<PAGE> 1
[BAKER HUGHES LOGO]
BAKER HUGHES INCORPORATED
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 28, 1999
To the Stockholders of Baker Hughes Incorporated:
The Annual Meeting of the Stockholders of Baker Hughes Incorporated (the
"Company") will be held at the offices of the Company, 3900 Essex Lane, Suite
210, Houston, Texas on Wednesday, April 28, 1999, at 11:00 a.m., for the purpose
of considering and voting on:
1. Election of four directors to serve for a three year term.
2. Approval of Amendment to the Restated Certificate of Incorporation
to increase the number of authorized shares of Common Stock of the
Company from 400,000,000 to 750,000,000 shares.
3. Approval of Amendment to the 1987 Employee Stock Purchase Plan to
increase the number of authorized shares purchasable under the Plan
from 5,500,000 to 9,500,000 shares.
4. Stockholder Proposal No. 1 on Implementation of the MacBride
Principles in Northern Ireland.
5. Stockholder Proposal No. 2 on the Development of Guidelines for
Country Selection.
6. Such other business as may properly come before the meeting and any
reconvened meeting after an adjournment thereof.
The Board of Directors has fixed March 3, 1999 as the record date for
determining the stockholders of the Company entitled to notice of, and to vote
at, the meeting and any reconvened meeting after an adjournment thereof, and
only holders of Common Stock of the Company of record at the close of business
on that date will be entitled to notice of, and to vote at, that meeting or a
reconvened meeting after an adjournment.
You are invited to attend the meeting in person. Whether or not you plan to
attend the meeting personally, please complete, sign and date the enclosed
proxy, and return it as soon as possible in the enclosed postage prepaid
envelope. You may revoke your proxy any time prior to its exercise, and you may
attend the meeting and vote in person, even if you have previously returned your
proxy. You may also exercise your proxy by telephone by following the
instructions on the enclosed proxy card. The deadline for voting by telephone is
7:00 p.m. Houston time, on April 27, 1999, the day before the meeting, or such
later date that is the day before any reconvened meeting after any adjournment
or postponement thereof. If you vote by telephone, you still may vote in person
or by returning a signed and later-dated proxy, and you may revoke your proxy
any time prior to its exercise.
By order of the Board of Directors,
Linda J. Smith
Secretary
Houston, Texas
March , 1999
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN
YOUR PROXY AS PROMPTLY AS POSSIBLE. AN ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES, IS ENCLOSED FOR THIS PURPOSE.
<PAGE> 2
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Baker Hughes Incorporated, a Delaware
corporation (hereinafter called the "Corporation," the "Company" or "Baker
Hughes"), to be voted at the Annual Meeting of Stockholders on Wednesday, April
28, 1999, and at any and all reconvened meetings after adjournments thereof. The
Company acquired Western Atlas Inc. ("Western Atlas") in a merger (the "Merger")
completed on August 10, 1998.
Solicitation of proxies by mail is expected to commence on or about March
17, 1999 (the approximate date that this Proxy Statement and accompanying proxy
were first sent to security holders). The Corporation will bear the cost of the
solicitation. In addition to solicitation by mail, certain of the directors,
officers and regular employees of the Corporation may, without extra
compensation, solicit proxies by telephone, telegraph and personal interview.
The Corporation will make arrangements with brokerage houses, custodians,
nominees and other fiduciaries to send proxy material to their principals, and
the Corporation will reimburse them for postage and clerical expenses.
Furthermore, the Company has retained ChaseMellon Shareholder Services, L.L.C.
to assist in the solicitation of proxies from stockholders of the Corporation
for an anticipated fee of $9,500 plus out-of-pocket expenses.
SHARES AS TO WHICH PROXIES HAVE BEEN EXECUTED WILL BE VOTED AS SPECIFIED IN
THE PROXIES. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE
ELECTION OF NOMINEES LISTED HEREIN AS DIRECTORS, FOR THE APPROVAL OF THE
AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION, FOR THE AMENDMENT TO THE
1987 EMPLOYEE STOCK PURCHASE PLAN, AND AGAINST EACH OF STOCKHOLDER PROPOSAL NOS.
1 AND 2.
Proxies may be revoked at any time prior to the exercise thereof by filing
with the Secretary, at the Corporation's executive offices, a written revocation
or a duly executed proxy bearing a later date. The executive offices of the
Corporation are located at 3900 Essex Lane, Houston, Texas 77027-5177. For a
period of at least ten days prior to the Annual Meeting of Stockholders, a
complete list of stockholders entitled to vote at the Annual Meeting will be
available for inspection by stockholders of record during ordinary business
hours for proper purposes at the Corporation's executive offices.
