
and holding office at the pleasure of the Board of Directors, shall administer
the Plan. No Debentures may be sold to any member of the Committee during the
term of his membership on the Committee. No person shall be eligible to serve on
the Committee unless he is then a "disinterested
<PAGE> 4
person" within the meaning of Paragraph (d)(3) of Rule 16b-3 under the
Securities Exchange Act of 1934 ("Rule 16b-3"), if and as such Rule is then in
effect.
The members of the Board of Directors may in their discretion at any
time exercise the administrative authority of the Committee; provided, however,
that no Director who is not a "disinterested person" shall participate in any
such action; provided further, however, that such Director may be counted
present for the purpose of determining a quorum at a meeting of the Board of
Directors and provided further that no such action may be taken without the
concurrence of a majority of the members of the Board of Directors eligible to
serve on the Committee.
Subject to the foregoing paragraphs and to the provisions of an
Indenture, the Committee shall interpret the Plan and the Debentures sold under
the Plan, shall make such rules as it deems necessary for the proper
administration of the Plan, shall make all other determinations necessary or
advisable for the administration of the Plan and shall correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any
Debenture in the manner and to the extent the Committee deems desirable to
administer the Plan or the Debenture.
10. Amendment and Discontinuance. The Board of Directors of the Company
may amend, suspend or terminate the Plan; provided, however, that the Board of
Directors may not revise the Plan in any way which would result in the Plan
failing to meet the requirements of Rule 16b-3. No amendment, suspension or
termination of the Plan may, without the consent of the holder of a Debenture,
terminate his Debenture or adversely affect his rights under the Debenture in
any material respect. Notwithstanding Paragraph 6 hereof and without limiting
this Paragraph 10, the Board of Directors of the Company shall be authorized to
amend the Plan in order to permit a Purchaser to designate a member of the
Purchaser's family to purchase Debentures in such Purchaser's stead, if the
Company has received an interpretative letter from the Securities and Exchange
commission or an opinion of counsel to the effect that such amendment to the
Plan would not disqualify the Plan from the exemption provided by Rule 16b-3.
11. Other Provisions.
(a) The Purchaser of a Debenture shall not be entitled to any
rights as a stockholder of the Company until such Purchaser has exercised the
conversion privilege contained in the Debenture.
<PAGE> 5
(b) No Debenture shall be construed as limiting any right
which the Company or any subsidiary of the Company may have to terminate at any
time, with or without cause, the employment of a Purchaser to whom a Debenture
has been sold.
(c) Notwithstanding any provisions of the Plan, the Indenture
or the terms of any Debenture sold pursuant to the Plan, (i) the Company shall
not be required to issue any Debentures hereunder if such issuance would, in the
judgment of the Committee, constitute a violation of any state or Federal law,
or of the rules or regulations of any governmental regulatory body and (ii) any
amount of interest paid or payable on a Debenture which exceeds the amount
legally payable to a Purchaser under the applicable usury laws will be paid by
the Company as compensation to the Purchaser.
(d) The Company will not voluntarily claim the benefit of any
usury law against Debenture holders and will resist any effort to compel it to
do so.
<PAGE> 1
Exhibit 10.20
AMENDMENT NO. 1997-1 TO THE
SUPPLEMENTAL RETIREMENT PLAN
This Amendment No. 1997-1 is made to the Baker Hughes
Incorporated Supplemental Retirement Plan ("the Plan"). Capitalized terms used
but not defined herein shall have the meanings ascribed to them in the Plan.
WHEREAS, Baker Hughes Incorporated (the "Company") has determined
that it is in its best interest and that of its stockholders to amend the Plan
as set forth herein;
NOW, THEREFORE, the Plan is amended as follows:
1. Article I, Section 1.1 of the Plan is amended by inserting
the following as new subsections (4) through (7):
(4) Beneficial Owner: The term "Beneficial Owner" shall have
the meaning set forth in Rule 13d-3 promulgated under the
Exchange Act.
(5) Cause: "Cause" for termination by the Company of the
Member's employment shall mean (i) the willful and
continued failure by the Member to substantially perform
the Member's duties with the Company (other than any such
failure resulting from the Member'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 Member) after a written
demand for substantial performance is delivered to the
Member by the CIC Committee, which demand specifically
identifies the manner in which the CIC Committee believes
that the Member has not substantially performed the
Member's duties, or (ii) the willful engaging by the
Member in conduct which is demonstrably and materially
injurious to the Company or its subsidiaries, monetarily
or
<PAGE> 2
otherwise. For purposes of clauses (i) and (ii) of this
definition, (x) no act, or failure to act, on the Member's
part shall be deemed "willful" unless done, or omitted to
be done, by the Member not in good faith and without
reasonable belief that the Member'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 CIC
Committee by clear and convincing evidence that Cause
exists.
(6) Change in Control: 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:
(A) 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 (C) below; or
(B) 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 Directors and any new director (other than
a director whose initial assumption of
2
<PAGE> 3
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
Directors 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
(C) 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 Com-
3
<PAGE> 4
pany 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
(D) 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.
For purposes of this Article I, Section 1.1(6)
only, the term "affiliate" shall have the meaning set
forth in Rule 12b-2 promulgated under Section 12 of the
Exchange Act.
4
<PAGE> 5
(7) "CIC Committee" means (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 Directors, 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 CIC Committee shall not
exceed six (6).
2. Article I, Section 1.1 of the Plan is amended by
renumbering subsections 1.1(4) through 1.1(11) as subsections 1.1(8) through
1.1(15), respectively.
3. Article I, Section 1.1 of the Plan is amended by inserting
the following as a new subsection 1.1(16):
(16) Exchange Act: The term "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended from time to
time.
4. Article I, Section 1.1 of the Plan is amended by
renumbering subsections 1.1(12) and 1.1(13) as subsections 1.1(17) and 1.1(18),
respectively.
5. Article I, Section 1.1 of the Plan is amended by inserting
the following as a new subsection 1.1(19):
(19) Good Reason: Good Reason for termination by the Member of
the Member's employment shall mean the occurrence (without
the Member's express written consent) after any Change in
Control, or prior to a Change in Control under the
circumstances described in clauses (2) and
5
<PAGE> 6
(3) of the fourth sentence of Article V, Section 5.2
hereof (treating all references in paragraphs (A) through
(G) 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 (A), (E), (F) or (G) below, such
act or failure to act is corrected prior to the effective
date of the Member's termination for Good Reason;
(A) the assignment to the Member of any duties
inconsistent with the status of the Member's position with
the Company or a substantial adverse alteration in the
nature or status of the Member's responsibilities from
those in effect immediately prior to the Change in
Control;
(B) a reduction by the Company in the Member'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;
(C) the relocation of the Member's principal place
of employment to a location more than 50 miles from the
Member's principal place of employment immediately prior
to the Change in Control or the Company's requiring the
Member to be based anywhere other than such principal
place of employment (or permitted relocation thereof)
except for re-
6
<PAGE> 7
quired travel on the Company's business to an extent
substantially consistent with the Member's present
business travel obligations;
(D) the failure by the Company to pay to the
Member any portion of the Member'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 Member 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;
(E) the failure by the Company to continue in
effect any compensation plan in which the Member
participates immediately prior to the Change in Control
which is material to the Member'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 Member'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 Member's
participation relative to other participants, as existed
immediately prior to the Change in Control;
(F) the failure by the Company to continue to
provide the Member with benefits substantially similar
7
<PAGE> 8
to those enjoyed by the Member under any of the Company's
pension, savings, life insurance, medical, health and
accident, or disability plans in which the Member 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 Company), the taking of any other
action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive the
Member of any material fringe benefit or perquisite
enjoyed by the Member at the time of the Change in
Control, or the failure by the Company to provide the
Member with the number of paid vacation days to which the
Member 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
(G) if the Member is party to an individual
employment, severance or other similar agreement with the
Company, any purported termination of the Member's
employment which is not effected pursuant to the notice of
termination and other procedures specified therein.
The Member's right to terminate the Member's
employment for Good Reason shall not be affected by the
Member's incapacity due to physical or mental illness.
The Member's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act
or
8
<PAGE> 9
failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the
existence of Good Reason, any claim by the Member that
Good Reason exists shall be presumed to be correct unless
the Company establishes to the CIC Committee by clear and
convincing evidence that Good Reason does not exist.
6. Article, Section 1.1 of the Plan is amended by renumbering
subsections 1.1(14) through 1.1(16) as subsections 1.1(20) through 1.1(22),
respectively.
7. Article I, Section 1.1 of the Plan is amended by inserting
the following as a new subsection 1.1(23):
(23) Person: The term "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 (A) the Company or any of its
subsidiaries, (B) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company
or any of its affiliates (as defined under subsection
1.1(5) hereof), (C) an underwriter temporarily holding
securities pursuant to an offering of such securities, or
(D) 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.
8. Article I, Section 1.1 of the Plan is amended by
renumbering subsections 1.1(17) through 1.1(19) as subsections 1.1(24) through
1.1(26), respectively.
9
<PAGE> 10
9. Article I, Section 1.1 of the Plan is amended by inserting
the following as a new subsection 1.1(27):
(27) Potential Change in Control: 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:
(A) the Company enters into an agreement, the
consummation of which would result in the occurrence of a
Change in Control;
(B) 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;
(C) 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
(D) the Directors adopt a resolution to the
effect that, for purposes of this Plan, a Potential Change
in Control has occurred.
10. Article I, Section 1.1 of the Plan is amended by
renumbering subsections 1.1(20) through 1.1(28) as subsections 1.1(28) through
1.1(36), respectively.
11. Article V, Section 5.2 of the Plan is amended by adding at
the end thereof the following:
10
<PAGE> 11
Notwithstanding the foregoing, in the event of a Change in
Control, each Member's Accounts created pursuant to this Plan,
including each Member's General Account and Base Contribution
Account, shall become fully vested in each such Member. A
Member's Accounts shall also become fully vested in such Member
if (1) such Member'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, (2) such Member 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 (1), or
(3) such Member's employment is terminated by the Company without
Cause or by the Member 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).
12. Article V, Section 5.3 of the Plan is amended (A) by
inserting at the beginning thereof the phrase "Except as provided in Paragraph
5.2," and (B) by deleting the word "A" that follows the insert provided in
clause (A) above and inserting in lieu thereof the word "a".
13. Article XII, Section 12.4 of the Plan is amended to add at
the end thereof the following:
Notwithstanding the foregoing, during the pendency of a Potential
Change in Control and for a period of twelve (12) months after
the cessation thereof, the Plan may
11
<PAGE> 12
not be terminated nor may it be amended in any manner adverse to
any Member.
The effective date of this Amendment No. 1997-1 shall be July 23,
1997; provided, however, that, in the event that (A) the Company is party to a
transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of the Plan and (C) 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 Directors and (ii) on the date hereof constitute the Directors 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
Directors 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 (a) this Amendment No. 1997-1 shall, to the extent
practicable, be interpreted so as to permit such accounting treatment, and (b)
to the extent that the application of clause (a) 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 Amendment No. 1997-1
disqualifies the transaction as a "pooling" transaction (including, if
applicable, this entire Amendment No. 1997-1), the Directors 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
12
<PAGE> 13
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.
Except as herein modified, the Plan shall remain in full force and effect.
BAKER HUGHES INCORPORATED
By: /s/ G.S. FINLEY
---------------------------
Title: CHIEF ADMINISTRATIVE OFFICER
13
<PAGE> 1
EXHIBIT 10.23
AMENDMENT NO. 1997-1 TO THE
1993 STOCK OPTION PLAN
This Amendment No. 1997-1 is made to the Baker Hughes
Incorporated 1993 Stock Option Plan ("the Plan"). Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Plan.
WHEREAS, Baker Hughes Incorporated (the "Company") has
determined that it is in its best interest and that of its stockholders to
amend the Plan as set forth herein;
NOW, THEREFORE, the Plan is amended as follows:
1. Article 1, Paragraph 11 of the Plan is amended in its
entirety to read as follows:
11. Change in Control.
(a) Notwithstanding any provision of the Plan to
the contrary, in the event of an occurrence of a Change in
Control, all options granted pursuant to this Plan shall
become fully vested and exercisable.
(b) Notwithstanding any provision of the Plan to
the contrary, all outstanding options held by an Employee
Optionee shall become fully vested and exercisable as of the
effective date of termination of such Employee Optionee's
employment if (i) such Employee Optionee'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 Optionee 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 Optionee's employment is terminated by
<PAGE> 2
the Company without Cause or by the Employee Optionee 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 Act.
(d) "Beneficial Owner" shall have the meaning set
forth in Rule 13d-3 promulgated under the Act.
(e) "Cause" for termination by the Company of the
Employee Optionee's employment shall mean (i) the willful and
continued failure by the Employee Optionee to substantially
perform the Employee Optionee's duties with the Company (other
than any such failure resulting from the Employee Optionee'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 Optionee) after
a written demand for substantial performance is delivered to
the Employee Optionee by the CIC Committee, which demand
specifically identifies the manner in which the CIC Committee
believes that the Employee Optionee has not substantially
performed the Employee Optionee's duties, or (ii) the willful
engaging by the Employee Optionee 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 Optionee's part shall be deemed "willful"
unless done, or omitted to be done, by the Employee Optionee
not in good faith and without reasonable belief that the
Employee Optionee'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
2
<PAGE> 3
establishes to the CIC 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
3
<PAGE> 4
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
4
<PAGE> 5
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.
(f) "CIC 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 CIC Committee
shall not exceed six (6).
(g) "Good Reason" for termination by the
Employee Optionee of the Employee Optionee's employment shall
mean the occurrence (without the Employee Optionee'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 Article I, Paragraph 11(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 Optionee's termination for Good
Reason;
(1) the assignment to the Employee
Optionee of any duties inconsistent with the status of the
Employee Optionee's position with the Company or a substantial
adverse alteration in the nature or status of the Employee
Optionee's responsibilities from those in effect immediately
prior to the Change in Control;
5
<PAGE> 6
(2) a reduction by the Company in
the Employee Optionee'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
Optionee's principal place of employment to a location more
than 50 miles from the Employee Optionee's principal place of
employment immediately prior to the Change in Control or the
Company's requiring the Employee Optionee 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 Optionee's present business travel obligations;
(4) the failure by the Company to
pay to the Employee Optionee any portion of the Employee
Optionee'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 Optionee
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
Optionee participates immediately prior to the Change in
Control which is material to the Employee Optionee's total
6
<PAGE> 7
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 Optionee'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 Optionee'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 Optionee with benefits
substantially similar to those enjoyed by the Employee
Optionee under any of the Company's pension, savings, life
insurance, medical, health and accident, or disability plans
in which the Employee Optionee 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 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 Optionee of any material fringe benefit
or perquisite enjoyed by the Employee Optionee at the time of
the Change in Control, or the failure by the Company to
provide the Employee Optionee with the number of paid vacation
days to which the Employee Optionee 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 Optionee is
party to an individual employment, severance or other similar
agreement with the Company, any purported termination of the
Employee Optionee's employment which is not effected pursuant
to the notice of termination or other procedures specified
therein.
7
<PAGE> 8
The Employee Optionee's right to terminate the
Employee Optionee's employment for Good Reason shall not be
affected by the Employee Optionee's incapacity due to physical
or mental illness. The Employee Optionee'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 Optionee
that Good Reason exists shall be presumed to be correct unless
the Company establishes to the CIC Committee by clear and
convincing evidence that Good Reason does not exist.
(h) "Person" shall have the meaning
given in Section 3(a)(9) of the 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.
(i) 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;
8
<PAGE> 9
(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.
2. Article II, Paragraph 3(b)(2)(i) of the Plan is
amended by inserting, immediately following the phrase "(other than legitimate
competition)", the following:
, if such termination of employment occurs prior to a Change
in Control or after the second anniversary of a Change in
Control, and thirty days following such termination of
employment if such termination occurs within two years
following a Change in Control (in each case, as such term is
defined in Article I, Paragraph 11 hereof)
3. Article III, Paragraph 3(b)(2)(i) of the Plan is
amended by inserting, immediately following the phrase "(other than legitimate
competition)", the following:
, if such termination of employment occurs prior to a Change in
Control or after the second anniversary of a Change in
Control, and thirty days following such termination of
employment if such termination occurs within two years
following a Change in Control (in each case, as such term is
defined in Article 1, Paragraph 11 hereof)
9
<PAGE> 10
4. Article IV, Paragraph 2 of the Plan is amended by
adding the following new sentence at the end thereof:
Notwithstanding any provision of this Plan to the contrary, no
options shall be granted under this Article IV, Paragraph 2
after October 22, 1997.
5. Article IV, Paragraph 5(b)(1) of the Plan is amended
in its entirety to read as follows:
(1) With respect to each option granted within
the one-year period preceding such termination of
service:
(i) At the time the Non-Employee Director's
directorship is terminated, if such termination of
service occurs prior to a Change in Control; or
(ii) At the time determined under Section
5(b)(2), if such termination of service occurs
following or in connection with a Change in Control.
6. Article IV, Paragraph 5(b)(2)(i) of the Plan is amended by
deleting the ":" therein and inserting in lieu thereof the following:
, if such termination of service occurs prior to a Change in
Control or after the second anniversary of a Change in
Control, and thirty days following such termination of service
if such termination occurs within two years following a Change
in Control (in each case, as such term is defined in Article
I, Paragraph 11 hereof);
10
<PAGE> 11
The effective date of this Amendment No. 1997-1 shall be July
23, 1997; provided, however, that, in the event that (A) the Company is party to
a transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of the Plan and (C) 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 (a) this
Amendment No. 1997-1 shall, to the extent practicable, be interpreted so as to
permit such accounting treatment, and (b) to the extent that the application of
clause (a) 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 Amendment No. 1997-1 disqualifies the transaction as a
"pooling" transaction (including, if applicable, this entire Amendment No.
1997-1), 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
11
<PAGE> 12
required as a condition to the consummation of such transaction. Except as
herein modified, the Plan shall remain in full force and effect.
BAKER HUGHES INCORPORATED
By: /s/ G.S. FINLEY
---------------------------
Title: CHIEF ADMINISTRATIVE OFFICER
12
<PAGE> 1
Exhibit 10.25
AMENDMENT NO. 1997-1 TO THE
1993 EMPLOYEE STOCK BONUS PLAN
This Amendment No. 1997-1 is made to the Baker Hughes
Incorporated 1993 Employee Stock Bonus Plan ("the Plan"). Capitalized terms
used but not defined herein shall have the meanings ascribed to them in the
Plan.
WHEREAS, Baker Hughes Incorporated (the "Company") has determined
that it is in its best interest and that of its stockholders to amend the Plan
as set forth herein;
NOW, THEREFORE, the Plan is amended as follows:
1. The first sentence of Paragraph 5 of the Plan is amended
(A) to insert, immediately following the phrase "(whether nonqualified or
incentive) granted under the Stock Option Plan on" the phrase "the earliest to
occur of (i)" and (B) to insert, immediately prior to the "." at the end
thereof, the following:
", (ii) the occurrence of a Change in Control, and (iii) the
termination of the eligible employee's employment if (a) such
eligible 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, (b) such eligible 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 (a), or (c) such eligible employee's employment is
terminated by the Company without Cause or by the eligible
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
<PAGE> 2
Change in Control (whether or not a Change in Control ever
occurs). A termination of employment described in clause (iii)
is hereinafter referred to as a "Qualifying Termination"
2. Paragraph 5 of the Plan is amended by adding at the end
thereof a new paragraph as follows:
For purposes of the Plan:
"Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Act.
"Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 promulgated under the Act.
"Cause" for termination by the Company of the eligible
employee's employment shall mean (i) the willful and continued
failure by the eligible employee to substantially perform the
eligible employee's duties with the Company (other than any such
failure resulting from the eligible 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 eligible employee) after a written demand for
substantial performance is delivered to the eligible employee by
the CIC Committee, which demand specifically identifies the
manner in which the CIC Committee believes that the eligible
employee has not substantially performed the eligible employee's
duties, or (ii) the willful engaging by the eligible 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 eligible employee's part shall be
deemed "willful" unless done, or omitted to be done, by the
eligible employee
2
<PAGE> 3
not in good faith and without reasonable belief that the eligible
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 CIC Committee by clear and convincing evidence that Cause
exists.
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:
(i) 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 (a) of paragraph (iii) below; or
(ii) 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
<PAGE> 4
(iii) 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 (a) 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 (b) 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
(iv) 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.
4
<PAGE> 5
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.
"CIC 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
CIC Committee shall not exceed six (6).
"Good Reason" for termination by the eligible employee of
the eligible employee's employment shall mean the occurrence
(without the eligible employee's express written consent) after
any Change in Control, or prior to a Change in Control under the
circumstances described in clauses (iii)(b) and (c) of the first
sentence of this Paragraph 5 (treating all references in
paragraphs (i) through (vii) 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 (i), (v), (vi) or (vii) below, such act or failure to
act is corrected prior to the effective date of the eligible
employee's termination for Good Reason:
5
<PAGE> 6
(i) the assignment to the eligible employee of any
duties inconsistent with the status of the eligible employee's
position with the Company or a substantial adverse alteration in
the nature or status of the eligible employee's responsibilities
from those in effect immediately prior to the Change in Control;
(ii) a reduction by the Company in the eligible
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;
(iii) the relocation of the eligible employee's
principal place of employment to a location more than 50 miles
from the eligible employee's principal place of employment
immediately prior to the Change in Control or the Company's
requiring the eligible 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 eligible employee's
present business travel obligations;
(iv) the failure by the Company to pay to the
eligible employee any portion of the eligible 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 eligible 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;
6
<PAGE> 7
(v) the failure by the Company to continue in
effect any compensation plan in which the eligible employee
participates immediately prior to the Change in Control which is
material to the eligible 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 eligible 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 eligible employee's participation relative to other
participants, as existed immediately prior to the Change in
Control;
(vi) the failure by the Company to continue to
provide the eligible employee with benefits substantially similar
to those enjoyed by the eligible employee under any of the
Company's pension, savings, life insurance, medical, health and
accident, or disability plans in which the eligible 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 Company),
the taking of any other action by the Company which would
directly or indirectly materially reduce any of such benefits or
deprive the eligible employee of any material fringe benefit or
perquisite enjoyed by the eligible employee at the time of the
Change in Control, or the failure by the Company to provide the
eligible employee with the number of paid vacation days to which
the eligible 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
<PAGE> 8
(vii) if the eligible employee is party to an
individual employment, severance or other similar agreement with
the Company, any purported termination of the eligible employee's
employment which is not effected pursuant to the notice of
termination and other procedures specified therein.
The eligible employee's right to terminate the eligible
employee's employment for Good Reason shall not be affected by
the eligible employee's incapacity due to physical or mental
illness. The eligible 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 eligible employee that Good Reason
exists shall be presumed to be correct unless the Company
establishes to the CIC Committee by clear and convincing evidence
that Good Reason does not exist.
"Person" shall have the meaning given in Section 3(a)(9)
of the 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.
8
<PAGE> 9
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:
(i) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change
in Control;
(ii) 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;
(iii) 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
(iv) the Board adopts a resolution to the effect that,
for purposes of this Plan, a Potential Change in Control has
occurred.
3. The second sentence of Paragraph 6 of the Plan is amended
by inserting immediately prior to the "." at the end thereof the following:
; and provided further, that the provisions of this sentence
shall be inapplicable to any sale of Option Shares by an employee
holding a Stock Award if such sale occurs in connection with, or
at any time following, a Change in Control.
4. The third sentence of Paragraph 6 of the Plan is amended
by deleting at the beginning thereof the word "Moreover" and inserting in lieu
thereof the phrase "Subject to the lapse of forfeiture provisions following a
Change in Control or a Qualifying Termination provided under Paragraph 7".
9
<PAGE> 10
5. Paragraph 7 of the Plan is amended (A) by inserting
immediately following the phrase "and be of no further force and effect upon"
the phrase "the earliest to occur of (i)" and (B) by inserting immediately
prior to the "." at the end thereof the following:
, (ii) the occurrence of a Change in Control, and (iii) the
occurrence of a Qualifying Termination
The effective date of this Amendment No. 1997-1 shall be July 23,
1997; provided, however, that, in the event that (A) the Company is party to a
transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of the Plan and (C) 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 (a) this Amendment No. 1997-1 shall, to the extent practicable, be
interpreted so as to permit such accounting treatment, and (b) to the extent
that the application of clause (a) 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 Amendment No. 1997-1
disqualifies the transaction as a "pooling" transaction (including, if
applicable, this entire Amendment No. 1997-1), 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 deter-
10
<PAGE> 11
minations 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. Except as herein modified, the Plan shall remain in full force
and effect.
BAKER HUGHES INCORPORATED
By: /s/ G. S. FINLEY
-------------------------
Title: CHIEF ADMINISTRATIVE OFFICER
11
<PAGE> 1
Exhibit 10.28
AMENDMENT NO. 1997-1 TO THE
1995 EMPLOYEE ANNUAL
INCENTIVE COMPENSATION PLAN
This Amendment No. 1997-1 is made to the Baker Hughes
Incorporated 1995 Employee Annual Incentive Compensation Plan ("the Plan").
Capitalized terms used but not defined herein shall have the meanings ascribed
to them in the Plan.
WHEREAS, Baker Hughes Incorporated (the "Company") has determined
that it is in its best interest and that of its stockholders to amend the plan
as set forth herein;
NOW, THEREFORE, the Plan is amended as follows:
1. Article 2.1 of the Plan is amended by inserting the
following as new Articles 2.1(a) and 2.1(b):
(a) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(b) "Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 promulgated under the Exchange Act.
2. Article 2.1 of the Plan is amended by renumbering Article
2.1(a) as Article 2.1(c).
3. Article 2.1(b) is amended in its entirety to read as
follows as a new Article 2.1(d):
(d) "Cause" for termination by the Company of the
Participant's employment shall mean (i) the willful and
continued failure by the Participant to substantially
perform the Participant's duties with the Company (other
than any such failure resulting from the Participant'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
<PAGE> 2
Participant) after a written demand for substantial
performance is delivered to the Participant by the CIC
Committee, which demand specifically identifies the manner
in which the CIC Committee believes that the Participant
has not substantially performed the Participant's duties,
or (ii) the willful engaging by the Participant 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 Participant's part shall
be deemed "willful" unless done, or omitted to be done, by
the Participant not in good faith and without reasonable
belief that the Participant'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 CIC Committee
by clear and convincing evidence that Cause exists.
4. Article 2.1 of the Plan is amended by inserting the
following as new Articles 2.1(e) and 2.1(f):
(e) 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:
(i) 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
2
<PAGE> 3
outstanding securities, excluding any Person who becomes
such a Beneficial Owner in connection with a transaction
described in clause (1) of paragraph (iii) below; or
(ii) 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 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 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
(iii) 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 (1) 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 (2) a
merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction)
in which no Per-
3
<PAGE> 4
son 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
(iv) 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.
(f) "CIC Committee" means (i) the individuals (not fewer than
three in number) who, on the date six months before a
Change in Control, constitute the Committee, plus
4
<PAGE> 5
(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 CIC
Committee shall not exceed six (6).
5. Article 2.1 of the Plan is amended by renumbering Articles
2.1(c) and 2.1(d) as Articles 2.1(g) and 2.1(h), respectively.
6. Article 2.1 of the Plan is amended by inserting the
following as a new Article 2.1(i):
(i) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
7. Article 2.1 of the Plan is amended by renumbering Article
2.1(e) as Article 2.1(j).
8. Article 2.1 of the Plan is amended by inserting the
following as a new Article 2.1(k);
(k) "Good Reason" for termination by the Participant of the
Participant's employment shall mean the occurrence
(without the Participant'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 Article 12.2 hereof (treating all references in
paragraphs (i) through (vii) 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
(i), (v), (vi) or (vii) below, such act or
5
<PAGE> 6
failure to act is corrected prior to the effective date of
the Participant's termination for Good Reason;
(i) the assignment to the Participant of any
duties inconsistent with the status of the Participant's
position with the Company or a substantial adverse
alteration in the nature or status of the Participant's
responsibilities from those in effect immediately prior to
the Change in Control;
(ii) a reduction by the Company in the
Participant'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;
(iii) the relocation of the Participant's
principal place of employment to a location more than 50
miles from the Participant's principal place of employment
immediately prior to the Change in Control or the
Company's requiring the Participant 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 Participant's present business travel
obligations;
(iv) the failure by the Company to pay to the
Participant any portion of the Participant's current
compen-
6
<PAGE> 7
sation 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 Participant 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;
(v) the failure by the Company to continue in
effect any compensation plan in which the Participant
participates immediately prior to the Change in Control
which is material to the Participant'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 Participant'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
Participant's participation relative to other
participants, as existed immediately prior to the Change
in Control;
(vi) the failure by the Company to continue to
provide the Participant with benefits substantially
similar to those enjoyed by the Participant under any of
the Company's pension, savings, life insurance, medical,
health and accident, or disability plans in which the
Participant was participating immediately
7
<PAGE> 8
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 Company), the taking of any other action by the
Company which would directly or indirectly materially
reduce any of such benefits or deprive the Participant of
any material fringe benefit or perquisite enjoyed by the
Participant at the time of the Change in Control, or the
failure by the Company to provide the Participant with the
number of paid vacation days to which the Participant 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
(vii) if the Participant is party to an individual
employment, severance or other similar agreement with the
Company, any purported termination of the Participant's
employment which is not effected pursuant to the notice of
termination or other procedures specified therein.
The Participant's right to terminate the
Participant's employment for Good Reason shall not be
affected by the Participant's incapacity due to physical
or mental illness. The Participant'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
8
<PAGE> 9
Reason, any claim by the Participant that Good Reason
exists shall be presumed to be correct unless the Company
establishes to the CIC Committee by clear and convincing
evidence that Good Reason does not exist.
9. Article 2.1 of the Plan is amended by renumbering Articles
2.1(f) and 2.1(g) as Articles 2.1(l) and (m), respectively.
10. Article 2.1 of the Plan is amended by inserting the
following as a new Article 2.1(n):
(n) "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.
11. Article 2.1 of the Plan is amended by renumbering Article
2.1(h) as Article 2.1(o).
12. Article 2.1 of the Plan is amended by inserting the
following as a new Article 2.1(p):
(p) 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:
(i) the Company enters into an agreement, the
consummation of which would result in the occurrence of a
Change in Control;
9
<PAGE> 10
(ii) 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;
(iii) 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
(iv) the Board adopts a resolution to the effect
that, for purposes of this Plan, a Potential Change in
Control has occurred.
13. Article 2.1 of the Plan is amended by renumbering Article
2.1(i) as Article 2.1(q).
14. Article 4.4 of the Plan is amended by adding at the end
thereof the following:
Notwithstanding the foregoing, the Committee may not withdraw its
approval for participation in the Plan during the pendency of a
Potential Change in Control and for a period of six (6) months
after the cessation thereof.
15. Article 10 of the Plan is amended by adding at the end
thereof the following:
Notwithstanding the foregoing, the Plan may not be amended in a
manner adverse to any Participant during the pendency of a
Potential Change in Control and for a period of six (6) months
after the cessation thereof.
10
<PAGE> 11
16. The Plan is amended by inserting the following as a new
Article 12:
Article 12. Change in Control
12.1 Change in Control. Notwithstanding any provision of
the Plan to the contrary, no later than five (5) days following
the occurrence of a Change in Control, (i) Final Awards shall be
computed for each Participant pursuant to Article 5.4 hereof
(assuming for this purpose that the performance goals established
pursuant to Article 5.2 herein have been achieved to the extent
required to earn the expected value target Award Opportunity),
and (ii) the Company shall pay to each participant an amount
equal to the Final Award so determined multiplied by a fraction,
the numerator of which is the number of the Participant's months
of participation through the date of Change of Control (rounded
up to the nearest whole month), and the denominator of which is
twelve (12).
12.2 Termination of Employment Prior to Change in
Control. Notwithstanding any provision of the Plan to the
contrary, a Participant shall be entitled to receive, no later
than five (5) days following the effective date of such
Participant's termination of employment, the payment described in
the previous Article 12.1 if (i) such Participant'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 Participant
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 Participant's employment is
terminated by the Company without Cause or by the Participant for
11
<PAGE> 12
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).
The effective date of this Amendment No. 1997-1 shall be July 23,
1997; provided, however, that, in the event that (A) the Company is party to a
transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of the Plan and (C) 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 and (ii) on the date hereof constitute the Board 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 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 (a) this Amendment
No. 1997-1 shall, to the extent practicable, be interpreted so as to permit
such accounting treatment, and (b) to the extent that the application of clause
(a) 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 Amendment No. 1997-1 disqualifies the transaction as a "pooling"
transaction (including, if applicable, this entire Amendment No. 1997-1), the
Board 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
12
<PAGE> 13
whose opinion with respect to "pooling of interests" is required as a condition
to the consummation of such transaction. Except as herein modified, the Plan
shall remain in full force and effect.
BAKER HUGHES INCORPORATED
By: /s/ G. S. FINLEY
-------------------------
Title: CHIEF ADMINISTRATIVE OFFICER
13
<PAGE> 1
EXHIBIT 10.30
AMENDMENT NO.1997-1 TO THE
1995 STOCK AWARD PLAN
This Amendment No. 1997-1 is made to the Baker Hughes
Incorporated 1995 Stock Award Plan ("the Plan"). Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Plan.
WHEREAS, Baker Hughes Incorporated (the "Company") has
determined that it is in its best interest and that of its stockholders to
amend the Plan as set forth herein;
NOW, THEREFORE, the Plan is amended as follows:
1. Paragraph II of the Plan is amended by inserting the
following as a new subparagraph (a):
(a) "Affiliate" shall have the meaning set forth
in Rule 12b-2 promulgated under Section 12 of the 1934 Act.
2. Paragraph II of the Plan is amended by renumbering
Subparagraphs (a) and (b) thereof as Subparagraphs (b) and (c), respectively.
3. Paragraph 11 of the Plan is amended by inserting the
following as a new Subparagraph (d):
(d) "Beneficial Owner" shall have the meaning set
forth in Rule 13d-3 promulgated under the 1934 Act.
4. Paragraph II of the Plan is amended by renumbering
Subparagraph (c) thereof as Subparagraph (e).
5. Paragraph 11 of the Plan is amended by inserting the
following as new Subparagraphs (f) through (h):
(f) "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
<PAGE> 2
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 CIC Committee, which demand specifically
identifies the manner in which the CIC Committee 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 CIC Committee by clear and convincing
evidence that Cause exists,
(g) 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
2
<PAGE> 3
who, on the date hereof, constitute the Board 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 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
3
<PAGE> 4
(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.
(h) "CIC Committee" means (i) the individuals
(not fewer than three in number) who, on the date six months
before a Change in Control, constitute the Committee, 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 CIC committee shall not exceed
six (6).
6. Paragraph 11 of the Plan is amended by renumbering
Subparagraphs (d) through (h) thereof as Subparagraphs (i) through (m),
respectively.
4
<PAGE> 5
7. Paragraph 11 of the Plan is amended by inserting the
following as a new Subparagraph (n):
(n) "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 Paragraph
XI(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
5
<PAGE> 6
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
6
<PAGE> 7
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 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 other agreement with the Company, any
purported termination of the Employee's employment which is
not effected pursuant to the notice of termination and other
procedures specified therein.
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,
7
<PAGE> 8
any claim by the Employee that Good Reason exists shall be
presumed to be correct unless the Company establishes to the
CIC Committee by clear and convincing evidence that Good
Reason does not exist.
8. Paragraph II of the Plan is amended by renumbering
Subparagraphs (i) and (j) as Subparagraphs (o) and (p), respectively.
9. Paragraph 11 of the Plan is amended by inserting the
following as a new Subparagraph (q):
(q) "Person" shall have the meaning given in
Section 3(a)(9) of the 1934 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.
10. Paragraph II of the Plan is amended by renumbering
Subparagraph (k) as Subparagraph (r).
11. Paragraph II of the Plan is amended by inserting the
following as a new Subparagraph (s):
(s) 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
8
<PAGE> 9
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 adopts a resolution to the effect
that, for purposes of this Plan, a Potential Change in Control
has occurred.
12. Paragraph II of the Plan is amended by renumbering
Subparagraph (1) as Subparagraph (t).
13. Paragraph VII(e) is amended (A) by inserting at the
beginning thereof the phrase "Subject to Paragraph XI hereof," and (B) by
replacing the word "An" that immediately follows the insert provided in clause
(A) above and inserting in lieu thereof the word "an".
14. The Plan is amended by inserting the following as a
new Paragraph XI:
XI. CHANGE IN CONTROL
(a) Notwithstanding any provision of the Plan to
the contrary, in the event of an occurrence of a Change in
Control, all Awards granted pursuant to this Plan (whether
granted under the Stock Matching Programs or otherwise) shall
become fully vested and nonforfeitable.
(b) Notwithstanding any provision of the Plan to
the contrary, an Employee's Awards granted pursuant to this
Plan (whether granted under the Stock Matching Programs or
otherwise) shall become fully vested and nonforfeitable 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
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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 Participant 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).
The effective date of this Amendment No. 1997-1 shall be July
23, 1997; provided, however, that, in the event that (A) the Company is party
to a transaction which is otherwise intended to qualify for "pooling of
interests" accounting treatment, (B) such transaction constitutes a Change in
Control within the meaning of the Plan and (C) 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 and (ii) on the date hereof constitute the Board 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 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 (a) this Amendment No. 1997-1 shall, to the extent practicable, be
interpreted so as to permit such accounting treatment, and (b) to the extent
that the application of clause (a) 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 Amendment No. 1997-1 disqualifies
the transaction as a "pooling"
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transaction (including, if applicable, this entire Amendment No. 1997-1), the
Board 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. Except as herein modified, the Plan shall
remain in full force and effect.
BAKER HUGHES INCORPORATED
BY: /s/ G.S. FINLEY
-------------------------------
Title: CHIEF ADMINISTRATIVE OFFICER
11
<PAGE> 1
EXHIBIT 10.31
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.
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"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.
"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.
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"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.
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"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 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.
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(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 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
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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;
(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;
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(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
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<PAGE> 8
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
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
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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
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for Employee Awards consisting of shares of Common Stock or units
denominated in shares of Common Stock.
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.
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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.
(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,
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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
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
-12-
<PAGE> 13
(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
-13-
<PAGE> 14
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.
(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;
-14-
<PAGE> 15
(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 Company), the taking of any other action by
the Company which would directly or indirectly materially
reduce any of such benefits or deprive
-15-
<PAGE> 16
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
-16-
<PAGE> 17
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 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
-17-
<PAGE> 18
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.
-18-
<PAGE> 1
Exhibit 11.1
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income before cumulative effect of accounting changes $ 109.1 $ 176.4 $ 120.0
Dividends on preferred stock (8.0)
Repurchase of preferred stock (17.6)
-------- -------- --------
Subtotal 109.1 176.4 94.4
Accounting changes (12.1) (14.6)
-------- -------- --------
Net income applicable to common stock $ 97.0 $ 176.4 $ 79.8
======== ======== ========
PRIMARY EARNINGS (NOTE A:)
Shares:
Weighted average number of common shares outstanding 153.1 143.3 141.2
Assuming conversion of dilutive stock options 1.9 1.1 .1
-------- -------- --------
Weighted average number of common shares outstanding as
adjusted 155.0 144.4 141.3
======== ======== ========
Primary earnings per common share:
Income before cumulative effect of accounting changes $ .70 $ 1.22 $ .66
Accounting changes (.08) (.10)
-------- -------- --------
Net income $ .62 $ 1.22 $ .56
======== ======== ========
FULLY DILUTED EARNINGS (NOTE A:)
Shares:
Weighted average number of common shares outstanding 153.1 143.3 141.2
Assuming conversion of dilutive stock options 1.9 1.5 .1
-------- -------- --------
Weighted average number of common shares outstanding
as adjusted 155.0 144.8 141.3
======== ======== ========
Fully diluted earnings per common share:
Income before cumulative effect of accounting changes $ .70 $ 1.22 $ .66
Accounting changes (.08) (.10)
-------- -------- --------
Net income $ .62 $ 1.22 $ .56
======== ======== ========
</TABLE>
Note A: This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
<PAGE> 1
EXHIBIT 13.1
BAKER HUGHES INCORPORATED
CONDENSED COMPARATIVE CONSOLIDATED FINANCIAL INFORMATION
(In millions, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 3,685.4 $ 3,027.7 $ 2,637.5 $ 2,504.8 $ 2,701.7
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Costs and expenses applicable to revenues 2,256.2 1,837.6 1,608.7 1,551.8 1,706.1
Selling, general and administrative 966.9 814.2 743.0 715.0 757.8
Amortization of goodwill and other intangibles 32.3 29.6 29.9 30.8 36.9
Unusual charge 52.1 39.6 31.8 42.0
Acquired in-process research and development 118.0
Operating income of business sold (10.5)
----------- ----------- ----------- ----------- -----------
Total 3,425.5 2,721.0 2,381.6 2,318.9 2,542.8
----------- ----------- ----------- ----------- -----------
Operating income 259.9 306.7 255.9 185.9 158.9
Interest expense (48.6) (55.5) (55.6) (63.8) (64.7)
Interest income 1.8 3.4 4.8 3.1 5.9
Gain on sale of Varco stock 44.3
Gain on sale of Pumpsystems 101.0
----------- ----------- ----------- ----------- -----------
Income before income taxes, extraordinary loss
and cumulative effect of accounting changes 213.1 298.9 205.1 226.2 100.1
Income taxes (104.0) (122.5) (85.1) (95.0) (41.2)
----------- ----------- ----------- ----------- -----------
Income before extraordinary loss
and cumulative effect of accounting changes 109.1 176.4 120.0 131.2 58.9
Extraordinary loss (44.3)
Cumulative effect of accounting changes (12.1) (14.6) (44.2)
----------- ----------- ----------- ----------- -----------
Net income $ 97.0 $ 176.4 $ 105.4 $ 42.7 $ 58.9
=========== =========== =========== =========== ===========
Per share of common stock:
Income before extraordinary loss
and cumulative effect of accounting changes $ .71 $ 1.23 $ .67 $ .85 $ .34
Net income .63 1.23 .57 .22 .34
Dividends .46 .46 .46 .46 .46
Financial Position:
Cash and cash equivalents $ 8.6 $ 7.7 $ 6.8 $ 69.2 $ 7.0
Working capital 1,284.2 1,081.1 984.7 855.4 921.0
Total assets 4,756.3 3,297.4 3,166.6 2,999.7 3,143.3
Long-term debt 771.8 673.6 798.4 638.0 935.8
Stockholders' equity 2,604.6 1,689.2 1,513.5 1,638.5 1,610.6
</TABLE>
See Note 1 of Notes to Consolidated Financial Statements for a discussion
of the adoption of new accounting standards in 1997 and 1995. In 1994, the
Company adopted new accounting standards related to accounting for income taxes
and employers' accounting for postretirement benefits other than pensions. See
Note 4 of Notes to Consolidated Financial Statements for a discussion of
acquisitions made in 1997 and 1996. The Company sold EnviroTech Pumpsystems and
EnviroTech Measurements and Controls in 1994. See Note 5 of Notes to
Consolidated Financial Statements for a description of the unusual charge in
1997 and 1996. The unusual charge in 1994 consisted of the restructuring and
reorganization of certain Oilfield divisions and the discontinuance of an MWD
product line, offset by an insurance recovery. The unusual charge in 1993
consisted primarily of litigation settlements. The Company repurchased or
defeased debt in 1994 resulting in an extraordinary loss.