VOTING SECURITIES
The securities of the Corporation entitled to be voted at the Annual
Meeting consist of shares of its Common Stock, $1 par value per share (the
"Common Stock"), of which shares were issued and outstanding
at the close of business on March 3, 1999. Only stockholders of record at the
close of business on that date will be entitled to vote at the meeting. Each
share of Common Stock entitles the holder thereof to one vote on each matter to
be considered at the meeting.
Assuming a quorum is present with respect to the election of directors, the
four nominees receiving the greatest number of votes that the holders of the
Common Stock cast will be elected as directors. There will be no cumulative
voting in the election of directors. Approval of the Restated Certificate of
Incorporation will require the affirmative vote, in person or by proxy, of the
holders of a majority of the outstanding shares of Common Stock. Assuming a
quorum is present at the Annual Meeting, the affirmative vote of the holders of
a majority of the shares of Common Stock having voting power present in person
or represented by proxy and entitled to vote on the matter is required for
approval of the amendment to the 1987 Employee Stock Purchase Plan and
Stockholder Proposal Nos. 1 and 2. Under Delaware law, abstentions are treated
as present and entitled to vote and thus will be counted in determining whether
a quorum is present and will have the effect of a vote against a matter. Shares
held by brokers or nominees as to which instructions have not been received from
the beneficial owners or persons entitled to vote and as to which the broker or
nominee does not have discretionary power to vote on a particular matter (i.e.
broker non-votes) will be considered present for quorum purposes but not
considered entitled to vote on that matter. Accordingly, broker non-votes will
not have any impact on the vote on a matter, except that broker non-votes will
be equivalent to a vote against the proposal to amend the Restated Certificate
of Incorporation.
The following information relates to the holders of the Common Stock known
to the Corporation on December 31, 1998 to own beneficially 5% or more of the
Common Stock. For the purposes of this Proxy
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Statement beneficial ownership of securities is defined in accordance with the
rules of the Securities and Exchange Commission (the "SEC") to mean generally
the power to vote or dispose of securities, regardless of any economic interest
therein.
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES PERCENT
---------------- ---------- -------
<S> <C> <C>
Unitrin Incorporated 34,176,000 10.45%
One East Wacker Drive
Chicago, Illinois 60601
Barrow, Hanley, Mewhinney & Strauss, Inc. 31,082,470 9.5%
One McKinney Plaza
3232 McKinney Avenue, 15th Floor
Dallas, Texas 75204-2429
Capital Research and Management Company 17,112,280(1) 5.2%
333 South Hope Street
Los Angeles, California 90071
</TABLE>
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(1) Beneficial ownership disclaimed pursuant to Rule 13d-4 of the Securities Act
of 1933, as amended.
2
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ELECTION OF DIRECTORS
Four Class II directors will be elected at the Annual Meeting of
Stockholders to serve for a three year term expiring at the Annual Meeting of
Stockholders to be held in January 2002, with the exception of Messrs. Alberthal
and Foster, whose terms will expire at the 2000 Annual Meeting of Stockholders
in accordance with the tenure provisions of the Corporation's Bylaws.
The following table sets forth for each nominee for election as a director
his name, all positions with the Corporation held by him, his principal
occupation, age, year in which he first became a director of the Corporation and
class. Each nominee director has agreed to serve if elected.
<TABLE>
<CAPTION>
DIRECTOR
NOMINEES PRINCIPAL OCCUPATION AGE SINCE CLASS
-------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
LESTER M. ALBERTHAL, JR. Retired Chairman of the Board of EDS 54 1990 II
(information technology service). He was
Chairman of the Board of EDS from 1989 to 1998
and Chief Executive Officer from 1986 to 1998.
Mr. Alberthal serves on the Executive Advisory
Board of the Center for the Pacific Rim, the
Board of Trustees of Southern Methodist
University, the Executive Board of the Edwin
L. Cox School of Business at Southern
Methodist University, the Board of Trustees of
the Cooper Institute for Aerobics Research,
the Board of Directors of the Better Business
Bureau of Dallas, the Jason Foundation for
Education and the State Fair of Texas. Mr.
Alberthal is a member of the Board of the
Center for Strategic and International Studies
in Washington, D.C.
JOSEPH T. CASEY Retired Vice Chairman and Chief Financial 67 1998 II
Officer of Western Atlas. Mr. Casey served as
Vice Chairman and Chief Financial Officer of
Western Atlas from 1994 until his retirement
in 1996. He was Vice Chairman and Chief
Financial Officer of Litton Industries, Inc.
from 1988 to 1994. He is a director of UNOVA,
Inc., Litton Industries Inc. and PSI, Inc.,
and is a trustee of the Rand Corporation's
Center for Russia and Eurasia, Claremont
McKenna College and the Don Bosco Technical
Institute.
JOE B. FOSTER Chairman of the Board and Chief Executive 64 1990 II
Officer of Newfield Exploration Company (oil
and gas exploration) since 1989. He was
Executive Vice President of Tenneco Inc. from
1981 to 1988 and Director of Tenneco Inc. from
1983 to 1988. Mr. Foster is Chairman of the
National Petroleum Council and a member of the
Offshore Committee of the Independent
Petroleum Association of America. Mr. Foster
is also a director of New Jersey Resources
Corporation, Memorial Hermann Hospital System
and the Greater Houston YMCA.
</TABLE>
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<TABLE>
<CAPTION>
DIRECTOR
NOMINEES PRINCIPAL OCCUPATION AGE SINCE CLASS
-------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
RICHARD D. KINDER Chairman and Chief Executive Officer of Kinder 54 1994 II
Morgan Energy Partners, L.P. (diversified
energy) since 1997. He was President and Chief
Operating Officer of Enron Corp. from 1990
through 1996. Mr. Kinder is a director of KN
Energy, Transocean Offshore Inc. and Waste
Management, Inc. He is also a trustee of the
Museum of Fine Arts, Houston, and is past
Chairman of the Interstate Natural Gas
Association of America.
</TABLE>
INFORMATION CONCERNING CLASS III AND I DIRECTORS
The following table sets forth certain information for those directors
whose present terms will continue after the Annual Meeting of Stockholders. The
term of each Class III and Class I director expires at the 2000 and 2001 Annual
Meeting of Stockholders, respectively, with the exception of Mr. Maher who will
retire at the 1999 Annual Meeting of Stockholders in accordance with the tenure
provisions of the Corporation's Bylaws.
Pursuant to the Corporation's Bylaws, in case of a vacancy on the Board of
Directors, a majority of the remaining directors of the class in which the
vacancy occurs will be empowered to elect a successor, and the person so elected
will hold office for the remainder of the full term of the director whose death,
retirement, resignation, disqualification or other cause created the vacancy,
and thereafter until the election of a successor director.
<TABLE>
<CAPTION>
DIRECTOR
DIRECTORS PRINCIPAL OCCUPATION AGE SINCE CLASS
--------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
VICTOR G. BEGHINI Vice Chairman -- Marathon Group, USX 64 1992 III
Corporation since 1990 and
President -- Marathon Oil Company (integrated
oil and gas company) since 1987. Mr. Beghini
joined Marathon in 1956. He was Vice
President -- Supply & Transportation from 1978
to 1984, President of Marathon Petroleum
Company from 1984 to 1985, Senior Vice
President -- Domestic Exploration and
Production for Marathon Oil Company from 1985
to 1986, and Senior Vice
President -- Worldwide Production from 1986 to
1987. Mr. Beghini is a director of USX
Corporation, Pitt-DesMoines, Inc., the
American Petroleum Institute, a member of the
National Petroleum Council and a board member
of the Sam Houston Council of the Boy Scouts
of America.
</TABLE>
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<TABLE>
<CAPTION>
DIRECTOR
DIRECTORS PRINCIPAL OCCUPATION AGE SINCE CLASS
--------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
ALTON J. BRANN Chairman of the Board and Chief Executive 57 1998 I
Officer of UNOVA, Inc. (industrial
technologies) since 1997. Mr. Brann served as
Chairman of the Board of Western Atlas from
1994 to 1998 and Chief Executive Officer of
Western Atlas from 1994 to 1997. He is
currently a director and Chairman of the
Executive Committee of Litton Industries, Inc.
and served as that company's President from
1990 to 1994 and Chief Executive Officer from
1992 to 1994. Mr. Brann is a member of the
Board of Overseers of the Executive Council on
Foreign Diplomacy, the Board of the U.S.-
Russia Business Council and the Board of the
National Association of Manufacturers. He is a
trustee of Manufacturers Alliance. He is a
member of the President's Cabinet of
California Polytechnic State University at San
Luis Obispo, Chairman of the Los Angeles Area
Council of the Boy Scouts of America, Chairman
of the Board of Governors of Town Hall Los
Angeles and a member of the Board of Directors
of the Los Angeles World Affairs Council. Mr.
Brann is also a member of the Society of
Petroleum Engineers and a senior member of the
Institute of Electrical and Electronics
Engineers.
EUNICE M. FILTER Vice President and Secretary of Xerox 58 1992 III
Corporation (office equipment) since 1984, and
Treasurer of Xerox Corporation since 1990.
President and Chief Executive Officer of Xerox
Credit Corp. since 1995. She was Director of
Investor Relations of Xerox Corporation from
1979 to 1984. Ms. Filter is a member of the
National Investor Relations Institute, the
American Society of Corporate Secretaries, the
Financial Women's Association of New York, the
Financial Executives Institute and the
National Association of Corporate Treasurers.