25
<PAGE> 2
BAKER HUGHES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") should be read in conjunction with the Company's
Consolidated Financial Statements for the years ended September 30, 1997, 1996
and 1995 and the related Notes to Consolidated Financial Statements.
FORWARD-LOOKING STATEMENTS
- --------------------------------------------------------------------------------
MD&A includes forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The words "anticipate," "believe," "expect,"
"plan," "intend," "estimate," "project," "forecasts," "will," "could,"
"targeted," "quantified," "may" and similar expressions are intended to
identify forward-looking statements. No assurance can be given that actual
results may not differ materially from those in the forward-looking statements
herein for reasons including the effect of competition, the level of petroleum
industry exploration and production expenditures, world economic conditions,
prices of, and the demand for, crude oil and natural gas, drilling activity,
weather, the legislative environment in the United States and other countries,
OPEC policy, conflict in the Middle East and other major petroleum producing or
consuming regions, the development of technology that lowers overall finding
and development costs and the condition of the capital and equity markets.
BUSINESS ENVIRONMENT
- --------------------------------------------------------------------------------
Prior to the fourth quarter of 1997, the Company reported segment information
for two business segments - oilfield and process equipment. Beginning in the
fourth quarter of 1997, with the acquisition of Petrolite Corporation
("Petrolite"), the Company began reporting segment information for three
business segments - oilfield, chemicals and process equipment.
Oilfield
Oilfield Operations consists of five business units - Baker Hughes INTEQ, Baker
Hughes Solutions, Baker Oil Tools, Centrilift and Hughes Christensen - that
provide products, services and solutions used in the drilling, completion,
production and maintenance of oil and gas wells. The business environment for
Oilfield Operations and its corresponding operating results are affected
significantly by petroleum industry exploration and production expenditures.
These expenditures are influenced strongly by oil company expectations about
the supply and demand for crude oil and natural gas, energy prices and finding
and development costs. Petroleum supply and demand, pricing and finding and
development costs, in turn, are influenced by numerous factors including, but
not limited to, those described above in "Forward-Looking Statements." Oilfield
Operations generated 78% of the Company's consolidated revenues in 1997.
Three key factors to the oilfield service markets are the impact of
technology, the growth in outsourcing and partnering, and the need to expand
operations to keep pace with the demand for the Company's products and
services.
Technology: Advances in the design and application of the Company's products
and services allow oil and gas operators to drill and complete wells at a lower
overall cost. At the same time, this technology helps accelerate or maintain
hydrocarbon production and enhance reserve recovery.
Outsourcing and Partnering: Similarly, oil companies have increased their
levels of outsourcing to, and partnering with, service companies because this
approach has proven to be effective in lowering finding and development costs.
The Company continues to expand and develop its involvement in project
management by working closely with customers in project planning, and in the
engineering and integration of several products and services into solutions
that meet client objectives.
Growth: Expenditures by the Company's customers for exploration and production
programs are increasing. In turn, the markets for the Company's products and
services are growing as the demand for developing new supplies of hydrocarbons
paces the increasing worldwide demand for energy. Such growth requires
significant additions to the Company's manufacturing capacity, rental tool
fleet and work force.
27
<PAGE> 3
BAKER HUGHES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Worldwide crude oil demand, crude oil and natural gas prices and the Baker
Hughes rotary rig count are summarized in the tables below as annual averages
followed by the Company's outlook. While reading the Company's outlook set
forth below, caution is advised that the factors described above in
"Forward-Looking Statements" and "Business Environment" could negatively
impact the Company's expectations for oil demand, oil and gas prices and
drilling activity.
Worldwide Oil Demand
<TABLE>
<CAPTION>
Fiscal Year 1997 1996 1995
(Millions of Bbls/day) ---- ---- ----
<S> <C> <C> <C>
OECD Oil Demand 41.8 41.0 40.2
Non-OECD Oil Demand 31.4 30.4 29.6
---- ---- ----
Worldwide
Oil Demand 73.2 71.4 69.8
</TABLE>
OECD - Organization for Economic Cooperation and Development (developed
countries)
According to the International Energy Agency, the demand for crude oil
is expected to grow annually by 1.4 million to 2.0 million barrels per day
through the end of the century. Three-quarters of the incremental demand are
expected to be driven by relatively low energy prices, low but increasing
energy consumption per capita, and economic growth in non-OECD countries,
particularly in Asia and Latin America.
Oil and Gas Prices
<TABLE>
<CAPTION>
Fiscal Year 1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
WTI ($/bbl) 21.83 20.51 18.29
U.S. Spot Natural Gas ($/mcf) 2.47 2.21 1.42
</TABLE>
The Company expects crude oil to trade between $18 and $22 per barrel
in 1998 while remaining susceptible to short-term price fluctuations and
volatility as the growth in worldwide demand is met by increased production.
U.S. natural gas prices are expected to moderate somewhat in 1998 as increased
imports from Canada, increased production from the U.S. and pipeline
de-bottlenecking improve supply availability. Natural gas prices are expected
to average above $2/mcf. The Company believes that natural gas prices at or
above $2/mcf will sustain the current natural gas exploration and development
drilling activity.
Rotary Rig Count
<TABLE>
<CAPTION>
Fiscal Year 1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
U.S. - Land 788 652 638
U.S. - Offshore 118 107 100
Canada 340 247 247
----- ----- -----
North America 1,246 1,006 985
----- ----- -----
Latin America 277 279 266
North Sea 58 53 42
Other Europe 57 69 66
Africa 80 76 65
Middle East 150 138 123
Asia Pacific 181 173 186
----- ----- -----
International 803 788 748
----- ----- -----
Worldwide 2,049 1,794 1,733
----- ----- -----
U.S. Workover 1,412 1,306 1,298
</TABLE>
The Company anticipates continued growth in the worldwide demand for
hydrocarbons that will result in increased spending by oil and gas companies
for the development of the hydrocarbon supply. The increase is dependent on
continued worldwide economic growth and, in particular, economic growth in
developing countries. The increased spending is expected to result in increased
drilling activity in most regions.
North America
The Company anticipates that the rate of growth in North America
drilling activity will slow in 1998. While both offshore and land based
activity will remain strong, growth will be limited by a shortage of offshore
and land based drilling rigs.
International
The Company expects that most international areas will post an
increasing rig count in 1998. The Company is forecasting increases in Latin
America, the Middle East and the North Sea while activity in Africa and Asia
Pacific is forecasted to be flat.
Chemicals
Baker Petrolite is the sole business unit reported in this segment
and is the result of combining Baker Performance Chemicals, previously reported
in the oilfield segment, and Petrolite, acquired in the fourth quarter of 1997.
Baker Petrolite generated 11% of the Company's consolidated revenues in 1997.
28
<PAGE> 4
BAKER HUGHES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Operating in all major oil and gas producing regions of the world,
Baker Petrolite manufactures specialty chemicals for inclusion in the sale of
integrated chemical technology solutions for petroleum production,
transportation and refining. In addition to those business environment factors
discussed above for the oilfield segment, the business environment for the
chemicals segment is significantly influenced by the trend of continued
reduction in the total operating cost of the customer base which includes major
multi-national, independent and national or state-owned oil companies.
Improvements in chemical technology and its application, as well as the
expanded use of alliance relationships, enable Baker Petrolite to reduce
overall production, transportation and refining costs.
Baker Petrolite also provides chemical technology solutions to other
industrial markets throughout the world including petrochemicals, steel, fuel
additives, plastics, imaging and adhesives. The business environments for these
markets are individually unique but most are influenced by the general level of
gross domestic product.
Process Equipment
Process Equipment consists of three business units - EIMCO
Process Equipment, Bird Machine Company and Baker Hughes Process Systems - that
provide technologies that separate solids from liquids and liquids from liquids
through filtration, sedimentation, centrifugation and flotation processes. The
business environment for Process Equipment and its corresponding operating
results are affected significantly by spending on large capital projects in the
pulp and paper, industrial, refining, chemical and municipal wastewater
treatment markets. Spending on capital projects is influenced by numerous
factors including, but not limited to, commodity price cycles, especially
copper and pulp, the supply and demand for refined products and chemicals, the
expanding Asian populations and economies, as well as environmental pressures
and legislation. In 1998, Process Equipment anticipates increased capital
project activity in the refining, chemical and industrial markets with
continued stable copper prices and a rebound in the pulp and paper market as
the price for pulp is expected to increase. In addition, the Company
anticipates growth from acquisitions and new technology. Process Equipment
generated 11% of the Company's consolidated revenues in 1997.
ACQUISITIONS
- --------------------------------------------------------------------------------
During 1997, the Company made several strategic acquisitions to expand its
technology base and increase its presence in key geographic areas.
Petrolite
On July 2, 1997, the Company completed the acquisition of Petrolite and Wm. S.
Barnickel & Company ("Barnickel"), the holder of 47.1% of Petrolite's common
stock, by issuing 19.3 million shares of its common stock having an aggregate
value of $730.2 million. Additionally, the Company assumed Petrolite's
outstanding vested and unvested employee stock options which had a fair market
value of $21.0 million resulting in total consideration of $751.2 million. The
Company recorded an unusual charge of $35.5 million related to the combination
of Petrolite with Baker Performance Chemicals, the Company's existing oilfield
and industrial chemicals operations, forming Baker Petrolite, a leading
provider of oilfield chemicals in the major oilfield markets. The Petrolite
acquisition also expanded the Company's presence in the refining and industrial
chemicals businesses.
Environmental Technology Division of Deutz AG
On July 7, 1997, the Company acquired the Environmental Technology Division, a
decanter centrifuge and dryer business, of Deutz AG ("ETD") for $53.0 million,
subject to certain post-closing adjustments. ETD was combined with Bird Machine
Company and gives the Company a significant presence in the municipal segment
of the business as well as a significant presence and service capability in
Europe and parts of Asia.
Drilex
On July 14, 1997, the Company acquired Drilex International Inc. ("Drilex"), a
provider of products and services used in the directional and horizontal
drilling and workover of oil and gas wells, for 2.7 million shares of the
Company's common stock. The acquisition of Drilex which has been combined with
the operations of Baker Hughes INTEQ, provides the Company with an increased
presence in the growing U.S. land directional and horizontal drilling market.
In connection with the acquisition of Drilex, the Company recorded an unusual
charge of $7.1 million related to transaction and other one-time costs.
29
<PAGE> 5
BAKER HUGHES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Oil Dynamics, Inc.
On October 24, 1997, the Company acquired Oil Dynamics, Inc. ("ODI") from
Franklin Electric Co. Inc. ODI is a manufacturer of electric submersible pumps
used to lift crude oil in producing regions worldwide and has been added to the
operations of Centrilift. The purchase price was $31.5 million, subject to
certain post-closing adjustments.
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Revenues
1997 vs. 1996
Consolidated revenues for 1997 were $3,685.4 million, an increase of 22% over
1996 revenues of $3,027.7 million. Sales revenues were up $419.9 million, an
increase of 21%, and services and rentals revenues were up $237.8 million, an
increase of 24%. Approximately 64% of the Company's 1997 consolidated revenues
were derived from international activities. The three 1997 acquisitions
contributed $192.1 million of the revenue improvement.
Oilfield Operations 1997 revenues were $2,862.6 million, an increase of 19.4%
over 1996 revenues of $2,397.9 million. Excluding the Drilex acquisition which
accounted for $70.5 million of the revenue improvement, the revenue growth of
16.4% outpaced the 14.4% increase in the worldwide rig count. In particular,
revenues in Venezuela increased 37.6%, or $58.6 million, as that country
continues to work towards its stated goal of significantly increasing oil
production.
Chemical revenues were $417.2 million in 1997, an increase of 68.5% over 1996
revenues of $247.6 million. The Petrolite acquisition was responsible for $91.6
million of the improvement. Revenue growth excluding the acquisition was 31.5%
driven by the strong oilfield market and the impact of acquiring the remaining
portion of a Venezuelan joint venture in 1997. This investment was accounted
for on the equity method in 1996.
Process Equipment revenues for 1997 were $386.1 million, an increase of 9.4%
over 1996 revenues of $352.8 million. Excluding revenues from 1997 acquisitions
of $32.7 million, revenues were flat compared to the prior year due to weakness
in the pulp and paper industry combined with delays in customers' capital
spending.
1996 vs. 1995
Consolidated revenues for 1996 increased $390.2 million, or 14.8%, over 1995.
Sales revenues were up 13.4% and services and rentals revenues were up 17.8%.
International revenues accounted for approximately 65% of 1996 consolidated
revenues.
Oilfield Operations revenues increased $325.7 million or 15.7% over 1995
revenues of $2,072.2 million. Activity was particularly strong in several key
oilfield regions of the world including the North Sea, Gulf of Mexico and
Nigeria where revenues were up $93.4 million, $56.8 million and $30.1 million,
respectively. Strong drilling activity drove a $35.5 million increase in
Venezuelan revenues.
Chemical revenues rose $23.9 million, or 10.7% over 1995 revenues as its
oilfield business benefited from increased production levels in the U.S.
Process Equipment revenues for 1996 increased 10.4% over 1995 revenues of
$319.6 million. Excluding revenues from 1996 acquisitions of $21.5 million,
revenues increased 3.7%. The growth in the minerals processing and pulp and
paper industry slowed from the prior year.
Costs and Expenses Applicable to Revenues
Costs of sales and costs of services and rentals have increased in 1997 and
1996 from the prior years in line with the related revenue increases. Gross
margin percentages, excluding the effect of a nonrecurring item in 1997, have
increased from 39.0% in 1995 to 39.3% in 1996 and 39.4% in 1997. The
nonrecurring item relates to finished goods inventory acquired in the Petrolite
acquisition that was increased by $21.9 million to its estimated selling price.
The Company sold the inventory in the fourth quarter of 1997 and, as such, the
$21.9 million is included in cost of sales in 1997.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expense increased $152.7 million
in 1997 from 1996 and $71.2 million in 1996 from 1995. The three 1997
acquisitions were responsible for $54.3 million of the 1997 increase. As a
percent of consolidated revenues, SG&A was 26.2%, 26.9% and 28.2% in 1997, 1996
and 1995, respectively.
30
<PAGE> 6
BAKER HUGHES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Excluding the impact of acquisitions, the Company added approximately
2,500 employees during 1997 to keep pace with the increased activity levels. As
a result, employee training and development efforts increased in 1997 as
compared to the previous two years. These increases were partially offset by
$4.1 million of foreign exchange gains in 1997 compared to foreign exchange
losses of $11.4 million in 1996 due to the devaluation of the Venezuelan
Bolivar.
The three year cumulative rate of inflation in Mexico exceeded 100%
for the year ended December 31, 1996; therefore, Mexico is considered to be a
highly inflationary economy. Effective December 31, 1996, the functional
currency for the Company's investments in Mexico was changed from the Mexican
Peso to the U.S. Dollar.
Amortization Expense
Amortization expense in 1997 increased $2.7 million from 1996 due to the
Petrolite acquisition. Amortization expense in 1996 remained comparable to 1995
as no significant acquisitions or dispositions were made during those two
years.
Unusual Charge
1997: During the fourth quarter of 1997, the Company recorded an
unusual charge of $52.1 million. In connection with the acquisitions of
Petrolite, accounted for as a purchase, and Drilex, accounted for as a pooling
of interests, the Company recorded unusual charges of $35.5 million and $7.1
million, respectively, to combine the acquired operations with those of the
Company. The charges include the cost of closing redundant facilities,
eliminating or relocating personnel and equipment and rationalizing inventories
that require disposal at amounts less than their cost. A $9.5 million charge
was also recorded as a result of the decision to discontinue a low margin,
oilfield product line in Latin America and to sell the Tracor Europa
subsidiary, a computer peripherals operations, which resulted in a write-down
of the investment to its net realizable value. Cash provisions of the unusual
charge totaled $19.4 million. The Company spent $5.5 million in 1997 and
expects to spend substantially all of the remaining $13.9 million in 1998. Such
expenditures relate to specific plans and clearly defined actions and will be
funded from operations and available credit facilities.
1996: During the third quarter of 1996, the Company recorded an unusual charge
of $39.6 million. The charge consisted primarily of the write-off of $8.5
million of Oilfield Operations patents that no longer protected commercially
significant technology, a $5.0 million impairment of a Latin America joint
venture due to changing market conditions in the region in which it operates
and restructuring charges totaling $24.1 million. The restructuring charges
include the downsizing of Baker Hughes INTEQ's Singapore and Paris operations,
a reorganization of EIMCO Process Equipment's Italian operations and the
consolidation of certain Baker Oil Tools manufacturing operations. Noncash
provisions of the charge totaled $25.3 million and consist primarily of the
write-down of assets to net realizable value. The remaining $14.3 million of
the charge represents future cash expenditures related to severance under
existing benefit arrangements, the relocation of people and equipment and
abandoned leases. The Company spent $4.2 million of the cash during 1996, $6.3
million in 1997 and expects to spend the remaining $3.8 million in 1998.
Acquired In-process Research and Development
In the Petrolite acquisition, the Company allocated $118.0 million of the
purchase price to in-process research and development. In accordance with
generally accepted accounting principles, the Company recorded the acquired
in-process research and development as a charge to expense because its
technological feasibility had not been established and it had no alternative
future use at the date of acquisition.
Interest Expense
Interest expense in 1997 decreased $6.9 million from 1996 due to lower average
debt levels, primarily as a result of the maturity of the 4.125% Swiss Franc
Bonds in June 1996. Interest expense in 1996 remained comparable to 1995 as
slightly higher average debt balances were offset by a slightly lower weighted
average interest rate.
Gain on Sale of Varco Stock
In May 1996, the Company sold 6.3 million shares of Varco International, Inc.
("Varco") common stock, representing its entire investment in Varco. The
Company received net proceeds
31
<PAGE> 7
BAKER HUGHES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
of $95.5 million and recognized a pretax gain of $44.3 million. The Company's
investment in Varco was accounted for using the equity method. Equity income
included in the Consolidated Statements of Operations for 1996 and 1995 was
$1.8 million and $3.2 million, respectively.
Income Taxes
During 1997, the Company reached an agreement with the Internal
Revenue Service ("IRS") regarding the audit of its 1992 and 1993 U.S.
consolidated income tax returns. The principal issue in the examination related
to inter-company pricing on the transfer of goods and services between U.S. and
non-U.S. subsidiary companies. As a result of the agreement, the Company
recognized a tax benefit through the reversal of deferred income taxes
previously provided of $11.4 million ($.08 per share) in the quarter ended June
30, 1997.
The effective income tax rate for 1997 was 48.8% as compared to 41.0%
in 1996 and 41.5% in 1995. The increase in the rate for 1997 is due in large
part to the nondeductible charge for the acquired in-process research and
development related to the Petrolite acquisition offset by the IRS agreement as
explained above. The effective rates differ from the federal statutory rate in
all years due primarily to taxes on foreign operations and nondeductible
goodwill amortization. The Company expects the effective income tax rate in
1998 to be between 38% and 39%.
Net Income Per Share of Common Stock
In June 1995, the Company repurchased all outstanding shares of its convertible
preferred stock for $167.0 million. The fair market value of the preferred
stock was $149.4 million on its date of issuance. The repurchase price in
excess of this amount, $17.6 million, is deducted from net income in arriving
at net income per share of common stock. In addition, net income is adjusted
for dividends on preferred stock of $8.0 million in 1995.