She is also a director of Briggs & Stratton
Corporation and Xerox Canada Inc. and Chair of
the Board of Trustees of Wells College.
CLAIRE W. GARGALLI Former Vice Chairman, Diversified Search and 56 1998 III
Diversified Health Search Companies (executive
search consultants). She was Vice Chairman,
Diversified Search and Diversified Health
Search Companies from 1990 to 1998. Ms.
Gargalli served as President and Chief
Operating Officer of Equimark from 1984 to
1990. During that period, she also served as
Chairman and Chief Executive Officer of
Equimark's two principal subsidiaries,
Equibank and Liberty Bank. Ms. Gargalli is a
director of Praxair, Inc. and UNOVA, Inc. She
is also a trustee of Carnegie Mellon
University and Chairman of the Board of
Middlebury College.
</TABLE>
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<TABLE>
<CAPTION>
DIRECTOR
DIRECTORS PRINCIPAL OCCUPATION AGE SINCE CLASS
--------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
MAX L. LUKENS Chairman of the Board since January 1997, 50 1996 III
President from October 1995 through August
1998 and Chief Executive Officer of the
Company since October 1996. Mr. Lukens was
re-elected President of the Company in October
1998, upon Mr. Russell's retirement as
President. Mr. Lukens joined Baker
International Corporation in 1981. He was Vice
President and Chief Financial Officer of the
Company from 1984 to 1989; Senior Vice
President of the Company from 1987 to 1994;
President, Baker Hughes Production Tools from
1989 to 1993; President, Baker Hughes Oilfield
Operations from 1993 to 1995; Executive Vice
President from 1994 to 1995 and Chief
Operating Officer 1995 to 1996. Mr. Lukens
serves on the Board of Directors of Sonat,
Inc. and Transocean Offshore, Inc.
JOHN F. MAHER Retired President and Chief Executive Officer 55 1989 I
of Great Western Financial Corporation
(financial services). Mr. Maher was President
of Great Western Financial Corporation from
1986 to 1997, Chief Executive Officer from
1995 to 1997 and Chief Operating Officer from
1986 to 1995. He was a Managing Director of
Lehman Brothers Kuhn Loeb from 1979 to 1986.
Mr. Maher is an Advisory Board Member of
Bessemer Holdings, L.P., a member of the Board
of Trustees of the Cate School and Trout
Unlimited and a member of the California
Business Roundtable.
JAMES F. MCCALL Executive Director of the American Society of 64 1996 III
Military Comptrollers since 1991. He was
Lieutenant General and Comptroller of U.S.
Army from 1988 until 1991, when he retired.
General McCall was commissioned as 2nd
Lieutenant of Infantry in 1958 and was
selected into the Army's Comptroller/
Financial Management career field in 1970.
General McCall is Chairman of the Board of
Enterprise Bancorp Inc. and Enterprise Federal
Savings Bank. He is also a member of the Board
of Directors of the American Refugee
Committee.
</TABLE>
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<TABLE>
<CAPTION>
DIRECTOR
DIRECTORS PRINCIPAL OCCUPATION AGE SINCE CLASS
--------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
H. JOHN RILEY, JR. Chairman of Cooper Industries, Inc. 58 1997 I
(diversified manufacturer) since 1996,
President since 1992 and Chief Executive
Officer since 1995. He was Executive Vice
President, Operations of Cooper Industries,
Inc. from 1982 to 1992, and Chief Operating
Officer from 1992 to 1995. Mr. Riley is a
director of the Allstate Corporation, the
Houston Symphony and The Houston Forum. He is
Chairman of Central Houston, Inc. and a member
of The Business Roundtable. Mr. Riley also
serves as a director of the Manufacturers
Alliance/MAPI, Inc., The Greater Houston
Partnership, the Museum of Fine Arts, Houston,
Junior Achievement, Inc. and The Business
Committee for the Arts.
JOHN R. RUSSELL Retired President of Baker Hughes. Mr. Russell 60 1998 III
served as President of the Company from August
1998 to October 1998. He was President and
Chief Executive Officer of Western Atlas from
1997 to 1998. Mr. Russell served as Executive
Vice President and Chief Operating Officer,
Oilfield Services, of Western Atlas from 1994
to 1997. Mr. Russell served as Chief Executive
Officer of Western Atlas International, Inc.
from 1991 to 1994, and President from 1991 to
1998. Mr. Russell was Senior Vice President of
Litton Industries, Inc. and Group Executive of
Litton's Resource Exploration Services Group
from 1991 to 1994.
CHARLES L. WATSON Chairman and Chief Executive Officer of 48 1998 I
Dynegy, Inc. (diversified energy). Mr. Watson
was elected Chairman and Chief Executive
Officer of NGC Corporation, the predecessor of
Dynegy, in 1989. Mr. Watson serves on the
National Petroleum Council and is a member of
the Texas Governor's Business Council. He is a
board member of the Interstate Natural Gas
Association of America and a founding member
of the Natural Gas Council. Mr. Watson is also
a board member of Make-A-Wish Foundation,
Theatre Under the Stars and the Houston Forum
Board of Governors. He serves as Chairman of
the Alexis de Tocqueville Society 1998/99
Campaigns for the United Way of the Texas Gulf
Coast.
MAX P. WATSON, JR. Chairman of BMC Software, Inc. (computer 53 1998 I
systems management software) since 1992 and
President and Chief Executive Officer since
1990. He was Chief Operating Officer of BMC
Software, Inc. from 1989 to 1990. Mr. Watson
is a trustee of the Museum of Fine Arts,
Houston. Mr. Watson serves on the Board of
Directors of the Greater Houston Partnership
and Texas Children's Hospital, Hospital's
Associate Board.
</TABLE>
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BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
During fiscal year 1998, the Board of Directors held seven meetings. During
fiscal year 1998, each non-employee director was paid a monthly retainer of
$2,500, an attendance fee of $2,000 for the first meeting of the Board or any of
its committees attended in any one day and $1,000 for each additional meeting
attended in the same day. Committee chairmen received an additional fifty
percent of the meeting fee. In addition, each non-employee director is entitled
to retirement benefits in the amount of the annual retainer for service on the
Board at the rate in effect on December 31 of the year preceding the year of
retirement therefrom for a period of up to ten years. Each non-employee director
is allowed to defer up to 100% of his or her annual retainer, meeting fees or
retirement income in accordance with the Company's Director Compensation
Deferral Plan. Directors who are employees of Baker Hughes are not paid any fees
or additional remuneration for service as members of the Board or any of its
committees and are not entitled to the retirement benefits mentioned above. Each
non-employee director is granted a nonqualified option to purchase 2,000 shares
of the Common Stock effective upon his initial election to the Board of
Directors. The stock option plans also provide for an annual grant of a
nonqualified option to purchase 1,000 shares of the Common Stock, on the fourth
Wednesday of October each year after the initial grant until expiration of the
plans to each person who is a non-employee director on such date.
The Board of Directors has, in addition to other committees, an
Audit/Ethics Committee, Compensation Committee and Governance Committee.
The Audit/Ethics Committee, which is comprised of Messrs. Beghini
(Chairman), Casey, McCall, Riley, C. Watson and M. Watson, held one meeting
during fiscal year 1998. One meeting, held in the last quarter of 1997 has not
been counted due to a change in the Company's fiscal year to a calendar year.
The Company's Corporate Audit Department sends written reports quarterly to the
Audit/Ethics Committee on its audit findings and the status of its internal
audit projects. The functions performed by the Audit/Ethics Committee include:
reviewing the scope and results of the annual audit and other matters with the
independent accountants, internal auditors and management; reviewing the
independence of the independent accountants and internal auditors; reviewing
actions by management on the independent and internal auditors' recommendations;
and meeting with management, the internal auditors and the independent
accountants to review the effectiveness of Baker Hughes' system of internal
controls and internal audit procedures. To promote independence of the audit,
the Committee consults separately and jointly with the independent accountants,
the internal auditors and management. In addition, the Committee monitors the
Standards of Conduct for the Corporation's employees, coordinates compliance and
reviews and investigates non-compliance matters.
The Compensation Committee, which is comprised of Messrs. Maher (Chairman),
Kinder, Riley and C. Watson and Ms. Gargalli, held three meetings during fiscal
year 1998. The functions performed by the Compensation Committee include:
reviewing Baker Hughes' executive salary and bonus structure; reviewing Baker
Hughes' stock option and convertible debenture plans (and making grants
thereunder), employee retirement income plans, employee thrift plan and employee
stock purchase plan; recommending directors' fees; setting bonus goals;
approving salary and bonus awards to key executives; and recommending incentive
compensation and stock award plans for approval by stockholders.
The Governance Committee, which is comprised of Messrs. Alberthal
(Chairman), Brann and McCall and Ms. Filter, held one meeting during fiscal year
1998. The functions performed by the Governance Committee include: selecting
candidates to fill vacancies on the Board of Directors; reviewing the structure
and composition of the Board; and considering qualifications requisite for
continuing Board service. The Board of Directors may increase its size during
any year up to a maximum of 16 members. If the Board of Directors increases its
number of members during the year, the Bylaws of the Company provide that the
vacancy or vacancies created would be filled with new member(s) elected by
majority vote of the members in the class of directors where such increase is
occurring. The Committee also considers nominees that stockholders recommend.