CAPITAL RESOURCES AND LIQUIDITY
- --------------------------------------------------------------------------------
Financing Activities
Net cash inflows from financing activities were $22.8 million in 1997 compared
to net cash outflows of $152.2 million and $95.5 million in 1996 and 1995,
respectively.
Total debt outstanding at September 30, 1997 was $781.4 million,
compared to $675.5 million at September 30, 1996 and $801.3 million at
September 30, 1995. The debt to equity ratio was .30 at September 30, 1997,
compared to .40 at September 30, 1996 and .53 at September 30, 1995. The
improvement in 1997 was due primarily to the increase in stockholders' equity
resulting from the issuance of 24.6 million shares of the Company's common
stock offset by the increase in debt. The 1996 improvement was driven by a
decrease in debt levels.
In July 1997, the Company used $57.4 million of cash to repay debt
acquired in the Petrolite and Drilex acquisitions. Cash obtained in the
Petrolite acquisition and short-term facilities funded the debt repayment.
Borrowings under commercial paper and revolving credit facilities increased
$96.4 million during 1997 to fund higher levels of working capital in support
of increased market activity. In 1996, the Company used $108.4 million of cash
to repay the 4.125% Swiss Franc Bonds that matured. The proceeds from the sale
of Varco common stock funded the retirement in 1996.
During 1997 and 1996, the price of the Company's common stock
increased significantly resulting in $53.4 million and $43.7 million,
respectively, of capital raised through the exercise of employee stock options
and other employee stock plans.
Cash dividends in 1997 increased due to the increase in the number of
shares of common stock outstanding. In June 1995, the Company repurchased all
outstanding shares of its convertible preferred stock for $167.0 million.
Existing cash on hand and borrowings from commercial paper and revolving credit
facilities funded the repurchase. Cash dividends decreased in 1996 due to the
repurchase.
At September 30, 1997, the Company had $639.3 million of credit
facilities with commercial banks, of which $300.0 million is committed. These
facilities are subject to normal banking terms and conditions and do not
materially restrict the Company's activities.
32
<PAGE> 8
BAKER HUGHES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Investing Activities
Net cash outflows from investing activities were $219.3 million in 1997
compared to cash outflows of $40.9 million in 1996 and $94.1 million in 1995.
Property additions increased significantly in 1997 to $342.7 million
from $182.2 million in 1996 as the Company added capacity to meet the increased
market demand. In 1995, property additions were $138.9 million. The majority of
the capital expenditures have been for purchases of rental tools to supplement
the rental fleet and machinery and equipment and accounted for 46% and 45% of
1997 capital expenditures, respectively. The Company expects 1998 capital
expenditures to be in excess of $450 million. Funds provided from operations
and outstanding lines of credit are expected to be adequate to meet future
capital expenditure requirements.
During June 1997, the Company began a multi-year initiative designed
to reengineer the Company's business processes and develop and implement an
enterprise wide software system. The initiative, named "Project Renaissance",
will utilize SAP's R/3 as its software platform across the whole of the
Company. This project is expected to cost in excess of $200 million over a four
year period, and annual recurring cost savings in excess of $100 million have
been quantified and targeted.
Proceeds from the disposal of assets generated $58.4 million in 1997,
$78.5 million in 1996 and $44.8 million in 1995. The Company obtained $68.7
million of cash from the stock for stock acquisitions of Petrolite and Drilex
in 1997.
The Company used existing cash on hand and short term borrowings to
purchase ETD in 1997 for a purchase price, net of cash acquired, of $52.2
million and to purchase Vortoil Separation Systems and KTM Process Equipment
Inc. in 1996 for a purchase price, net of cash acquired, of $32.7 million.
In July 1997, the Company sold all of the marketable securities
obtained in the Barnickel acquisition for $48.5 million. In May 1996, the
Company sold its entire investment in Varco receiving net proceeds of $95.5
million.
Operating Activities
Net cash inflows from operating activities were $199.5 million, $194.7 million
and $127.2 million in 1997, 1996 and 1995, respectively, and continue to
provide the principal source of the Company's liquidity. Higher levels of cash
generated from net income as adjusted for noncash charges and credits were used
to fund increases in receivables and inventories due to increased activity
levels.
ACCOUNTING STANDARDS
- --------------------------------------------------------------------------------
Postemployment Benefits
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
112, Employers' Accounting for Postemployment Benefits, effective October 1,
1994. The Company recognized a charge to income of $14.6 million ($.10 per
share), net of a $7.9 million tax benefit, in the first quarter of 1995.
Expense under SFAS No. 112 for 1995 was not significantly different from the
prior method of cash basis accounting.
Impairment of Long-Lived Assets
The Company adopted SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, effective October 1, 1996.
The statement sets forth guidance as to when to recognize an impairment of
long-lived assets, including goodwill, and how to measure such an impairment.
The methodology set forth in SFAS No. 121 is not significantly different from
the Company's prior policy and, therefore, the adoption of SFAS No. 121 did not
have a significant impact on the consolidated financial statements, as it
relates to impairment of long-lived assets used in operations. However, SFAS
No. 121 also addresses the accounting for long-lived assets to be disposed of
and requires these assets to be carried at the lower of cost or fair market
value, rather than the lower of cost or net realizable value, the method that
was previously used by the Company. The Company recognized a charge to income
of $12.1 million ($.08 per share), net of a tax benefit of $6.0 million, as the
cumulative effect of a change in accounting in the first quarter of 1997.
33
<PAGE> 9
BAKER HUGHES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Stock Based Compensation
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, Accounting for Stock-Based Compensation, effective October 1, 1996.
SFAS No. 123 permits, but does not require, a fair value based method of
accounting for employee stock option plans that results in compensation expense
being recognized in the results of operations when stock options are granted.
The Company continues to use the intrinsic value method of accounting for such
plans where no compensation expense is recognized when the exercise price of an
employee stock option is equal to the market price of the Company's common
stock on the grant date.
Earnings Per Share
In February 1997, the FASB issued SFAS No. 128, Earnings per Share, which
establishes new standards for computing and presenting earnings per share
("EPS"). SFAS No. 128 will require the presentation of "basic" and "diluted"
EPS on the face of the income statement, including all prior periods presented,
and is effective for the Company in the quarter ending December 31, 1997. The
calculation of basic EPS will result in a per share amount equal to that
currently presented for income per share of common stock. The calculation of
diluted EPS is expected to be lower than the basic EPS calculation by
approximately 3%.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which for the Company, is effective in the year ending September 30, 1999. SFAS
No. 130 establishes standards for the reporting and displaying of comprehensive
income and its components. The Company will be analyzing SFAS No. 130 during
1998 to determine what, if any, additional disclosures will be required.
QUANTITATIVE AND QUALITATIVE
MARKET RISK DISCLOSURES
- --------------------------------------------------------------------------------
The Company is exposed to certain market risks which are inherent in the
Company's financial instruments which arise from transactions which are entered
into in the normal course of business. The Company may enter into derivative
financial instrument transactions in order to manage or reduce market risk. The
Company does not enter into derivative financial instrument transactions for
speculative purposes. A discussion of the Company's primary market risk
exposures in financial instruments is presented below.
Long-term Debt
The Company is subject to interest rate risk on its long-term fixed interest
rate debt. Commercial paper borrowings and borrowings under revolving credit
facilities do not give rise to significant interest rate risk because these
borrowings have maturities of less than three months. All things being equal,
the fair market value of debt with a fixed interest rate will increase as
interest rates fall, and the fair market value will decrease as interest rates
rise. This exposure to interest rate risk is managed by borrowing money that
has a variable interest rate or using interest rate swaps to change fixed
interest rate borrowings to variable interest rate borrowings. Generally, the
Company maintains a variable interest rate mix of between 50% and 60% of total
borrowings. Interest rates have remained relatively stable over the past year,
and the Company anticipates such rates to fluctuate modestly over the next
year.
34
<PAGE> 10
BAKER HUGHES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following table sets forth, as of September 30, 1997, the
Company's principal cash flows for its long-term debt obligations, which bear a
fixed rate of interest and are denominated in U.S. dollars, and the related
weighted average interest rates by expected maturity dates. Additionally, the
table sets forth the notional amounts and weighted average interest rates of
the Company's interest rate swaps by expected maturity.
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 Thereafter Total Fair Value
------- ------- -------- ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt $ 150.0 $ 93.0 $ 485.2 (1) $ 728.2 $ 688.0
Weighted average interest
rates 7.73% 8.59% 4.75% 6.08%
Fixed to variable swaps $ 230.5 $ 93.0
Pay rate 3.55% (2) 7.82% (3)
Receive rate 3.50% 8.59%
</TABLE>
(1) Includes a zero-coupon instrument with an accreted value of $263.3 million
at September 30, 1997.
(2) 30-day commercial paper minus 1.96% settled at maturity in May 1998.
(3) Six-month LIBOR plus 2% settled semi-annually, maturing in January 2000.
Included in the table above in the "Thereafter" column is the
Company's Liquid Yield Option Notes ("LYONS") which are convertible into
Company common stock at the option of the holder. As such, the fair value of
the LYONS is determined, in addition to changes in interest rates, by changes
in the market price of the Company's common stock. Holding interest rates
constant, a 20% decline in the market price of the Company's common stock would
cause the fair value of the LYONS at September 30, 1997 to decrease by a
comparable percent amount since the LYONS trade more like an equity instrument
than a debt instrument because the market price of the Company's common stock
at September 30, 1997 of $43.81 is significantly above the LYONS conversion
price of $37.35.
Investments
The Company's investment in common stock and common stock warrants of
Tuboscope, Inc. ("Tuboscope") is subject to equity price risk as the common
stock of Tuboscope is traded on the New York Stock Exchange. Warrants to buy
shares of Tuboscope common stock derive their value, in part, from the market
value of Tuboscope common stock. This investment is classified as available for
sale and, consequently, is reflected in the consolidated statement of financial
position at fair value with unrealized gains and losses reported as a separate
component of stockholders' equity. At September 30, 1997, the fair value of the
Company's investment in common stock and common stock warrants of Tuboscope was
$120.5 million. The Tuboscope common stock was valued at the closing price
reported on the New York Stock Exchange, and the warrants were valued using the
Black-Scholes option-pricing model. No actions have been taken by the Company
to hedge this market risk exposure. A 20% decline in the market price of the
Tuboscope common stock would cause the fair value of the investment in common
stock and common stock warrants of Tuboscope to decrease $26.1 million.
Foreign Currency
The Company's operations are conducted around the world in a number of
different currencies. As such, there is exposure to future earnings due to
changes in foreign currency exchange rates when transactions are denominated in
currencies other than the Company's functional currency, which is the primary
currency in which the Company conducts business. The Company hedges all or part
of the future earnings exposure when it believes the risk of loss is greater
than the cost of the associated hedge. At September 30, 1997, the Company had
not entered into any significant foreign exchange or swap contracts.
Certain short-term borrowings of the Company are denominated in a
currency other than its functional currency. At September 30, 1997, the
Company's non-functional currency short-term borrowings totaled $32.5 million
where the primary exposure was to the Pound Sterling and the Dutch Guilder. A
10% appreciation of the U.S. Dollar against each of these currencies would not
have a significant effect on the future earnings of the Company.
35
<PAGE> 11
BAKER HUGHES INCORPORATED
INDEPENDENT AUDITORS' REPORT
STOCKHOLDERS OF BAKER HUGHES INCORPORATED:
- --------------------------------------------------------------------------------
We have audited the consolidated statements of financial position of Baker
Hughes Incorporated and its subsidiaries as of September 30, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended September 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Baker Hughes Incorporated
and its subsidiaries at September 30, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1997 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for postemployment benefits effective
October 1, 1994 to conform with Statement of Financial Accounting Standards No.
112. Also as discussed in Note 1, the Company changed its method of accounting
for impairment of long-lived assets to be disposed of effective October 1, 1996
to conform with Statement of Financial Accounting Standards No. 121.
/s/ DELOITTE & TOUCHE LLP
November 12, 1997
Houston, Texas
36
<PAGE> 12
BAKER HUGHES INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Years Ended September 30, 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Sales $2,466.7 $2,046.8 $1,805.1
Services and rentals 1,218.7 980.9 832.4
-------- -------- --------
Total 3,685.4 3,027.7 2,637.5
-------- -------- --------
Costs and expenses:
Costs of sales 1,573.3 1,278.1 1,133.6
Costs of services and rentals 682.9 559.5 475.1
Selling, general and administrative 966.9 814.2 743.0
Amortization of goodwill and other intangibles 32.3 29.6 29.9
Unusual charge 52.1 39.6
Acquired in-process research and development 118.0
-------- -------- --------
Total 3,425.5 2,721.0 2,381.6
-------- -------- --------
Operating income 259.9 306.7 255.9
Interest expense (48.6) (55.5) (55.6)
Interest income 1.8 3.4 4.8
Gain on sale of Varco stock 44.3
-------- -------- --------
Income before income taxes and cumulative effect of accounting changes 213.1 298.9 205.1
Income taxes (104.0) (122.5) (85.1)
-------- -------- --------
Income before cumulative effect of accounting changes 109.1 176.4 120.0
Cumulative effect of accounting changes:
Impairment of long-lived assets to be disposed of
(net of $6.0 income tax benefit) (12.1)
Postemployment benefits (net of $7.9 income tax benefit) (14.6)
-------- -------- --------
Net income $ 97.0 $ 176.4 $ 105.4
======== ======== ========
Per share of common stock:
Income before cumulative effect of accounting changes $ .71 $ 1.23 $ .67
Cumulative effect of accounting changes (.08) (.10)
-------- -------- --------
Net income $ .63 $ 1.23 $ .57
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
37
<PAGE> 13
BAKER HUGHES INCORPORATED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In millions)
<TABLE>
<CAPTION>
September 30, 1997 1996
-------- --------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8.6 $ 7.7
Receivables-less allowance for doubtful accounts 1997, $23.9; 1996, $22.9 1,047.1 793.8
Inventories 1,030.5 802.2
Deferred income taxes 83.8 78.7
Other current assets 50.5 34.0
-------- --------
Total current assets 2,220.5 1,716.4
Property-net 982.9 599.0
Other assets 497.5 224.7
Excess costs arising from acquisitions - less accumulated amortization:
1997, $163.1; 1996, $156.9 1,055.4 757.3
-------- --------
Total assets $4,756.3 $3,297.4
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 499.7 $ 330.1
Short-term borrowings and current portion of long-term debt 9.6 1.9
Accrued employee compensation and benefits 223.2 155.3
Income taxes payable 48.6 32.9
Other accrued liabilities 155.2 115.1
-------- --------
Total current liabilities 936.3 635.3
-------- --------
Long-term debt 771.8 673.6
-------- --------
Deferred income taxes 275.9 150.5
-------- --------
Other long-term liabilities 167.7 148.8
-------- --------
Commitments and contingencies
Stockholders' Equity:
Common stock, one dollar par value
(authorized 400.0 shares; outstanding 169.1 shares in 1997 and 144.5 shares in 1996) 169.1 144.5
Capital in excess of par value 2,236.0 1,393.6
Retained earnings 283.7 250.6
Cumulative foreign currency translation adjustment (144.9) (118.8)
Unrealized gain on securities available for sale 60.7 19.3
-------- --------
Total stockholders' equity 2,604.6 1,689.2
-------- --------
Total liabilities and stockholders' equity $4,756.3 $3,297.4
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
38
<PAGE> 14
BAKER HUGHES INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Cumulative Unrealized
Foreign Gain (Loss)
Capital Currency on Securities
For the three years ended Preferred Common In Excess Retained Translation Available
September 30, 1997 Stock Stock of Par Value Earnings Adjustment for Sale Total
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1994 $ 4.0 $ 140.9 $ 1,474.0 $ 125.3 $ (102.9) $ (2.8) $ 1,638.5
Net income 105.4 105.4
Cash and accrued dividends on
$3.00 convertible preferred stock (8.0) (8.0)
Cash dividends on common
stock ($.46 per share) (65.0) (65.0)
Foreign currency translation adjustment (4.8) (4.8)
Repurchase of $3.00 convertible
preferred stock (4.0) (145.4) (17.6) (167.0)
Unrealized loss adjustment (0.6) (0.6)
Stock issued pursuant to
employee stock plans 1.3 13.7 15.0
--------- --------- --------- --------- --------- --------- ---------
BALANCE, SEPTEMBER 30, 1995 142.2 1,342.3 140.1 (107.7) (3.4) 1,513.5
Net income 176.4 176.4
Cash dividends on common
stock ($.46 per share) (65.9) (65.9)
Foreign currency translation adjustment (11.1) (11.1)
Unrealized gain adjustment,
net of $12.2 tax charge 22.7 22.7
Stock issued pursuant to
employee stock plans 2.3 46.2 48.5
Tax benefit related to employee
stock plans 5.1 5.1
--------- --------- --------- --------- --------- --------- ---------
BALANCE, SEPTEMBER 30, 1996 144.5 1,393.6 250.6 (118.8) 19.3 1,689.2
Drilex pooling of interests 2.7 46.9 5.7 55.3
Net income 97.0 97.0
Cash dividends on common
stock ($.46 per share) (69.6) (69.6)
Foreign currency translation adjustment (26.1) (26.1)
Unrealized gain adjustment,
net of $22.3 tax charge 41.4 41.4
Petrolite acquisition 19.3 731.9 751.2
Stock issued pursuant to
employee stock plans 2.6 52.6 55.2
Tax benefit related to employee
stock plans 11.0 11.0
--------- --------- --------- --------- ---------- --------- ---------
BALANCE, SEPTEMBER 30, 1997 $ 169.1 $ 2,236.0 $ 283.7 $ (144.9) $ 60.7 $ 2,604.6
--------- --------- --------- --------- ---------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
39
<PAGE> 15
BAKER HUGHES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
Years Ended September 30, 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 97.0 $ 176.4 $ 105.4
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization of:
Property 143.9 115.9 114.2
Other assets and debt discount 42.1 39.9 40.4
Deferred income taxes (6.8) 30.2 44.8
Noncash portion of unusual charge 32.7 25.3
Acquired in-process research and development 118.0
Gain on sale of Varco stock (44.3)
Gain on disposal of assets (18.4) (31.7) (18.3)
Foreign currency translation (gain)/loss-net (6.1) 8.9 1.9
Cumulative effect of accounting changes 12.1 14.6
Change in receivables (129.8) (84.1) (94.7)
Change in inventories (114.9) (73.8) (79.9)
Change in accounts payable 65.3 22.6 51.7
Changes in other assets and liabilities (35.6) 9.4 (52.9)
-------- -------- --------
Net cash flows from operating activities 199.5 194.7 127.2
-------- -------- --------
Cash Flows From Investing Activities:
Property additions (342.7) (182.2) (138.9)
Proceeds from disposal of assets 58.4 78.5 44.8
Cash obtained in stock acquisitions 68.7
Acquisition of businesses, net of cash acquired (52.2) (32.7)
Proceeds from sale of investments 48.5 95.5
-------- -------- --------
Net cash flows from investing activities (219.3) (40.9) (94.1)
-------- -------- --------
Cash Flows From Financing Activities:
Net borrowings (payments) from commercial paper and
revolving credit facilities 96.4 (21.6) 42.7
Repayment of indebtedness (57.4) (108.4)
Proceeds from exercise of stock options 53.4 43.7 9.8
Dividends (69.6) (65.9) (74.0)
Proceeds from exercise of debenture purchase warrants 93.0
Repurchase of preferred stock (167.0)
-------- -------- --------
Net cash flows from financing activities 22.8 (152.2) (95.5)
-------- -------- --------
Effect of exchange rate changes on cash (2.1) (0.7)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 0.9 0.9 (62.4)
Cash and cash equivalents, beginning of year 7.7 6.8 69.2
-------- -------- --------
Cash and cash equivalents, end of year $ 8.6 $ 7.7 $ 6.8
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
40
<PAGE> 16
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation: The consolidated financial statements include the
accounts of Baker Hughes Incorporated and all majority owned subsidiaries (the
"Company"). Investments in which the Company owns 20% to 50% and exercises
significant influence over operating and financial policies are accounted for
on the equity method. All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain 1996 and 1995 amounts have been
reclassified to conform to the 1997 presentation. In the Notes to Consolidated
Financial Statements, all dollar amounts in tabulations are in millions of
dollars unless otherwise indicated.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue recognition: Revenue from product sales are recognized upon delivery of
products to the customer. Revenue from services and rentals are recorded when
such services are rendered.
Inventories: Inventories are stated primarily at the lower of average cost or
market.
Property: Property is stated principally at cost less accumulated depreciation,
which is generally provided using the straight-line method over the estimated
useful lives of individual items. The Company manufactures a substantial
portion of its rental tools and equipment, and the cost of these items includes
direct and indirect manufacturing costs. The Company is implementing an
enterprise-wide software system. External direct costs of consulting services
and payroll related cost of employees who work full time on implementation of
the enterprise-wide software system are capitalized. Costs associated with
business process reengineering and training are expensed as incurred.