Stockholders desiring to make such recommendations should submit the candidate's
name, together with biographical information and his or her written consent to
nomination to: Chairman,
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Governance Committee of the Board of Directors of Baker Hughes Incorporated,
P.O. Box 4740, Houston, Texas 77210-4740.
During the fiscal year ended December 31, 1998, each director attended at
least 75% of the aggregate number of meetings of the Corporation's Board of
Directors and respective Committees on which he or she served.
SECURITY OWNERSHIP OF MANAGEMENT
Set forth below is certain information with respect to beneficial ownership
of the Common Stock as of March 3, 1999 by each director, nominee director, the
six most highly compensated executive officers, one individual who would have
been included in the group of five most highly compensated executive officers
but for the fact that he was not serving as an executive officer at December 31,
1998 and by directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------
SHARES SUBJECT TO
OPTIONS/CONVERTIBLE DEBENTURES
SHARES WHICH ARE OR WILL BECOME TOTAL
OWNED EXERCISABLE OR CONVERTIBLE BENEFICIAL % OF
NAME AS OF 3/3/99 PRIOR TO 5/2/99 OWNERSHIP CLASS(1)
---- ------------ ------------------------------ ---------- --------
<S> <C> <C> <C> <C>
Lester M. Alberthal, Jr. ............. 9,530 6,000 15,530 --
Victor G. Beghini..................... 3,000 24,633 27,633 --
Alton J. Brann........................ 69,058 5,400 74,458 --
Joseph T. Casey....................... 736,437(2) 12,053 748,490 --
Eunice M. Filter...................... 2,000 6,000 8,000 --
Joe B. Foster......................... 6,000 6,000 12,000 --
Claire W. Gargalli.................... 37,532 25,359 62,891 --
Richard D. Kinder..................... 4,000 6,000 10,000 --
John F. Maher......................... 5,843(3) 6,000 11,843 --
James F. McCall....................... 2,000 4,000 6,000 --
H. John Riley, Jr..................... 10,000 3,000 13,000 --
John R. Russell....................... 208,468 42,570 251,038 --
Charles L. Watson..................... 0 2,000 2,000 --
Max P. Watson, Jr..................... 0 2,000 2,000 --
Max L. Lukens......................... 153,639 424,067 577,706 --
Thomas R. Bates, Jr. ................. 200,000(4) 18,746 218,746 --
Andrew J. Szescila.................... 39,106 128,956 168,062 --
Eric L. Mattson....................... 89,640(5) 196,262 285,902 --
George S. Finley...................... 34,980 92,405 127,385 --
Lawrence O'Donnell, III............... 35,473 83,993 119,466 --
Edwin C. Howell(6).................... 31,733 130,648 162,381 --
All directors and executive officers
as a group (22 persons)............. 1,592,639 1,244,241 2,836,880 --
</TABLE>
- ---------------
(1) No percent of class is shown for holdings of less than 1%.
(2) Includes 27,000 shares held by charitable corporation for which Mr. Casey
serves as trustee. Mr. Casey has voting and investment power with respect to
such shares and may thus be deemed to have beneficial ownership thereof for
certain purposes within the meaning of applicable regulations of the SEC.
(3) Includes 553 shares held as custodian for Mr. Maher's minor children.
(4) Includes 100,000 shares issued as a restricted stock award on February 1,
1999. Mr. Bates received a one-time restricted stock award matching his
stock ownership as of January 31, 1999, pursuant to the Company's 1995 Stock
Award Plan and Long Term Incentive Plan. The award was made to encourage
additional stock ownership and assist Mr. Bates in reaching the minimum
stock ownership requirements
9
<PAGE> 11
that the Company has adopted. The matched shares vest upon the retirement of Mr.
Bates or certain other events, including a change in control.
(5) Includes 1,180 shares that his wife indirectly holds.
(6) Mr. Howell is not currently deemed an executive officer of the Company.