Impairment of assets: The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of, effective October 1, 1996. The
statement sets forth guidance as to when to recognize an impairment of
long-lived assets, including goodwill, and how to measure such an impairment.
The methodology set forth in SFAS No. 121 is not significantly different from
the Company's prior policy and, therefore, the adoption of SFAS No. 121 did not
have a significant impact on the consolidated financial statements as it
relates to impairment of long-lived assets used in operations. However, SFAS
No. 121 also addresses the accounting for long-lived assets to be disposed of
and requires these assets to be carried at the lower of cost or fair market
value, rather than the lower of cost or net realizable value, the method that
was previously used by the Company. The Company recognized a charge to income
of $12.1 million ($.08 per share), net of a tax benefit of $6.0 million, as the
cumulative effect of a change in accounting in the first quarter of 1997.
Investments: Investments in debt and equity securities, other than those
accounted for by the equity method, are classified as available for sale and
reported at fair value with unrealized gains or losses, net of tax, recorded as
a separate component of stockholders' equity.
Excess costs arising from acquisitions: Excess costs arising from acquisitions
are amortized on the straight-line method over the lesser of its expected
useful life or forty years.
Income taxes: Deferred income taxes are determined utilizing an asset and
liability approach. This method gives consideration to the future tax
consequences associated with differences between the financial accounting and
tax basis of assets and liabilities.
41
<PAGE> 17
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Environmental matters: Remediation costs are accrued based on estimates of
known environmental remediation exposure. Such accruals are recorded even if
significant uncertainties exist over the ultimate cost of the remediation.
Ongoing environmental compliance costs, including maintenance and monitoring
costs, are expensed as incurred.
Stock based compensation: The intrinsic value method of accounting is used for
stock based employee compensation whereby no compensation expense is recognized
when the exercise price of an employee stock option is equal to the market
price of the Company's common stock on the grant date. Additionally, no expense
is recognized for shares issued under the Company's employee stock purchase
plan.
Postemployment benefits: The Company adopted SFAS No. 112, Employers'
Accounting for Postemployment Benefits, effective October 1, 1994. The standard
requires that the cost of benefits provided to former or inactive employees
after employment, but before retirement, be accrued when it is probable that a
benefit will be provided, or in the case of service related benefits, over the
period earned. The cost of providing these benefits was previously recognized
as a charge to income in the period the benefits were paid. The cumulative
effect of adopting SFAS No. 112 was a charge to income of $14.6 million ($.10
per share), net of a tax benefit of $7.9 million, in the first quarter of 1995.
Foreign currency translation: Gains and losses resulting from balance sheet
translation of foreign operations where a foreign currency is the functional
currency are included as a separate component of stockholders' equity. Gains
and losses resulting from balance sheet translation of foreign operations where
the U.S. Dollar is the functional currency are included in the consolidated
statements of operations.
Financial instruments: The Company uses forward exchange contracts and currency
swaps to hedge certain firm commitments and transactions denominated in foreign
currencies. Gains and losses on forward contracts are deferred and offset
against foreign exchange gains or losses on the underlying hedged item. The
Company uses interest rate swaps to manage interest rate risk. The interest
differentials from interest rate swaps are recognized as an adjustment to
interest expense. The Company's policies do not permit financial instrument
transactions for speculative purposes.
Income per share: Net income per common share is based on the weighted average
number of shares outstanding during the respective periods and excludes the
negligible dilutive effect of shares issuable in connection with employee stock
and stock option plans.
The following table presents information necessary to calculate net
income per common share for the periods indicated:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net income $ 97.0 $ 176.4 $ 105.4
Less:
Preferred stock dividends (8.0)
Effect of preferred
stock repurchase (17.6)
------- ------- -------
Net income applicable
to common stock $ 97.0 $ 176.4 $ 79.8
======= ======= =======
Weighted average shares
outstanding 153.1 143.3 141.2
======= ======= =======
</TABLE>
In June 1995, the Company repurchased all outstanding shares of its
convertible preferred stock for $167.0 million. The fair market value of the
preferred stock was $149.4 million on its original date of issuance. The
repurchase price in excess of this amount, $17.6 million, is deducted from net
income in arriving at net income per share of common stock.
Statements of cash flows: The Company considers all highly liquid investments
with an original maturity of three months or less at the time of purchase to be
cash equivalents.
42
<PAGE> 18
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2
INVENTORIES
- --------------------------------------------------------------------------------
Inventories are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Finished goods $ 832.3 $ 665.7
Work in process 98.3 70.6
Raw materials 99.9 65.9
-------- ---------
Total $1,030.5 $ 802.2
======== =========
</TABLE>
NOTE 3
PROPERTY, PLANT & EQUIPMENT
- --------------------------------------------------------------------------------
Property, plant and equipment is comprised of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Land $ 42.6 $ 27.3
Buildings 372.7 290.7
Machinery and equipment 814.0 577.2
Rental tools and equipment 782.7 621.1
-------- --------
Total property 2,012.0 1,516.3
Accumulated depreciation (1,029.1) (917.3)
-------- --------
Property - net $ 982.9 $ 599.0
======== ========
</TABLE>
NOTE 4
ACQUISITIONS AND DISPOSITIONS
- --------------------------------------------------------------------------------
1997
Petrolite
In July 1997, the Company acquired Petrolite Corporation ("Petrolite") and Wm.
S. Barnickel & Company ("Barnickel"), the holder of 47.1% of Petrolite's common
stock, for 19.3 million shares of the Company's common stock having a value of
$730.2 million in a three-way business combination accounted for using the
purchase method of accounting. Additionally, the Company assumed Petrolite's
outstanding vested and unvested employee stock options which were converted
into the right to acquire 1.0 million shares of the Company's common stock.
Such assumption of Petrolite options by the Company had a fair market value of
$21.0 million resulting in total consideration in the acquisitions of $751.2
million. Petrolite, previously a publicly held company, is a manufacturer and
marketer of specialty chemicals used in the petroleum and process industries.
Barnickel was a privately held company that owned marketable securities, that
were sold after the acquisition, in addition to its investment in Petrolite.
The purchase price has been allocated to the assets purchased and the
liabilities assumed based on their estimated fair market values at the date of
acquisition as follows:
<TABLE>
<S> <C>
Working capital $ 64.5
Property 170.1
Prepaid pension cost 80.3
Intangible assets 126.0
Other assets 89.6
In-process research and development 118.0
Goodwill 263.7
Debt (31.7)
Deferred income taxes (106.7)
Other liabilities (22.6)
--------
Total $ 751.2
========
</TABLE>
In accordance with generally accepted accounting principles, the
amount allocated to in-process research and development, which was determined
by an independent valuation, has been recorded as a charge to expense in the
fourth quarter of 1997 because its technological feasibility had not been
established and it had no alternative future use at the date of acquisition.
The Company incurred certain liabilities as part of the plan to
combine the operations of Petrolite with those of the Company. These
liabilities relate to the Petrolite operations and include severance of $13.8
million for redundant marketing, manufacturing and administrative personnel,
relocation of $5.8 million for moving equipment and transferring marketing and
technology personnel, primarily from St. Louis to Houston, and environmental
remediation of $16.5 million for redundant properties and facilities that will
be sold. Cash spent during the fourth quarter of 1997 totaled $7.7 million. The
Company anticipates completing these activities in 1998, except for some
environmental remediation which will occur in 1998 and 1999.
43
<PAGE> 19
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The operating results of Petrolite and Barnickel are included in the
1997 consolidated statement of operations from the acquisition date, July 2,
1997. The following unaudited pro forma information combines the results of
operations of the Company, Petrolite and Barnickel assuming the acquisitions
had occurred at the beginning of the periods presented. The pro forma summary
does not necessarily reflect the results that would have occurred had the
acquisitions been completed for the periods presented, nor do they purport to
be indicative of the results that will be obtained in the future, and excludes
certain nonrecurring charges related to the acquisition which have an after tax
impact of $155.2 million.
<TABLE>
<CAPTION>
(Per share amounts in dollars) 1997 1996
--------- ---------
<S> <C> <C>
Revenues $ 3,944.0 $ 3,388.4
Income before accounting change 283.9 189.3
Income per share before accounting change 1.69 1.16
</TABLE>
In connection with the acquisition of Petrolite, the Company recorded
an unusual charge of $35.5 million. See Note 5 of Notes to Consolidated
Financial Statements.
Environmental Technology Division of Deutz AG
In July 1997, the Company acquired the Environmental Technology Division, a
decanter centrifuge and dryer business, of Deutz AG ("ETD") for $53.0 million,
subject to certain post-closing adjustments. This acquisition is now part of
Bird Machine Company and has been accounted for using the purchase method of
accounting. Accordingly, the cost of the acquisition has been allocated to
assets acquired and liabilities assumed based on their estimated fair market
values at the date of acquisition, July 7, 1997. The operating results of ETD
are included in the 1997 consolidated statement of operations from the
acquisition date. Pro forma results of the acquisition have not been presented
as the pro forma revenue, income before accounting change and earnings per
share would not be materially different from the Company's actual results. For
its most recent fiscal year ended December 31, 1996, ETD had revenues of $103.0
million.
Drilex
In July 1997, the Company acquired Drilex International Inc. ("Drilex") a
provider of products and services used in the directional and horizontal
drilling and workover of oil and gas wells for 2.7 million shares of the
Company's common stock. The acquisition was accounted for using the pooling of
interests method of accounting. Under this method of accounting, the historical
cost basis of the assets and liabilities of the Company and Drilex are combined
at recorded amounts and the results of operations of the combined companies for
1997 are included in the 1997 consolidated statement of operations. The
historical results of the separate companies for years prior to 1997 are not
combined because the retained earnings and results of operations of Drilex are
not material to the consolidated financial statements of the Company. In
connection with the acquisition of Drilex, the Company recorded an unusual
charge of $7.1 million for transaction and other one time costs associated with
the acquisition. See Note 5 of Notes to Consolidated Financial Statements. For
its fiscal year ended December 31, 1996 and 1995, Drilex had revenues of $76.1
million and $57.5 million, respectively.
1996
In April 1996, the Company purchased the assets and stock of a business
operating as Vortoil Separation Systems, and certain related oil/water
separation technology, for $18.8 million. In June 1996, the Company purchased
the stock of KTM Process Equipment, Inc., a centrifuge company, for $14.1
million. These acquisitions are part of Baker Hughes Process Equipment Company
and have been accounted for using the purchase method of accounting.
Accordingly, the costs of the acquisitions have been allocated to assets
acquired and liabilities assumed based on their estimated fair market values at
the dates of acquisition. The operating results are included in the
consolidated statements of operations from the respective acquisition dates.
44
<PAGE> 20
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 1996, the Company exchanged the 100,000 shares of Tuboscope
Inc. ("Tuboscope") Series A convertible preferred stock held by the Company
since October 1991, for 1.5 million shares of Tuboscope common stock and a
warrant to purchase 1.25 million shares of Tuboscope common stock. The warrants
are exercisable at $10 per share and expire on December 31, 2000.
In May 1996, the Company sold 6.3 million shares of Varco
International, Inc. ("Varco") common stock, representing its entire investment
in Varco. The Company received net proceeds of $95.5 million and recognized a
pretax gain of $44.3 million. The Company's investment in Varco was accounted
for using the equity method. Equity income included in the consolidated
statements of operations for 1996 and 1995 was $1.8 million and $3.2 million,
respectively.
NOTE 5
UNUSUAL CHARGE
- --------------------------------------------------------------------------------
1997
During the fourth quarter of 1997, the Company recognized a $52.1 million
unusual charge consisting of the following:
<TABLE>
<S> <C>
Baker Petrolite:
Severance for 140 employees $ 2.2
Relocation of people and equipment 3.4
Environmental 5.0
Abandoned leases 1.5
Integration costs 2.8
Inventory write-down 11.3
Write-down of other assets 9.3
Drilex:
Write-down of property and other assets 4.1
Banking and legal fees 3.0
Discontinued product lines:
Severance for 50 employees 1.5
Write-down of inventory, property and other assets 8.0
--------
Total $ 52.1
========
</TABLE>
In connection with the acquisitions of Petrolite and Drilex, the
Company recorded unusual charges of $35.5 million and $7.1 million,
respectively, to combine the acquired operations with those of the Company. The
charges include the cost of closing redundant facilities, eliminating or
relocating personnel and equipment and rationalizing inventories that require
disposal at amounts less than their cost. A $9.5 million charge was recorded as
a result of the decision to discontinue a low margin, oilfield product line in
Latin America and to sell the Tracor Europa subsidiary, a computer peripherals
operation, which resulted in a write-down of the investment to net realizable
value. Cash provisions of the unusual charge totaled $19.4 million. The Company
spent $5.5 million in 1997 and expects to spend substantially all of the
remaining $13.9 million in 1998.
1996
During the third quarter of 1996, the Company recognized a $39.6 million
unusual charge consisting of the following:
<TABLE>
<CAPTION>
<S> <C>
Patent write-off $ 8.5
Impairment of joint venture 5.0
Restructurings:
Severance for 360 employees 7.1
Relocation of people and equipment 2.3
Abandoned leases 2.8
Inventory write-down 1.5
Write-down of assets 10.4
Other 2.0
--------
Total $ 39.6
========
</TABLE>
The Company has certain oilfield operations patents which no longer
protect commercially significant technology resulting in the write-off of $8.5
million. A $5.0 million impairment of a Latin America joint venture was
recorded due to changing market conditions in the region in which it operates.
The Company recorded a $24.1 million restructuring charge including the
downsizing of Baker Hughes INTEQ's Singapore and Paris operations, a
reorganization of EIMCO Process Equipment's Italian operations and the
consolidation of certain Baker Oil Tools manufacturing operations. Cash
provisions of the charge totaled $14.3 million. The Company spent $4.2 million
in 1996, $6.3 million in 1997 and expects to spend the remaining $3.8 million
in 1998.
45
<PAGE> 21
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6
INDEBTEDNESS
- --------------------------------------------------------------------------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Commercial Paper with an average
interest rate of 5.5% at
September 30, 1997 $ 74.0 $ 44.0
Revolving Credit Facilities due through
1999 with an average interest rate
of 6.39% at September 30, 1997 90.8 33.0
Liquid Yield Option Notes ("LYONS")
due May 2008 with a yield to
maturity of 3.5% per annum, net
of unamortized discount of
$121.9 ($131.3 in 1996) 263.3 253.9
7.625% Notes due February 1999
with an effective interest rate
of 7.73%, net of unamortized
discount of $.4 ($.7 in 1996) 149.6 149.3
8% Notes due May 2004 with an effective
interest rate of 8.08%, net of
unamortized discount
of $.9 ($1.1 in 1996) 99.1 98.9
Debentures with an effective interest
rate of 8.59%, due January 2000 93.0 93.0
Other 2.1 1.7
-------- -------
Total debt 771.9 673.8
Less current maturities 0.1 0.2
-------- -------
Long-term debt $ 771.8 $ 673.6
======== =======
</TABLE>
At September 30, 1997, the Company had $639.3 million of credit
facilities with commercial banks, of which $300.0 million is committed. The
committed facilities expire in 1999. The Company's policy is to classify
commercial paper and borrowings under revolving credit facilities as long-term
debt since the Company has the ability under certain credit agreements, and the
intent, to maintain these obligations for longer than one year. These
facilities are subject to normal banking terms and conditions and do not
materially restrict the Company's activities.
The LYONS are convertible into the Company's common stock at a
conversion price of $37.35 per share, calculated as of November 5, 1997, and
increases at an annual rate of 3.5%. At the option of the Company, the LYONS
may be redeemed for cash at any time on or after May 5, 1998, at a redemption
price equal to the issue price plus accrued original issue discount through the
date of redemption. At the option of the holder, the LYONS may be redeemed for
cash on May 5, 1998, or on May 5, 2003, for a redemption price equal to the
issue price plus accrued original issue discount through the date of
redemption. The Company does not expect that the holders will redeem the LYONS
for cash in May 1998 as long as the Company's common stock trades at levels
above the conversion price.
Maturities of long-term debt for the next five years are as follows:
1998-$.1 million; 1999-$315.0 million; 2000-$93.5 million; 2001-$.9 million and
2002-$.1 million.
NOTE 7
FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
At September 30, 1997, the Company had two interest rate swap agreements for
notional amounts of $93.0 million and $230.5 million maturing January 27, 2000
and May 5, 1998, respectively. These swaps effectively exchange a weighted
average fixed interest rate of 5.0% for variable interest rates on the notional
amount. The variable interest rate is six-month LIBOR plus 2% and 30-day
commercial paper rates minus 1.96% on notional amounts of $93.0 million and
$230.5 million, respectively. The interest rate swaps settle semi-annually with
respect to the $93.0 million notional amount and upon maturity with respect to
the $230.5 million notional amount. At September 30, 1997 and 1996, the Company
had recorded an asset of $2.6 million and $3.3 million, respectively, related
to the interest rate swap agreements. In the unlikely event that the
counterparties fail to meet the terms of an interest rate swap agreement, the
Company's exposure is limited to the interest rate differential.
Except as described below, the estimated fair values of the Company's
financial instruments at September 30, 1997 and 1996 approximate their carrying
value as reflected in the consolidated statements of financial position. The
Company's financial instruments include cash and short-term investments,
receivables, investments, payables, debt and interest rate and foreign currency
contracts. The fair value of such financial instruments has been estimated
based on quoted market prices and the Black-Scholes option-pricing model.
46
<PAGE> 22
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimated fair value of the Company's debt, at September 30, 1997
and 1996 was $864.4 million and $704.8 million, respectively, which differs
from the carrying amounts of $781.4 million and $675.5 million, respectively,
included in the consolidated statements of financial position. The fair value
of the Company's interest rate swap contracts at September 30, 1997 and 1996
was $2.7 million and $.1 million, respectively.
NOTE 8
EMPLOYEE STOCK PLANS
- --------------------------------------------------------------------------------
The Company has stock option plans that provide for granting of options for the
purchase of common stock to directors, officers and other key employees. These
stock options may be granted subject to terms ranging from one to ten years at
a price equal to the fair market value of the stock at the date of grant.
Options vest 20% on the date of grant and 20% on each of the next four
anniversaries of the grant date. All outstanding but unvested options will vest
immediately if the price of the Company's common stock as traded on the New
York Stock Exchange reaches $50 and averages $50 for a period of ten
consecutive trading days. In connection with the acquisitions of Petrolite and
Drilex, the Company assumed the outstanding employee stock options of those
companies.
Stock option activity for the Company was as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Number Price
(Shares in thousands) of Shares Per Share
--------- ---------
<S> <C> <C>
Outstanding at September 30, 1994 4,879 $ 22.90
Granted 1,349 19.13
Exercised (153) 14.93
Forfeited (1,060) 23.57
------ --------
Outstanding at September 30, 1995 5,015 22.02
------ --------
Granted 1,145 19.67
Exercised (1,774) 22.17
Forfeited (203) 22.23
------ --------
Outstanding at September 30, 1996 4,183 21.30
------ --------
Granted 899 36.13
Options assumed in acquisitions 1,017 17.89
Exercised (2,121) 20.82
Forfeited (104) 23.83
------ --------
Outstanding at September 30, 1997 3,874 $ 24.03
------ --------
</TABLE>
The fair market value of options granted in 1997 and 1996 using the
Black-Scholes option-pricing model was $10.97 and $4.71 respectively, using the
following assumptions: dividend yield of 1.3% and 2.3%; expected volatility of
34.7% and 28.3%; risk-free interest rate of 5.85% and 5.78% and expected life
of each option of 3.75 years and 3.75 years.
The following table summarizes information for stock options
outstanding at September 30, 1997 (shares in thousands):
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------- --------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Prices Shares Life (Years) Exercise Price Shares Exercise Price
- --------------- ------- ----------- -------------- ------ --------------
<C> <C> <C> <C> <C> <C>
$ 36.00 - 41.94 914 8.63 $ 36.35 202 $ 36.66
23.88 - 34.50 281 3.55 26.72 276 26.63
19.13 - 23.00 2,244 6.91 20.29 1,161 20.83
13.75 - 17.98 435 0.87 15.70 431 15.71
----- ---- --------- ----- ---------
Total 3,874 6.39 $ 24.03 2,070 $ 22.08
===== ==== ========= ===== =========
</TABLE>
At September 30, 1997, 1.6 million shares were available for future option
grants.
The Company has an Employee Stock Purchase Plan (the "Plan") under
which 1.2 million shares of the Company's common stock remain authorized and
available for sale to employees at a discount of 15%. Based on the market price
of common stock on the date of grant, the Company estimates that 463,000 shares
will be purchased in July 1998. Under the Plan, 394,000, 427,000 and 414,000
shares were issued at $24.97, $18.81 and $17.96 per share during 1997, 1996 and
1995, respectively.