However, he would have been included in the group of the five most highly
compensated executive officers had he been an executive officer at December
31, 1998. Therefore, he is included in this Proxy Statement pursuant to
applicable SEC regulations.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires executive officers and directors, and persons who
beneficially own more than 10% of the Common Stock, to file initial reports of
ownership and reports of changes in ownership with the SEC, the New York Stock
Exchange and the Pacific Exchange. SEC regulations require executive officers,
directors and greater than ten percent beneficial owners to furnish the
Corporation with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of those forms furnished to the
Corporation and written representations from the executive officers and
directors, the Corporation believes that during its fiscal year ended December
31, 1998, the Corporation's executive officers and directors complied with all
applicable Section 16(a) filing requirements.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation that the Company and its
subsidiaries paid to each of the six most highly compensated executive officers
of the Company and one individual who would have been included in the group of
five most highly compensated executive officers but for the fact that he was not
serving as an executive officer at December 31, 1998, for services rendered to
the Company for the calendar years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------- ----------------------------------
AWARDS PAYOUTS
--------------------- ----------
RESTRICTED STOCK
OTHER ANNUAL STOCK OPTIONS LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS (SHARES) PAYOUTS(1) COMPENSATION(2)
--------------------------- ---- -------- -------- ------------ ---------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
M.L. Lukens, Chairman of the 1998 $800,000 $ -- -- -- 238,095 $1,918,589(3) $552,248
Board, President and Chief 1997 730,769 942,500 -- -- 94,771 -- 76,160
Executive Officer 1996 606,154 586,500 -- -- 100,694 -- 66,650
T.R. Bates, Jr., Senior Vice 1998 270,351 91,666 -- -- 381,266 -- 18,581
President(4)
A.J. Szescila, Senior Vice 1998 425,577 -- -- -- 306,706 391,563(5) 266,152
President 1997 336,385 254,901 -- -- 41,656 -- 27,747
1996 249,470 188,297 -- -- 25,808 -- 28,053
E.L. Mattson, Senior Vice 1998 403,911 -- -- -- 282,406 747,773(6) 218,233
President and Chief 1997 369,620 367,500 -- -- 34,588 -- 38,236
Financial Officer 1996 350,673 267,750 -- -- 36,458 -- 38,437
G.S. Finley, Senior Vice 1998 335,540 -- -- -- 241,006 323,543(7) 179,684
President and Chief 1997 283,515 252,000 -- -- 26,352 -- 28,808
Administrative Officer 1996 262,692 200,430 -- -- 27,291 -- 30,664
L. O'Donnell, III, Vice 1998 284,620 -- -- -- 215,421 410,559(8) 136,101
President and General 1997 238,584 212,220 -- -- 22,192 -- 21,866
Counsel 1996 220,608 149,600 -- -- 22,916 -- 15,395
E.C. Howell, Vice President 1998 305,615 -- -- -- 195,750 450,856(9) 155,703
and
President, Baker Oil Tools 1997 290,000 232,290 -- -- 27,294 29,893
1996 265,000 193,682 -- -- 27,604 28,867
</TABLE>
- ---------------
(1) Messrs. Lukens, Szescila, Mattson, Finley and Howell received a one-time
restricted stock award matching their stock ownership as of January 31,
1995, pursuant to the Company's 1995 Stock Award Plan (the "Award Plan").
Mr. O'Donnell received a one-time restricted stock award matching his stock
ownership as of January 31, 1996, pursuant to the Award Plan. The awards
were made to encourage additional stock ownership and assist the executives
in reaching the minimum stock ownership requirements that the Company has
adopted. The matched shares vested on August 10, 1998, upon the consummation
of the Merger with Western Atlas, in accordance with the change in control
provisions of the Award Plan. In addition, certain of the named executive
officers received a stock bonus award on August 10, 1998, upon the
consummation of the Merger, in accordance with the change in control
provisions of the Company's 1991 and 1993 Stock Bonus Plans (the "Bonus
Plans"). The Bonus Plans provide that one additional share of common stock
will be issued for every five shares of common stock exercised under the
Company's 1987 Restated Employee Stock Option Plan and the Company's 1993
Stock Option Plan, if such shares exercised are held for a minimum of three
years or upon certain other events, including a change in control. The value
of the stock awards that vested and the bonus shares that were awarded, in
each case, due to a change in control (as defined in the Award Plan and the
Bonus Plans) of Baker Hughes occasioned by the Merger is reported here as
LTIP payouts. The value of these payouts is based upon the closing stock
price of $22.375 per share of the Common Stock on the New York Stock
Exchange on August 10, 1998.
(2) For fiscal year 1998, All Other Compensation includes a payment equivalent
to a prorated expected value bonus, Company contributions to the Thrift
Plan, Supplemental Retirement Plan and life insurance premiums for each of
the named executive officers. Based on the Company's fiscal year 1998
financial
11
<PAGE> 13
performance, predetermined bonus objectives, as set by the Compensation
Committee, were partially achieved by each of the named executive officers.