47
<PAGE> 23
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assuming the Company had used the fair market value method of
accounting for its stock based compensation plans, pro forma net income and net
income per share would have been $86.4 million and $.56 per share in 1997 and
$171.2 million and $1.19 per share in 1996. The effects of applying the fair
market value method of accounting in the above pro forma disclosure may not be
indicative of future amounts since the pro forma disclosure does not apply to
options granted prior to 1996, and additional awards in future years are
anticipated.
NOTE 9
INCOME TAXES
- --------------------------------------------------------------------------------
The geographical sources of income before income taxes and cumulative effect of
accounting changes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
United States $ 20.6 $ 116.4 $ 128.3
Foreign 192.5 182.5 76.8
-------- --------- ---------
Total $ 213.1 $ 298.9 $ 205.1
======== ========= =========
</TABLE>
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Current:
United States $ 46.5 $ 40.1 $ 3.7
Foreign 64.3 52.2 36.6
-------- --------- ---------
Total current 110.8 92.3 40.3
-------- --------- ---------
Deferred:
United States (.2) 20.7 42.1
Foreign (6.6) 9.5 2.7
-------- --------- ---------
Total deferred (6.8) 30.2 44.8
-------- --------- ---------
Provision for
income taxes $ 104.0 $ 122.5 $ 85.1
======== ========= =========
</TABLE>
The provision for income taxes differs from the amount computed by
applying the U.S. statutory income tax rate to income before income taxes and
cumulative effect of accounting changes for the reasons set forth below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Statutory income tax $ 74.6 $ 104.6 $ 71.8
Nondeductible acquired
in-process research
and development charge 41.3
Incremental effect of
foreign operations (6.5) 12.5 24.8
1992 and 1993 IRS
audit agreement (11.4)
Nondeductible
goodwill amortization 4.5 5.4 4.2
State income taxes - net
of U.S. tax benefit 2.9 2.1 1.0
Operating loss and
credit carryforwards (4.2) (3.3) (13.1)
Other-net 2.8 1.2 (3.6)
-------- --------- ---------
Provision for
income taxes $ 104.0 $ 122.5 $ 85.1
======== ========= =========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
operating loss and tax credit carryforwards. The tax effects of the Company's
temporary differences and carryforwards are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Property $ 90.6 $ 62.3
Other assets 147.5 57.7
Excess costs arising from acquisitions 67.6 64.0
Undistributed earnings of
foreign subsidiaries 41.3 41.3
Other 36.5 37.4
--------- ---------
Total 383.5 262.7
--------- ---------
Deferred tax assets:
Receivables 2.8 4.1
Inventory 72.4 72.4
Employee benefits 21.5 44.0
Other accrued expenses 40.6 20.2
Operating loss carryforwards 9.0 16.6
Tax credit carryforwards 15.9 30.8
Other 34.9 15.9
--------- ---------
Subtotal 197.1 204.0
Valuation allowance (5.7) (13.1)
--------- ---------
Total 191.4 190.9
--------- ---------
Net deferred tax liability $ 192.1 $ 71.8
========= =========
</TABLE>
48
<PAGE> 24
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A valuation allowance is recorded when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The
ultimate realization of the deferred tax assets depends on the ability to
generate sufficient taxable income of the appropriate character in the future.
The Company has reserved the operating loss carryforwards in certain non-U.S.
jurisdictions where its operations have decreased, currently ceased or the
Company has withdrawn entirely.
Provision has been made for U.S. and additional foreign taxes for the
anticipated repatriation of certain earnings of foreign subsidiaries of the
Company. The Company considers the undistributed earnings of its foreign
subsidiaries above the amounts already provided to be permanently reinvested.
These additional foreign earnings could become subject to additional tax if
remitted, or deemed remitted, as a dividend; however, the additional amount of
taxes payable is not practicable to estimate.
At September 30, 1997, the Company had approximately $15.9 million of
foreign tax credits expiring in varying amounts between 1998 and 2001 available
to offset future payments of U.S. federal income taxes.
NOTE 10
SEGMENT AND RELATED INFORMATION
- --------------------------------------------------------------------------------
The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information, in 1997 which changes the way the Company reports
information about its operating segments. The information for 1996 and 1995 has
been restated from the prior year's presentation in order to conform to the
1997 presentation.
The Company's nine business units have separate management teams and
infrastructures that offer different products and services. The business units
have been aggregated into three reportable segments (oilfield, chemicals and
process equipment) since the long-term financial performance of these
reportable segments is affected by similar economic conditions.
Oilfield: This segment consists of five business units - Baker Hughes INTEQ,
Baker Oil Tools, Baker Hughes Solutions, Centrilift and Hughes Christensen -
that manufacture and sell equipment and provide services and solutions used in
the drilling, completion, production and maintenance of oil and gas wells. The
principle markets for this segment include all major oil and gas producing
regions of the world including North America, Latin America, Europe, Africa and
the Far East. Customers include major multi-national, independent and national
or state-owned oil companies.
Chemicals: Baker Petrolite is the sole business unit reported in this segment.
They manufacture specialty chemicals for inclusion in the sale of integrated
chemical technology solutions for petroleum production, transportation and
refining. The principle geographic markets for this segment include all major
oil and gas producing regions of the world. This segment also provides chemical
technology solutions to other industrial markets throughout the world including
petrochemicals, steel, fuel additives, plastics, imaging and adhesives.
Customers include major multi-national, independent and national or state-owned
oil companies as well as other industrial manufacturers.
49
<PAGE> 25
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Process Equipment: This segment consists of three business units - EIMCO
Process Equipment, Bird Machine Company and Baker Hughes Process Systems - that
manufacture and sell process equipment for separating solids from liquids and
liquids from liquids through filtration, sedimentation, centrifugation and
floatation processes. The principle markets for this segment include all
regions of the world where there are significant industrial and municipal
wastewater applications and base metals activity. Customers include
municipalities, contractors, engineering companies and pulp and paper,
minerals, industrial and oil and gas producers.
The accounting policies of the reportable segments are the same as those
described in Note 1 of Notes to Consolidated Financial Statements. The Company
evaluates the performance of its operating segments based on income before
income taxes, accounting changes, nonrecurring items and interest income and
expense. Intersegment sales and transfers are not significant.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Other" column includes corporate
related items, results of insignificant operations and, as it relates to
segment profit(loss), income and expense not allocated to reportable segments.
<TABLE>
<CAPTION>
Process
Oilfield Chemicals Equipment Other Total
---------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
1997
Revenues $ 2,862.6 $ 417.2 $ 386.1 $ 19.5 $ 3,685.4
Segment profit (loss) 416.8 41.9 36.3 (281.9) 213.1
Total assets 3,014.3 1,009.5 363.7 368.8 4,756.3
Capital expenditures 289.7 24.8 6.4 21.8 342.7
Depreciation and amortization 143.2 20.5 8.4 4.1 176.2
1996
Revenues $ 2,397.9 $ 247.6 $ 352.8 $ 29.4 $ 3,027.7
Segment profit (loss) 329.1 23.3 31.2 (84.7) 298.9
Total assets 2,464.6 270.3 258.9 303.6 3,297.4
Capital expenditures 157.5 16.6 6.6 1.5 182.2
Depreciation and amortization 123.6 12.2 6.7 3.0 145.5
1995
Revenues $ 2,072.2 $ 223.7 $ 319.6 $ 22.0 $ 2,637.5
Segment profit (loss) 249.6 17.8 29.7 (92.0) 205.1
Total assets 2,423.7 259.8 187.3 295.8 3,166.6
Capital expenditures 119.1 11.0 5.0 3.8 138.9
Depreciation and amortization 123.9 12.4 5.4 2.4 144.1
</TABLE>
50
<PAGE> 26
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the details of "Other" segment
profit(loss).
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
Corporate expenses $ (44.3) $ (40.2) $ (39.7)
Interest expense-net (46.8) (52.1) (50.8)
Unusual charge (52.1) (39.6)
Acquired in-process
research and development (118.0)
Nonrecurring charge to
cost of sales for
Petrolite inventories (21.9)
Gain on sale of Varco stock 44.3
Other 1.2 2.9 (1.5)
--------- --------- ----------
Total $ (281.9) $ (84.7) $ (92.0)
========= ========= ==========
</TABLE>
The following table presents revenues by country based on the location
of the use of the product or service.
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
United States $ 1,319.7 $ 1,047.2 $ 972.9
United Kingdom 288.0 277.9 207.6
Venezuela 244.2 160.0 122.7
Canada 204.5 165.1 157.5
Norway 175.0 145.6 104.2
Indonesia 128.0 92.7 54.5
Nigeria 83.5 64.1 33.5
Oman 77.2 56.8 45.7
Other (approximately
60 countries) 1,165.3 1,018.3 938.9
--------- --------- ---------
Total $ 3,685.4 $ 3,027.7 $ 2,637.5
========= ========= =========
</TABLE>
The following table presents property by country based on the location
of the asset.
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
United States $ 593.3 $ 359.9 $ 353.0
United Kingdom 145.3 77.7 67.6
Venezuela 33.3 25.1 19.0
Germany 21.4 19.3 18.4
Norway 20.0 10.9 11.3
Canada 16.9 9.1 8.0
Singapore 11.7 17.7 25.0
Other countries 141.0 79.3 72.8
-------- --------- ---------
Total $ 982.9 $ 599.0 $ 575.1
======== ========= =========
</TABLE>
NOTE 11
EMPLOYEE BENEFIT PLANS
- --------------------------------------------------------------------------------
Postretirement Benefits Other Than Pensions
The Company provides postretirement health care benefits for substantially all
U.S. employees.
The following table sets forth the funded status and amounts
recognized in the Company's consolidated statements of financial position:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accumulated postretirement
benefit obligation ("APBO"):
Retirees $ (81.1) $ (70.8)
Fully eligible active plan participants (11.7) (10.0)
Other active plan participants (17.1) (16.6)
--------- ---------
Total (109.9) (97.4)
Unrecognized net gain (11.1) (9.8)
--------- ---------
Accrued postretirement benefit cost $ (121.0) $(107.2)
========= =========
</TABLE>
Postretirement benefit expense includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Cost of benefits earned $ 1.2 $ 1.1 $ 1.3
Interest cost on APBO 7.3 7.1 8.2
------ ------- -------
Postretirement benefit expense $ 8.5 $ 8.2 $ 9.5
====== ======= =======
</TABLE>
51
<PAGE> 27
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The assumed health care cost trend rate used in measuring the APBO as
of September 30, 1997 was 7.0% for 1998 declining gradually each successive
year until it reaches 5% in 2002, after which it remains constant. A 1%
increase in the trend rate for health care costs would have increased the APBO
as of September 30, 1997 by 5% and the aggregate of the service and interest
cost components of the 1997 net periodic postretirement benefit expense by 5%.
The assumed discount rate used in determining the APBO was 7.5%.
Defined Benefit Pension Plans
The Company has several noncontributory defined benefit pension plans covering
various domestic and foreign employees, including an overfunded plan acquired
as part of the acquisition of Petrolite. Generally, the Company makes annual
contributions to the plans in amounts necessary to meet minimum governmental
funding requirements.
Net pension expense includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cost of benefits earned $ 1.8 $ 1.4 $ 1.4
Interest cost on projected
benefit obligation 4.2 2.5 2.4
Actual return on assets (11.1) (6.6) (4.8)
Net amortization and deferral 5.2 3.7 2.4
------ ------ ------
Net pension expense $ .1 $ 1.0 $ 1.4
====== ====== ======
</TABLE>
The weighted average assumptions used in the accounting for the
defined benefit plans were:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Discount rate 7.3% 7.1% 7.3%
Rates of increase in
compensation levels 3.0% 3.0% 3.0%
Expected long-term rate of
return on assets 8.9% 8.6% 8.5%
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Company's consolidated statements of financial position.
<TABLE>
<CAPTION>
1997 1996
-------------------------- -----------------------
Overfunded Underfunded Overfunded Underfunded
Plans Plans Plans Plans
---------- --------- ---------- -------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ (101.9) $ (16.8) $ (25.2) $ (9.9)
========== ========= ========== ========
Accumulated benefit obligation (102.7) (18.1) (25.7) (10.8)
---------- --------- ---------- --------
Projected benefit obligation (106.3) (20.7) (28.1) (12.9)
Plan assets at fair value 205.0 4.7 37.9 3.2
---------- --------- ---------- --------
Projected benefit obligation (in excess of) less than plan assets 98.7 (16.0) 9.8 (9.7)
Unrecognized prior service cost 0.3 0.5
Unrecognized net (gain) loss (11.0) 1.8 (5.3) 1.1
Unrecognized net (asset) liability at transition (0.3) 0.4 0.3
---------- --------- ---------- --------
Prepaid pension cost (pension liability) $ 87.7 $ (13.8) $ 5.0 $ (8.3)
========== ========= ========== ========
</TABLE>
52
<PAGE> 28
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension plan assets are primarily mortgages, private placements, bonds and
common stocks.
Thrift Plan
Virtually all U.S. employees not covered under one of the Company's pension
plans are eligible to participate in the Company sponsored Thrift Plan. The
Thrift Plan allows eligible employees to contribute from 2% to 15% of their
salaries to an investment trust. Employee contributions are matched by the
Company at the rate of $1.00 per $1.00 employee contribution for the first 2%
and $.50 per $1.00 employee contribution for the next 4% of the employee's
salary. In addition, the Company contributes for all eligible employees between
2% and 5% of their salary depending on the employee's age as of January 1 each
year. Such contributions become fully vested to the employee after five years
of employment. The Company's contribution to the Thrift Plan and other defined
contribution plans totaled $35.9 million, $30.0 million and $27.5 million in
1997, 1996 and 1995, respectively.
Postemployment Benefits
The Company provides certain postemployment benefits to substantially all
former or inactive U.S. employees following employment but before retirement.
Disability income benefits ("Disability Benefits"), available at the date of
hire, are provided through a qualified plan which has been funded by
contributions from the Company and employees. The primary asset of the plan is
a guaranteed insurance contract with an insurance company which currently earns
interest at 7%. The actuarially determined obligation is calculated at a
discount rate of 7%. Disability Benefits expense was $1.1 million in 1997 and
Disability Benefits income was $.1 million and $1.5 million in 1996 and 1995,
respectively.
The continuation of medical, life insurance and Thrift Plan benefits
while on disability and service related salary continuance benefits
("Continuation Benefits") were provided through a nonqualified, unfunded plan
until April 1997. The continuation of the medical benefit portion of the plan
was merged into the disability income benefits plan beginning in April 1997.
Expense for Continuation Benefits include the following components:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Cost of benefits earned $ 1.2 $ 1.0 $ 1.0
Interest cost on projected
benefit obligation 2.1 1.9 1.8
------ ------- -------
Postemployment
benefit expense $ 3.3 $ 2.9 $ 2.8
====== ======= =======
</TABLE>
The following table sets forth the funded status and amounts
recognized in the Company's consolidated statements of financial position for
Disability Benefits and Continuation Benefits:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Actuarial present value of
accumulated benefit
obligation $ (39.9) $ (40.1)
Plan assets at fair value 15.8 18.6
------- -------
Accumulated benefit obligation in
excess of plan assets (24.1) (21.5)
Unrecognized net loss 5.6 3.2
------- -------
Postemployment liability $ (18.5) $ (18.3)
======= =======
</TABLE>
Health care cost assumptions used to measure the Continuation Benefits
obligation are similar to the assumptions used in determining the obligation
for postretirement health care benefits. Additional assumptions used in the
accounting for Continuation Benefits in 1997 and 1996 were a discount rate of
7% and increases in compensation of 5%.
53
<PAGE> 29
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12
STOCKHOLDER RIGHTS AGREEMENT AND OTHER MATTERS
- --------------------------------------------------------------------------------
The Company had a Stockholder Rights Agreement ("SRA") to protect against
coercive takeover tactics. During 1996, the Company exercised its option to
redeem all of the rights to purchase from the Company .01 of a share of the
Series One Junior Participating Preferred Stock for the redemption price of
$.03 per right in accordance with the SRA. The cash distribution of $.115 per
share of common stock in the third quarter of 1996 includes the redemption
price.
Supplemental consolidated statement of operations information is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Rental expense (generally
transportation equipment
and warehouse facilities) $ 42.5 $ 41.5 $ 37.0
Research and development 59.5 44.0 37.4
Income taxes paid 96.0 78.1 49.3
Interest paid 39.4 49.6 45.2
</TABLE>
At September 30, 1997, the Company had long-term operating leases
covering certain facilities and equipment on which minimum annual rental
commitments for each of the five years in the period ending September 30, 2002
are $34.8 million, $25.2 million, $17.3 million, $9.9 million and $8.2 million,
respectively, and $45.2 million in the aggregate thereafter. The Company has
not entered into any significant capital leases.
NOTE 13
LITIGATION
- --------------------------------------------------------------------------------
The Company is sometimes named as a defendant in litigation relating to the
products and services it provides. The Company insures against these risks to
the extent deemed prudent by its management, but no assurance can be given that
the nature and amount of such insurance will in every case fully indemnify the
Company against liabilities arising out of pending and future legal proceedings
relating to its ordinary business activities.
NOTE 14
ENVIRONMENTAL MATTERS
- --------------------------------------------------------------------------------
The Company's past and present operations include activities which are subject
to extensive federal and state environmental regulations.
The Company has been identified as a potentially responsible party
("PRP") in remedial activities related to various "Superfund" sites. Applicable
federal law imposes joint and several liability on each PRP for the cleanup of
these sites leaving the Company with the uncertainty that it may be responsible
for remediation cost attributable to other PRPs who are unable to pay their
share of the remediation costs. Generally, the Company has determined its share
of such total cost based on the ratio that the number of gallons of waste
estimated to be contributed to the site by the Company bears to the total
number of gallons of waste estimated to have been disposed at the site. The
Company has accrued what it believes to be its share of the total cost of
remediation of these Superfund sites. No accrual has been made under the joint
and several liability concept since the Company believes that the probability
that it will have to pay material costs above its share is remote due to the
fact that the other PRPs have substantial assets available to satisfy their
obligation.
At September 30, 1997 and 1996, the Company had accrued approximately
$24.6 million, and $8.3 million, respectively, for remediation costs, including
the Superfund sites referred to above. The measurement of the accruals for
remediation costs is subject to uncertainties, including the evolving nature of
environmental regulations and the difficulty in estimating the extent and
remedy of agreements that may be available to the Company to mitigate the
remediation costs, such amounts have not been considered in measuring the
remediation accrual.
54
<PAGE> 30
BAKER HUGHES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15
QUARTERLY DATA (UNAUDITED)
- --------------------------------------------------------------------------------
Summarized quarterly financial data is shown in the table below:
<TABLE>
<CAPTION>
First Second Third Fourth
(Per share amounts in dollars) Quarter Quarter Quarter Quarter Fiscal Year
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Fiscal Year 1997: *
Revenues $ 826.7 $ 850.2 $ 917.3 $ 1,091.2 $ 3,685.4
Gross profit ** 320.9 329.2 361.8 417.3 1,429.2
Income (loss) before cumulative
effect of accounting change 51.5 58.0 82.5 (82.9) 109.1
Net income (loss) 39.4 58.0 82.5 (82.9) 97.0
Per share of common stock: ***
Income (loss) before accounting
change .35 .39 .56 (.49) .71
Net income (loss) .27 .39 .56 (.49) .63
Dividends per share .115 .115 .115 .115 .46
Fiscal Year 1996: *
Revenues $ 694.7 $ 744.8 $ 765.9 $ 822.3 $ 3,027.7
Gross profit ** 270.7 287.4 308.4 323.6 1,190.1
Net income 32.4 41.6 46.9 55.5 176.4
Net income per share .23 .29 .33 .38 1.23
Dividends per share .115 .115 .115 .115 .46
</TABLE>
* See Notes 1, 4 and 5 for information regarding accounting changes,
acquisitions and dispositions and unusual charges, respectively.
** Represents revenues less costs of sales and costs of services and
rentals.
*** Quarterly per share amounts do not sum to the fiscal year amount
because of the issuance of 22.0 million shares of common stock in July
1997.
Stock Prices by Quarter
<TABLE>
<CAPTION>
Quarter Ended High Low
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1997 12/31/96 $ 38.875 $ 29.500
3/31/97 41.250 34.125
6/30/97 40.125 32.625
9/30/97 47.250 38.375
1996 12/31/95 $ 24.875 $ 18.375
3/31/96 29.750 22.750
6/30/96 34.250 28.000
9/30/96 35.625 28.875
</TABLE>
55
<PAGE> 1
BAKER HUGHES INCORPORATED - EXHIBIT 21 Effective 9/30/97
<TABLE>
<CAPTION>
======================================================================================================================
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
======================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AZIMUTH SALES LTD. CAYMAN ISLANDS 100%
BAKER CANADA HOLDING, INC. DELAWARE (1)
- ----------------------------------------------------------------------------------------------------------------------
..Baker Hughes (Canada) Holding Company, Inc. Alberta 100%
..Baker Hughes Canada Inc. Alberta 100%
....Baker Hughes Industrial Chile Limitada Chile (2)
....Baker Hughes INTEQ Operating Division ---
....Baker Hughes Mining Tools Operating Division ---
....Baker Hughes Wyoming LLC Wyoming (3)
....Baker Industrial Chemicals Operating Division ---
....Baker Oil Tools Canada Operating Division ---
....Baker Petrolite Operating Division ---
....Bird Machine of Canada Operating Division ---
....Canada Intermediates/Aquaness Trade Name ---
....Centrilift Canada Operating Division ---
....Christensen Diamond Products del Peru S.A. Peru 100%
....Eimco Fluid Process International Operating Division ---
....Eimco Process Equipment Operating Division ---
....Ramsey Comercio Industria Ltd. Brazil (4)
- ----------------------------------------------------------------------------------------------------------------------
BAKER HUGHES AUSTRALIA HOLDING, INC. DELAWARE (5)
- ----------------------------------------------------------------------------------------------------------------------
..Baker Hughes Australia Pty. Limited Australia (6)
....Baker Hughes New Zealand Registered Branch ---
....BHA Superannuation (Nominees) Pty. Limited Australia 100%
....Baker Hughes INTEQ Operating Division ---
....Baker Hughes Mining Tools of Australia Operating Division ---
....Baker Hughes Solutions Operating Division ---
....Baker Oil Tools Australia Operating Division ---
....Centrilift-Australia Operating Division ---
....Eastman Christensen Australia Pty. Limited Australia 100%
</TABLE>
1
<PAGE> 2
BAKER HUGHES INCORPORATED - EXHIBIT 21 Effective 9/30/97
<TABLE>
<CAPTION>
======================================================================================================================
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
======================================================================================================================
<S> <C> <C> <C>
....Hughes Christensen Operating Division ---
....Teleco Oilfield Services Pty. Ltd. Western Australia 100%
..Baker Hughes PNG Pty. Ltd. New Guinea (7)
- ----------------------------------------------------------------------------------------------------------------------
BAKER HUGHES DO BRASIL LTDA. BRAZIL (8)
- ----------------------------------------------------------------------------------------------------------------------
..Baker Hughes Mining Brazil Operating Division ---
..Baker Oil Tools Brazil Operating Division ---
..Bird Machine Brazil Operating Division ---
..Centrilift Brazil Operating Division ---
..EIMCO Brazil Operating Division ---
..Hughes Tool do Brazil Operating Division ---
- ----------------------------------------------------------------------------------------------------------------------
BAKER HUGHES EQUIPAMENTOS LTDA. BRAZIL (9)
BAKER HUGHES FINANCE, INC. DELAWARE 100%
- ----------------------------------------------------------------------------------------------------------------------
..Baker Hughes French Actions Co. Delaware (10)
..Baker Hughes France S.A. France 100%
....Baker International S.A. France 100%
....Baker Hughes INTEQ-France S.A. France 100%
......Baker Hughes INTEQ Congo S.A.R.L. Congo 100%
......Baker Hughes INTEQ Gabon S.A. Gabon (11)
......Baker Hughes Nigeria Limited Nigeria 100%
......CECA, U.A.E. Abu Dhabi 100%
......CKS Espanola S.A. Spain (12)
......Hughes Christensen France Operating Division ---
......Malaysia Mud and Chemicals Sdn. Bhd. Malaysia (13)
....Eimco Wemco S.A. France 100%
..Baker Hughes FSC Inc. Barbados 100%
..JDI International Leasing, Inc. Delaware 100%
</TABLE>
2
<PAGE> 3
BAKER HUGHES INCORPORATED - EXHIBIT 21 Effective 9/30/97
<TABLE>
<CAPTION>
======================================================================================================================
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
======================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BAKER HUGHES HOLDING COMPANY DELAWARE 100%
- ----------------------------------------------------------------------------------------------------------------------
..Baker Hughes Argentina, S.A. Argentina (14)
....Centrilift/Kobe Operating Division ---
....Hughes Christensen Operating Division ---
....Hughes Tool Company Chile Ltda. Chile (15)
....Lufkin Argentina S.A. Argentina 100%
..Baker Hughes Oilfield Operations, Inc. California 100%
....Baker Eastern S.A. Panama 100%
......Baker Hughes INTEQ Operating Division ---
......Baker Oil Tools Operating Division ---
......Baker Nigeria Ltd. Nigeria (16)
....Baker Far East Ltd. Bermuda 100%
....Baker Hughes International Holdings, Inc. Delaware (17)
......Baker Hughes Indonesia Co. Delaware (18)
.........P.T. Eastman Christensen Indonesia Indonesia (19)
.........Tri-State Oil Tool S.A. Panama 100%
......Baker Hughes Nederland Holdings B.V. The Netherlands 100%
........Baker Hughes Denmark A/S Denmark 100%
..........Baker Hughes INTEQ Operating Division ---
..........Baker Oil Tools Denmark Operating Division ---
........Baker Hughes INTEQ Cameroon Cameroon 100%
..........Baker Service Tools B.V. The Netherlands 100%
............Centrilift Netherlands Operating Division ---
........Baker Hughes INTEQ Operating Division ---
........Baker Hughes INTEQ (China) Limited Guernsey 100%
........Baker Oil Tools Operating Division ---
........Baker Performance Chemicals Operating Division ---
</TABLE>
3
<PAGE> 4
BAKER HUGHES INCORPORATED - EXHIBIT 21 Effective 9/30/97
<TABLE>
<CAPTION>
======================================================================================================================
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
======================================================================================================================
<S> <C> <C> <C>
........Ferranti Eastman Survey GmbH Switzerland (20)
........Hughes Christensen Co. Holland Operating Division ---
........Tracor Europa B.V. The Netherlands 100%
..........Tracor Europa N.V. Belgium (21)
..........Tracor France S.A.R.L. France 100%
......Baker Hughes Limited England 100%
........Baker Hughes INTEQ Operating Division ---
........Baker Hughes Process Systems Operating Division ---
........Baker Oil Tools U.K. Operating Division ---
........Baker Petrolite Operating Division ---
........Aquaness Assumed Name ---
..........Centrilift U.K. Operating Division ---
........Eimco/Wemco G.B. Operating Division ---
........Hughes Christensen Operating Division ---
........BFCC Ltd. England 100%
........Baker Hughes (BJ) Limited Scotland 100%
........Baker Hughes (U.K.) Limited England 100%
..........Drilex (U.K.) Ltd. England 100%
............Drilex Systems Ltd. Scotland 100%
............Drilex Overseas Corporation Limited Bahamas 100%
..........Vortoil Separation Systems Limited England 100%
........Baker Oil Tools (UK) Limited England 100%
........Baker Production Services (UK) Limited England 100%
........Eastman Christensen de Espana, S.A. Spain 100%
........Eimco Process Equipment Limited England 100%
........Hughes Tool Company Limited England 100%
........Lombard Baker Leasing Co. England Partnership (22)
........Technical Oilfield Services Ltd. England 100%
........Tri-State Oil Tool (U.K.) Limited England 100%
</TABLE>
4
<PAGE> 5
BAKER HUGHES INCORPORATED - EXHIBIT 21 Effective 9/30/97
<TABLE>
<CAPTION>
======================================================================================================================
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
======================================================================================================================
<S> <C> <C> <C>
......Baker Hughes (Malaysia) Sdn. Bhd. Malaysia 100%
........Baker (Malaysia) Sdn. Bhd. Malaysia (23)
..........Baker Hughes INTEQ (M) Sdn. Bhd. Malaysia (24)
.............Baker Oil Tools Malaysia Operating Division ---
....Baker Hughes (C.I.) Ltd. Cayman Islands 100%
......Baker Hughes EHO Ltd. Bermuda (25)
........Baker Hughes Asia Limited Bermuda 100%
........EXLOG Egypt Operating Division ---
........Milchem International (Nigeria) Ltd. Nigeria 100%
........Milpark Kuwait for Drilling Fluids Company Kuwait (26)
........Milchem Libya Co. Ltd. Libya (27)
........P. T. Milchem Indonesia Indonesia (28)
.......Baker Hughes Singapore Pte. Singapore (29)
.........Baker Hughes INTEQ Operating Division ---
.........Baker Hughes Process Systems Operating Division ---
.........Baker Hughes Solutions Operating Division ---
.........Baker Oil Tools Asia Pacific Operating Division ---
.........Bird Machine Operating Division ---
.........Eimco Process Equipment Operating Division ---
.........Hughes Christensen (Singapore) Operating Division ---
.........Yangon Branch (Myanamar) Registered Branch ---
....Baker Hughes de Mexico, S. de R.L. de C.V. Mexico (30)
......Baker Hughes INTEQ Operating Division ---
......Baker Oil Tools Operating Division ---
......Centrilift Operating Division ---
......Hughes Christensen Company Operating Division ---
......Baker Hughes Services de Mexico S.A. de C.V. Mexico (31)
</TABLE>
5
<PAGE> 6
BAKER HUGHES INCORPORATED - EXHIBIT 21 Effective 9/30/97
<TABLE>
<CAPTION>
======================================================================================================================
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
======================================================================================================================
<S> <C> <C> <C>
....Baker Hughes Drilling Systems (Bolivia) Ltda. Bolivia 100%
....Baker Hughes Immobilaria Mexico (32)
....Baker Hughes INTEQ Operating Division ---
....Baker Hughes International Branches, Inc. Delaware 100%
......Baker Hughes de Colombia Registered Branch ---
......Baker Hughes de Ecuador Registered Branch ---
......Baker Hughes INTEQ - Brunei Registered Branch ---
......Baker Hughes INTEQ - Dubai Registered Branch ---
......Baker Hughes INTEQ International Branches - Thailand Registered Branch ---
......Baker Hughes INTEQ - Trinidad & Tobago Registered Branch ---
......Baker Hughes International Branches Inc., Sucursal Bolivia Registered Branch ---
......Baker Oil Tools - Trinidad & Tobago Registered Branch ---
......Baker Performance Chemicals - Trinidad & Tobago Operating Division --
......Baker Hughes Zambia Registered Branch ---
....Baker Hughes S.A. Venezuela 100%
....Baker Hughes Mining Tools Peru, S.A. Peru 100%
....Baker Hughes Norge A/S Norway 100%
......Baker Hughes INTEQ Operating Division ---
......Baker Oil Tools Operating Division ---
......Centrilift Operating Division ---
......Hughes Christensen Norway Operating Division ---
....Baker Hughes Services International, Inc. Delaware 100%
......Baker Hughes Azerbaijan Operating Division ---
....Baker Hughes S.p.A. Italy (33)
......Baker Hughes INTEQ Operating Division ---
......Baker Oil Tools Operating Division ---
......Eimco Operating Division ---
......Hughes Christensen Operating Division ---
</TABLE>
6
<PAGE> 7
BAKER HUGHES INCORPORATED - EXHIBIT 21 Effective 9/30/97
<TABLE>
<CAPTION>
======================================================================================================================
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
======================================================================================================================
<S> <C> <C> <C>
....Baker Hughes Thailand Co., Ltd. Thailand 100%
....Baker International Cote D'Ivoire S.A.R.L. Ivory Coast (34)
....Baker Oil Tools Operating Division ---
......Baker Oil Tools Surface Safety Systems Company D/B/A ---
....Baker Oil Tools (Brunei) Sdn. Bhd. Brunei (35)
....Baker Performance Chemicals Incorporated California 100%
......Alamex, Inc. Delaware 100%
......Aquaness Chemicals Operating Division ---
......Baker Quimicas de Venezuela S.A. Venezuela 100%
......Baker Performance Technologies Operating Division ---
......Baker Pipeline Products Operating Division ---
......Baker Industrial Chemicals Operating Division ---
......Magna Herbicide D/B/A ---
......Magna International Limited Bermuda 100%
......Oreprep D/B/A ---
......P.T. Elnusa Chemlink Indonesia (36)
......South Kern Industrial Partnership California Partnership (37)
....Baker Production Services, Inc. Texas 100%
......BHT Products Texas Partnership (38)
....Baker Production Services (Bermuda) Ltd. Bermuda 100%
....Baker Production Technology International Inc. Nevada 100%
......Baker Hughes (Deutschland) Holding GmbH Germany 100%
........Baker Hughes (Deutschland) GmbH Germany 100%
..........Baker Oil Tools Germany Operating Division ---
..........Baker Petrolite Germany Operating Division ---
..........Centrilift Germany Operating Division ---
..........Eimco Operating Division ---
........Baker Hughes INTEQ GmbH Germany 100%
</TABLE>
7
<PAGE> 8
BAKER HUGHES INCORPORATED - EXHIBIT 21 Effective 9/30/97
<TABLE>
<CAPTION>
======================================================================================================================
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
======================================================================================================================
<S> <C> <C> <C>
..........Gummiwerk Christensen-Netzsch GmbH Germany (39)
..........Hughes Christensen Operating Division ---
......Lynes International Services Inc. Panama 100%
....Baker Quimica de Colombia S.A. Colombia (40)
......Eimco-Wemco de Colombia S.A. Colombia (41)
....Baker Real Estate Operating Division ---
....Baker RTC International Ltd. Bermuda (42)
....Baker Sand Control Services Pte. Ltd. Singapore 100%
....Baker Sand Control Servicios Tecnicos, Ltda. Brazil (43)
....Baker Transworld, Inc. y Compania Limitada Chile Chile (44)
....Bakerline Services Ltd. Cayman Islands 100%
....CCIP Security Association, Inc. Texas 100%
....Centrilift-U.S. Operating Division ---
......Baker Hughes Production Services Operating Division ---
......Field Management Systems Operating Division ---
....Centrilift-Peru Operating Division ---
....Christensen-Netzsch Rubber, Inc. Oklahoma (45)
....Christensen Gulf Services Limited Liability Company Dubai (46)
....ChuanShi Christensen Diamond Bit Company, Ltd. China (47)
....Clays Pump Service Operating Division ---
....Eastman Whipstock (Cameroon) S.A.R.L. Cameroon 100%
....Eisenman Chemical Company Delaware 100%
....EXLOG (A.G.) Limited Jersey 100%
....EXLOG International, Inc. Panama 100%
......PT Sarana Indonesia Operating Division ---
....EXLOG (Malaysia) Sdn. Bhd. Malaysia 100%
......PT Sarana Indonesia Operating Division ---
....EXLOG Overseas, Inc. Panama 100%
</TABLE>
8
<PAGE> 9
BAKER HUGHES INCORPORATED - EXHIBIT 21 Effective 9/30/97
<TABLE>
<CAPTION>
======================================================================================================================
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
======================================================================================================================
<S> <C> <C> <C>
....EXLOG S.A. Nevada 100%
....EXLOG de Venezuela S.A. Venezuela 100%
....Exploration Logging Arabian Gulf Limited Jersey (48)
....Exploration Logging Espanola S.A. Spain 100%
....Holtex, Inc. Delaware 100%
....Hughes Christensen Operating Division ---
......Hughes MPD Operating Division ---
......Baker Hughes Mining Tools Operating Division ---
....Hughes Services Middle East Company Delaware 100%
....Hughes Tool (C.I.) Ltd. Cayman Islands 100%
......Abunayyan-Hughes Tool S.A. Ltd. Co. Saudi Arabia (49)
....International Mud Services Inc. Panama 100%
....Lynes, Inc. Texas 100%
....Milchem Gabon S.A.R.L. Gabon 100%
....Milpark de Venezuela, S.A. Venezuela 100%
......Milpark Caribe, C.A. Venezuela 100%
....Milpark Western Hemisphere Incorporated Delaware 100%
....Plumayen Holdings Inc. Panama 100%
.......Plumayen do Brazil Ltda. Brazil 100%
....Productos Industriales Mineros S.A. (Prima) Colombia 100%
.......E.P.E.C.-Colombia Prima Operating Division ---
....Productos Centrilift S.A. Venezuela 100%
....Pump-Teq Operating Division ---
....Reed Rock do Brazil Industrial Ltda. Brazil (50)
....Servicios Y Herramientas Petroleras S.A. de C.V. Mexico (51)
.......Baker Hughes Immobiliaria Mexico 100%
....Supply Products Operating Division ---
....Teleco Inc. Delaware 100%
</TABLE>
9
<PAGE> 10
BAKER HUGHES INCORPORATED - EXHIBIT 21 Effective 9/30/97
<TABLE>
<CAPTION>
======================================================================================================================
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
======================================================================================================================
<S> <C> <C> <C>
....Teleco Oilfield Services International Ltd. Cayman Islands 100%
.......Teleco Oilfield Services Offshore Ltd. Cayman Islands 100%
....Teleco Oilfield Services Sdn. Bhd. Malaysia (52)
....TOTCO de Venezuela C.A. Venezuela 100%
....Tri-State Oil Tool (Egypt) S.A. Panama 100%
....Tri-State Oil Tool (M) Sdn. Bhd. Malaysia (53)
....Tri-State Oil Tool (Thailand) Ltd. Cayman Islands 100%
..Baker Hughes Ventures, Inc. Delaware 100%
....Baker Hughes Vietnam Limited Vietnam 100%
..BH Russia Operations, Inc. Delaware 100%
..Eimco Sweden AB Sweden 100%
..Camcor-Chem, Inc. Delaware 100%
..EVT Holdings, Inc. Delaware 100%
....Baker Hughes Process Equipment Company Operating Division ---
....Baker Hughes Process Systems, Inc. Delaware 100%
......Bird Municipal Company Operating Division ---
......Eimco Municipal Company Operating Division ---
....Baker International Limited England 100%
....Eimco Process Equipment Company Operating Division ---
..Milchem Venezuela Corporation Delaware 100%
....Milchem Venezuela Corporation, C.A. Venezuela 100%
..Tri-State Oil Tools Company Texas 100%
- ----------------------------------------------------------------------------------------------------------------------
BAKER HUGHES INTEQ SDN. BHD. BRUNEI (54)
BAKER HUGHES RO, INC. DELAWARE 100%
BAKER HUGHES RUSSIA, INC. DELAWARE 100%
- ----------------------------------------------------------------------------------------------------------------------
..Baker Hughes (Cyprus) Limited Cyprus 100%
....Baker Hughes JSC Russia 100%
......Centrilift Operating Division ---
</TABLE>
10
<PAGE> 11
BAKER HUGHES INCORPORATED - EXHIBIT 21 Effective 9/30/97
<TABLE>
<CAPTION>
======================================================================================================================
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
======================================================================================================================
<S> <C> <C> <C>
....Baker Hughes Kazakhstan Ltd. Republic of Kazakhstan 100%
- ----------------------------------------------------------------------------------------------------------------------
BAKER HUGHES WORLD TRADE, INC. DELAWARE 100%
- ----------------------------------------------------------------------------------------------------------------------
..Baker Hughes South Africa (Proprietary) Ltd. South Africa 100%
....Baker Hughes Mining Tools (Proprietary) Limited South Africa 100%
....Reminto (Proprietary) Limited South Africa 100%
..Hughes Christensen South Africa (Proprietary) Limited South Africa (55)
- ----------------------------------------------------------------------------------------------------------------------
BAKER INTERNATIONAL (ESPANA), S.A. SPAIN 100%
BAKER OIL TOOLS (ESPANA) S.A. SPAIN 100%
BIRD MACHINE COMPANY, INC. DELAWARE 100%
- ----------------------------------------------------------------------------------------------------------------------
..Humboldt Decanter, Inc. Georgia 100%
..R & B Filtration Systems, Inc. Georgia 100%
- ----------------------------------------------------------------------------------------------------------------------
BIRD MACHINE INTERNATIONAL, INC. MASSACHUSETTS 100%
BW-HUGHES TOOL STOCK CORPORATION DELAWARE 100%
CHRISTENSEN SAUDI ARABIA LIMITED SAUDI ARABIA (56)
CTC INTERNATIONAL CORPORATION TEXAS 100%
- ----------------------------------------------------------------------------------------------------------------------
..Completion Technology Center, Inc. Texas 100%
..CTC Overseas, Inc. Texas 100%
- ----------------------------------------------------------------------------------------------------------------------
DRILEX INTERNATIONAL INC. DELAWARE 100%
- ----------------------------------------------------------------------------------------------------------------------
..Cobb Directional Drilling Company L.L.C. Delaware 100%
..Drilex Systems, Inc. Texas 100%
....Drilex Systems S.A. Venezuela 100%
....Drilex Systems Canada Inc. Canada 100%
....Sharewell Inc. Delaware 100%
......Sharewell Horizontal Systems Ltd. England 100%
......Sharewell (Far East) Ltd. Hong Kong (57)
......Sharewell Drilling Technologies, Inc. Singapore (58)
</TABLE>
11
<PAGE> 12
BAKER HUGHES INCORPORATED - EXHIBIT 21 Effective 9/30/97
<TABLE>
<CAPTION>
======================================================================================================================
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
======================================================================================================================
<S> <C> <C> <C>
........Sharewell Australia Pty. Ltd. Australia 100%
- ----------------------------------------------------------------------------------------------------------------------
OIL BASE DE VENEZUELA, C.A. VENEZUELA 100%
WM. S BARNICKEL & COMPANY MISSOURI 100%
- ----------------------------------------------------------------------------------------------------------------------
..Baker Hughes Investment Company Delaware 100%
..Baker Petrolite Corporation Delaware 100%
....AB Engineering, Inc. Delaware 100%
....Baker Petrolite Iberica, S.A. Spain 100%
....Bareco Wax Company Oklahoma 100%
....Be Square Oil Company Oklahoma 100%
....Ecuatornia de Petroquimicos Petrolite S.A. Ecuador (59)
....Petrolite Canada Inc. Canada 100%
....Petrolite France S.A. France 100%
......Luzzato & Figlio (France) S.A. France (60)
....Petrolite GmbH Germany 100%
....Petrolite Holdings, Inc. Delaware 100%
....Petrolite International Corporation Delaware 100%
......Petrolite International Sales Corporation Virgin Islands 100%
....Petrolite Limited England 100%
......Petroite Handelsgesellschaft mbH Austria 100%
......Petrolite Italiana S.p.A. Italy 100%
....Perolite (Malaysia) Sdn Bhd Malaysia 100%
....Petrolite Nederland B.V. The Netherlands 100%
....Petrolite Norge A/S Norway 100%
....Petrolite Pacific Pte. Ltd. Singapore 100%
....Petrolite Saudi Arabia Limited Saudi Arabia (61)
....Petrolite Suramericana S.A. Venezuela 100%
....Petrolite Trinidad, Inc. Missouri 100%
</TABLE>
12
<PAGE> 13
BAKER HUGHES INCORPORATED - EXHIBIT 21 Effective 9/30/97
<TABLE>
<CAPTION>
======================================================================================================================
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
======================================================================================================================
<S> <C> <C> <C>
....Petrolite Wax Partner Company Delaware 100%
......Bareco Products South Carolina (62)
........Bareco International Sales Corp. Virgin Islands 100%
....P. T. Petrolite Indonesia Pratama Indonesia (63)
....South America Petrolite Corporation Delaware 100%
......Petrolite de Mexico S.A. de C.V. Mexico (64)
....Toyo-Petrolite Company Ltd. Japanese (65)
....Tretolite Pty. Limited Australia 100%
</TABLE>
The Exhibit 21 represents ownership of Baker Hughes Incorporated and its
subsidiaries. Should a subsidiary be owned by more than one Baker company, it
will be listed under one of the Baker companies owning shares with a footnote
designation in the "Percentage Owned" column. The footnotes reference the name
of the shareholders and the percentage held by each.
13
<PAGE> 14
BAKER HUGHES INCORPORATED - EXHIBIT 21 Effective 9/30/97
<TABLE>
<CAPTION>
======================================================================================================================
PERCENTAGE PERCENTAGE
JURISDICTION OR OWNED BY OWNED BY
NAME OF SUBSIDIARIES AND SUB-SUBSIDIARIES ORGANIZATION REGISTRANT SUBSIDIARY
======================================================================================================================
<S> <C> <C> <C>
I N D E X
Baker Hughes (Malaysia) Sdn. Bhd. and subsidiaries Page 5
Baker Canada Holding, Inc. and subsidiaries Page 1
Baker Eastern S.A. and subsidiaries Page 3
Baker Hughes (Deutschland) Holding GmbH and subsidiaries Page 7
Baker Hughes Australia Holding, Inc. and subsidiaries Page 1
Baker Hughes Equipamentos Ltda. and subsidiaries Page 2
Baker Hughes Finance, Inc. and subsidiaries Page 2
Baker Hughes French Actions Co. Page 2
Baker Hughes Holding Company and subsidiaries Pages 3-10
Baker Hughes Indonesia Co. and subsidiaries Page 3
Baker Hughes International Branches, Inc. and subsidiaries Page 6
Baker Hughes International Holdings, Inc. Pages 3-4
Baker Hughes Nederland Holdings B.V. and subsidiaries Page 5
Baker Hughes Norge A/S and subsidiaries Page 6
Baker Hughes Oilfield Operations, Inc. and subsidiaries Pages 3-10
Baker Hughes Russia, Inc. and subsidiaries Page 10
Baker Hughes S.p.A. and subsidiaries Page 6
Baker Hughes Singapore Pte. and subsidiaries Page 5
Baker Hughes UK Ltd. and subsidiaries Pages 3-4
Baker Performance Chemicals Incorporated and subsidiaries Pages 7
Baker Petrolite Corporation and subsidiaries Pages 12-13
Baker Production Technology International, Inc. and subsidiaries Page 7
Drilex International Inc. Pages 11-12
EVT Holdings, Inc. and subsidiaries Page 10
Lynes, Inc. Page 9
</TABLE>
14
<PAGE> 15
BAKER HUGHES INCORPORATED - FOOTNOTES TO EXHIBIT 21
<TABLE>
<CAPTION>
FOOTNOTES ENTITY ENTITY OWNERSHIP
<S> <C> <C>
(1) Baker Canada Holding, Inc. Baker Hughes Incorporated - 18%
Baker Hughes International Branches, Inc. - 12%
Baker Hughes Oilfield Operations, Inc. - 25%
Baker Hughes USA, Inc. - 3%
Baker Performance Chemicals Incorporated - 7%
EVT Holdings, Inc. - 7%
Lynes, Inc. - 28%
(2) Baker Hughes Industrial Chile Limitada Baker Hughes Canada Inc. - .5%
EVT Holdings, Inc. - 99.5%
(3) Baker Hughes Wyoming LLC Baker Hughes Canada Inc. - 99%
Baker Hughes Oilfield Operations, Inc. - 1%
(4) Ramsey Comercio Industria Ltd. Baker Hughes Canada Inc. - 50%
Baker Hughes World Trade, Inc. - 50%
(5) Baker Hughes Australia Holding, Inc. Baker Hughes Incorporated - 5.07%
Baker Hughes International Holdings, Inc. - 6.73%
Baker Hughes Oilfield Operations, Inc. - 61.68%
Baker Hughes World Trade, Inc. - 6.84%
Baker Production Technology International, Inc. - 11.58%
EVT Holdings, Inc. - 8.10%
(6) Baker Hughes Australia Pty. Limited Baker Hughes Australia Holding, Inc. - 99.9%
Peter Boesenberg - .1%
</TABLE>
Page 1
<PAGE> 16
BAKER HUGHES INCORPORATED - FOOTNOTES TO EXHIBIT 21
<TABLE>
<CAPTION>
FOOTNOTES ENTITY ENTITY OWNERSHIP
<S> <C> <C>
(7) Baker Hughes PNG Pty. Ltd. Baker Hughes Australia Holding, Inc. - 99.9%
Gabow Nominees Pty. Ltd. - .1%
(8) Baker Hughes do Brasil Ltda. Baker Hughes Incorporated - 99%
EVT Holdings, Inc. - 1%
(9) Baker Hughes Equipamentos Ltda. Baker Hughes Incorporated - 99%
EXLOG S.A. - 1%
(10) Baker Hughes French Actions Co. Baker Hughes Finance, Inc. - 12.02%
Baker Hughes International Holdings, Inc. - 15.01%
Baker Hughes Oilfield Operations, Inc. - 72.97%
(11) Baker Hughes INTEQ Gabon S.A. Baker Hughes INTEQ-France S.A. 1%
Baker International S.A. - 87%
Baker Hughes Oilfield Operations, Inc. - 2%
Gabonese Government - 10%
(12) CKS Espanola S.A. Baker Hughes INTEQ France S.A. - 80%
Non Baker Hughes ownership - 20%
(13) Malaysia Mud and Chemicals Sdn. Bhd. Baker Hughes INTEQ France S.A. - 28%
Delcomm Sdn. Bhd. - 32%
Sabahebat Sdn. Bhd. - 40%
(14) Baker Hughes Argentina, S.A. Baker Hughes Holding Company - 99.9%
EXLOG S.A. - .1%
</TABLE>
Page 2
<PAGE> 17
BAKER HUGHES INCORPORATED - FOOTNOTES TO EXHIBIT 21
<TABLE>
<CAPTION>
FOOTNOTES ENTITY ENTITY OWNERSHIP
<S> <C> <C>
(15) Hughes Tool Company Chile Ltda. Baker Hughes Argentina S.A. - 95%
Cuatro de Mayo Saagi - 5%
(16) Baker Nigeria Ltd. Baker Eastern S.A. (Panama Company) - 1%
Baker Hughes Oilfield Operations, Inc. - 59%
Nigerian National Petroleum Corporation - 35%
Baker Nigeria Ltd. Employees - 5%
(17) Baker Hughes International Holdings, Inc. Baker Hughes Oilfield Operations, Inc. - 88.09%
EVT Holdings, Inc. - 11.91%
(18) Baker Hughes Indonesia Co. Baker Hughes Oilfield Operations, Inc. - 88.09%
Baker Hughes International Holdings, Inc. - 11.91%
(19) P.T. Eastman Christensen Indonesia Baker Hughes Indonesia Co. owns rights in agreement with
Lucidna Widjaya 20% owner, Toto Setio Utomo 5%, and Rayanusin
Widjaya 75% owner, local agents
(20) Ferranti Eastman Survey GmbH Baker Hughes Nederland B.V. - 49%
Ferranti Eastman Survey GmbH - 51%
(21) Tracor Europa N.V. Baker Hughes Nederland B.V. - 95%
Tracor Europa B.V. - 5%
</TABLE>
Page 3
<PAGE> 18
BAKER HUGHES INCORPORATED - FOOTNOTES TO EXHIBIT 21
<TABLE>
<CAPTION>
FOOTNOTES ENTITY ENTITY OWNERSHIP
<S> <C> <C>
(22) Lombard Baker Leasing Co. Eimco Process Equipment Ltd. - 8%
Baker Hughes (U.K.) Ltd. - 41%
Lombard North Central Leasing Ltd. - 44.46%
Goldman Sachs International Corp. - 4.90%
Goldman Sachs Limited - 1.64%
(23) Baker (Malaysia) Sdn. Bhd. Richard Jones - .02%
Baker Hughes (Malaysia) Sdn. Bhd. - 49%
Potensi Serakan Sdn. Bhd. - 51%
(24) Baker Hughes INTEQ (M) Sdn. Bhd. Baker Hughes (Malaysia) Sdn. Bhd. - 49%
Tunku Shahabuddin B.T.B. Burhanuddin - 51%
(25) Baker Hughes EHO Ltd. Baker Hughes (C.I.) Ltd. - 1%
Hughes Tool (C.I.) Ltd. - 99%
Baker Hughes Oilfield Operations, Inc. - less than 1%
(26) Milpark Kuwait for Drilling Fluids Company Baker Hughes EHO Ltd. - 49%
Badr Nasir Hamad Al Falah - 3%
Jamal Nasir Hamad Al Falah - 3%
Exim Trading Company - 45%
(27) Milchem Libya Co., Ltd. Baker Hughes EHO Ltd. - 49%
Non Baker Hughes ownership - 51%
(28) P.T. Milchem Indonesia Baker Hughes EHO Ltd. 75%
Non Baker Hughes ownership 25%
</TABLE>
Page 4
<PAGE> 19
BAKER HUGHES INCORPORATED - FOOTNOTES TO EXHIBIT 21
<TABLE>
<CAPTION>
FOOTNOTES ENTITY ENTITY OWNERSHIP
<S> <C> <C>
(29) Baker Hughes Singapore Pte. Hughes Tool (C.I.) Ltd. - 99%
Baker Hughes (C.I.) Ltd. - 1%
(30) Baker Hughes de Mexico, S. de R.L. de C.V. Baker Hughes Oilfield Operations, Inc. - 96.1%
Baker Hughes Holding Company - 3.99%
(31) Baker Hughes Services de Mexico S.A. de C.V. Baker Hughes Oilfield Operations, Inc. - 99%
Baker Hughes de Mexico, S. de R.L. de C.V. - 1%
(32) Baker Hughes Immobiliaria Servicios y Herramientas Petroleras S.A. de C.V. - 98%
Baker Hughes Oilfield Operations, Inc. - 2%
(33) Baker Hughes S.p.A. Baker Hughes Oilfield Operations, Inc. - 99.9%
Baker Hughes Incorporated - .1%
(34) Baker International Cote D' Ivoire S.a.r.l. Baker Hughes Oilfield Operations, Inc. - 99.5%
Baker Hughes International Holdings, Inc. - .5%
(35) Baker Oil Tools (Brunei) Sdn. Bhd. Baker Hughes Oilfield Operations, Inc. - 50%
Yam Pengiran Indera Setia Diraja Pengiran Anak ID - 50%
(36) P.T. Elnusa Chemlink Baker Performance Chemicals Incorporated - 49%
P.T. Elektronika Nusantara - 51%
(37) South Kern Industrial Partnership Baker Performance Chemicals Incorporated - 80%
South Lake Corporation - 20%
(38) BHT Products Baker Production Services, Inc. - 50%
Camcor-Chem, Inc. - 50%
</TABLE>
Page 5
<PAGE> 20
BAKER HUGHES INCORPORATED - FOOTNOTES TO EXHIBIT 21
<TABLE>
<CAPTION>
FOOTNOTES ENTITY ENTITY OWNERSHIP
<S> <C> <C>
(39) Gummiwerk Christensen-Netzsch GmbH Baker Hughes INTEQ GmbH - 50%
Netzsch Mohnopumpen GmbH -50%
(40) Baker Quimica de Colombia S.A. Baker Hughes Incorporated - .2%
Baker Hughes Oilfield Operations, Inc. - .1%
Baker Performance Chemicals Incorporated - 99.7%
(41) Eimco-Wemco de Colombia S.A. Baker Hughes INTEQ Colombia Branch - 4.03%
Baker Hughes International Branches, Inc. - .81%
Baker Quimica de Colombia S.A. - .81%
Centrilift Colombia Branch - .81%
EVT Holdings, Inc. - 93.54%
(42) Baker RTC International Ltd. Baker Hughes (C.I.) Ltd. - 1%
Hughes Tool (C.I.) Ltd. - 99%
(43) Baker Sand Control Servicios Tecnicos, Ltda. Baker Hughes Incorporated - 1%
Baker Hughes Oilfield Operations, Inc. - 99%
(44) Baker Transworld y Compania Limitada Baker Hughes International Branches, Inc. - 10%
Baker Hughes Oilfield Operations, Inc. - 90%
(45) Christensen-Netzsch Rubber, Inc. Baker Hughes Oilfield Operations, Inc. - 50%
Netzsch, Inc. - 50%
(46) Christensen Gulf Services Limited Liability Company Baker Hughes Oilfield Operations, Inc. - 40%
Oilfield Supply Centre Ltd. - 60%
</TABLE>
Page 6
<PAGE> 21
BAKER HUGHES INCORPORATED - FOOTNOTES TO EXHIBIT 21
<TABLE>
<CAPTION>
FOOTNOTES ENTITY ENTITY OWNERSHIP
<S> <C> <C>
(47) ChuanShi Christensen Diamond Bit Company, Ltd. Baker Hughes Oilfield Operations, Inc. - 50%
Sichuan Petroleum Administration Bureau - 50%
(48) Exploration Logging Arabian Gulf Limited Baker Hughes Oilfield Operations, Inc. - 45%
Sheikh Sulan Bin Khalid Al Qassini - 51%
Contra Nominees Limited - .00145%
(49) Abunayyan-Hughes Tool S.A. Ltd. Co. Hughes Tool (C.I.) Ltd. - 50%
Ibrahim Abunayyan Organization - 50%
(50) Reed Rock do Brazil Industrial Ltda. Baker Hughes Oilfield Operations, Inc. - 98.6%
Non Baker Hughes ownership - 1.39%
(51) Servicios Y Herramientas Petroleras S.A. de C.V. Series B Fixed Capital
Baker Hughes Oilfield Operations, Inc. - 99%
Baker Hughes Holding Company - 1%
Series B Variable Capital
Baker Hughes Oilfield Operations, Inc. - 100%
(52) Teleco Oilfield Services Sdn. Bhd. Baker Hughes Oilfield Operations, Inc. - 49%
Non Baker Hughes ownership - 51%
</TABLE>
Page 7
<PAGE> 22
BAKER HUGHES INCORPORATED - FOOTNOTES TO EXHIBIT 21
<TABLE>
<CAPTION>
FOOTNOTES ENTITY ENTITY OWNERSHIP
<S> <C> <C>
(53) Tri-State Oil Tool (M) Sdn. Bhd. Baker Hughes Oilfield Operations, Inc. - 55%
Lawrence Phong - 10%
John Arnold - less than 1%
Datin Sharifah Zainak - 35%
(54) Baker Hughes INTEQ Sdn. Bhd. Baker Hughes Incorporated - 51%
Sulaiman Haji Ahai - 49%
(55) Hughes Christensen South Africa (Proprietary) Limited Baker Hughes World Trade, Inc. - 60%
Baker Hughes South Africa (Proprietary) Limited - 40%
(56) Christensen Saudi Arabia Limited Baker Hughes Incorporated - 40%
Olayan Financing Company - 60%
(57) Sharewell (Far East) Ltd. Sharewell Inc. - 36%
Sharewell Horizontal Systems, Inc. - 30%
(58) Sharewell Drilling Technologies, Inc. Sharewell Inc. - 36%
Sharewell Horizontal Systems Ltd. - 30%
(59) Ecuatornia de Petroquimicos Petrolite S.A. Baker Petrolite Corporation - 75%
Non Baker Hughes ownership - 25%
</TABLE>
Page 8
<PAGE> 23
BAKER HUGHES INCORPORATED - FOOTNOTES TO EXHIBIT 21
<TABLE>
<CAPTION>
FOOTNOTES ENTITY ENTITY OWNERSHIP
<S> <C> <C>
(60) Luzzato & Figlio (France) S.A. AB Engineering, Inc. - .04%
Baker Petrolite Corporation - .04%
F. Laurent - .04%
Petrolite Canada Inc. - .04%
Petrolite France S.A. - 99.76%
Petrolite Limited - .04%
South America Petrolite Corporation - .04%
(61) Petrolite Saudi Arabia Limited Baker Petrolite Corporation - 74%
Fahd Altobaishi Company - 26%
(62) Bareco Products Petrolite Wax Partner Company - 50%
Penzoil Wax Partner Company - 50%
(63) P.T. Petrolite Indonesia Pratama Baker Petrolite Corporation - 80%
P. T. Usayana - 20%
(64) Petrolite de Mexico S.A. de C.V. South America Petrolite Corporation - 99%
Petrolite International Corporation - 1%
(65) Toyo-Petrolite Company Ltd. Baker Petrolite Corporation - 50.01%
Toyo Ink Manufacturing Co., Ltd. - 49.99%
</TABLE>
Page 9
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Baker Hughes Incorporated:
We consent to the incorporation by reference in Post-Effective Amendment No. 1
to Registration Statement No. 33-16094 on Form S-4, in Post-Effective Amendment
Nos. 1 and 2 to Registration Statement No. 33-14803 on Form S-8, in
Registration Statement No. 33-39445 on Form S-8, in Registration Statement No.
33-61304 on Form S-3, in Amendment No. 1 to Registration Statement No. 33-61304
on Form S-3, in Registration Statement No. 33-52195 on Form S-8, in
Registration Statement No. 33-57759 on Form S-8, in Registration Statement No.
33-63375 on Form S-3, in Registration Statement No. 333-19771 on Form S-8, in
Post-Effective Amendment No. 1 on Form S-8 to Registration Statement No.
333-28123 on Form S-4 and in Post-Effective Amendment No. 1 on Form S-8 to
Registration Statement No. 333-29027 on Form S-4 of our report dated November
12, 1997, incorporated by reference in the Annual Report on Form 10-K of Baker
Hughes Incorporated for the year ended September 30, 1997.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Houston, Texas
December 8, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 8,600
<SECURITIES> 0
<RECEIVABLES> 1,071,000
<ALLOWANCES> 23,900
<INVENTORY> 1,030,500
<CURRENT-ASSETS> 2,220,500
<PP&E> 2,012,000
<DEPRECIATION> 1,029,100
<TOTAL-ASSETS> 4,756,300
<CURRENT-LIABILITIES> 936,300
<BONDS> 771,800
0
0
<COMMON> 169,100
<OTHER-SE> 2,435,500
<TOTAL-LIABILITY-AND-EQUITY> 4,756,300
<SALES> 2,466,700
<TOTAL-REVENUES> 3,685,400
<CGS> 1,573,300
<TOTAL-COSTS> 2,256,200
<OTHER-EXPENSES> 1,169,300
<LOSS-PROVISION> 9,800
<INTEREST-EXPENSE> 48,600
<INCOME-PRETAX> 213,100
<INCOME-TAX> 104,000
<INCOME-CONTINUING> 109,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (12,100)
<NET-INCOME> 97,000
<EPS-PRIMARY> .62
<EPS-DILUTED> .62
</TABLE>