With the exception of Mr. Bates, upon consummation of the merger with
Western Atlas, the named executive officers were paid the amounts set forth
in the table below, under Incentive Compensation Plan Payment, which amounts
were equivalent to a prorated expected value bonus, due to the change in
control provisions contained in the Company's 1995 Incentive Compensation
Plan. Any bonus amounts earned due to the achievement of predetermined
objectives were offset by the amount paid in connection with the change in
control provisions of the Company's 1995 Incentive Compensation Plan, and
the Company did not pay any additional bonus amounts to the named executive
officers for fiscal year 1998. For fiscal years 1997 and 1996, All Other
Compensation includes Company contributions to the Thrift Plan, Supplemental
Retirement Plan and life insurance premiums for each of the named executive
officers. Amounts for fiscal year 1998 for the persons named above are as
follows:
<TABLE>
<CAPTION>
INCENTIVE
COMPENSATION
PLAN PAYMENT THRIFT SRP LIFE
------------ ------- ------- -------
<S> <C> <C> <C> <C>
Lukens.................................... $ 476,667 $ 8,267 $55,798 $11,520
Bates..................................... -- 5,881 5,950 6,750
Szescila.................................. 223,144 10,400 26,229 6,379
Mattson................................... 181,071 8,267 23,193 5,702
Finley.................................... 149,279 8,267 17,444 4,694
O'Donnell................................. 112,200 7,467 12,517 3,917
Howell.................................... 125,606 9,066 16,639 4,392
</TABLE>
(3) Mr. Lukens received 81,059 shares that vested on August 10, 1998 pursuant to
the Award Plan and 4,688 shares that vested on August 10, 1998 pursuant to
the Bonus Plan.
(4) Mr. Bates joined the Company on June 15, 1998 as Senior Vice President and
is included in this Proxy Statement as he would have been one of the five
most highly compensated executive officers but for the fact that he was
employed for only a portion of the fiscal year.
(5) Mr. Szescila received 17,500 shares that vested on August 10, 1998 pursuant
to the Award Plan.
(6) Mr. Mattson received 31,020 shares that vested on August 10, 1998 pursuant
to the Award Plan and 2,400 shares that vested on August 10, 1998 pursuant
to the Bonus Plan.
(7) Mr. Finley received 13,996 shares that vested on August 10, 1998 pursuant to
the Award Plan and 464 shares that vested on August 10, 1998 pursuant to the
Bonus Plan.
(8) Mr. O'Donnell received 15,291 shares that vested on August 10, 1998 pursuant
to the Award Plan and 3,058 shares that vested on August 10, 1998 pursuant
to the Bonus Plan.
(9) Mr. Howell received 20,150 shares that vested on August 10, 1998 pursuant to
the Award Plan.
12
<PAGE> 14
STOCK OPTIONS GRANTED DURING 1998
The following table sets forth certain information regarding stock options
granted during fiscal year 1998 to the persons named in the Summary Compensation
Table above. The theoretical values on date of grant of stock options granted in
1998 shown below are presented pursuant to SEC rules and are calculated using
the Black-Scholes Model for pricing options. The theoretical values of options
trading in the stock markets do not necessarily bear a relationship to the
compensation cost to the Corporation or potential gain realized by an executive.
The actual amount, if any, realized upon exercise of stock options will depend
upon the market price of the Common Stock relative to the exercise price per
share of the stock option at the time the stock option is exercised. There is no
assurance that the theoretical values of stock options reflected in this table
actually will be realized.
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS OPTIONS GRANTED EXERCISE EXPIRATION GRANT DATE
NAME GRANTED(1) TO EMPLOYEES PRICE DATE THEORETICAL VALUE(2)
---- ---------- --------------- -------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
M.L. Lukens...................... 238,095 3.9% $21.00 10/1/2008 $2,304,998
T.R. Bates, Jr................... 56,239(3) 0.9% 35.56 6/15/2008 933,398
325,027 5.3% 21.00 10/1/2008 3,146,586
A.J. Szescila.................... 306,706 5.0% 21.00 10/1/2008 2,969,221
E.L. Mattson..................... 282,406 4.6% 21.00 10/1/2008 2,733,972
G.S. Finley...................... 241,006 3.9% 21.00 10/1/2008 2,333,179
L. O'Donnell..................... 215,421 3.5% 21.00 10/1/2008 2,085,491
E.C. Howell...................... 195,750 3.2% 21.00 10/1/2008 1,895,056
</TABLE>
- ---------------
(1) The Compensation Committee awarded a grant of options to certain members of
the Company's Leadership Team (excluding Mr. Lukens) to cover the years 1999
and 2000 to incent top performance in the timely completion of various
post-merger activities involving Western Atlas, as well as to act as a
retention device after the Merger. The Compensation Committee does not
intend to grant options in 1999 or 2000 to those members of the Leadership
Team who received the multi-year grants. Except as otherwise noted in
footnote (3) below, with the exception of Mr. Lukens, 33 1/3% of the options
granted to the named executive officers vest in increments of 33 1/3% on the
1st day of October in each of the years 1999, 2000 and 2001, with the
remaining 66 2/3% of the options vesting in increments of 33 1/3% on the 1st
day of October in each of the years 2001, 2002 and 2003. The options granted
to Mr. Lukens will vest in increments of 33 1/3% on the 1st day of October
in each of the years 1999, 2000 and 2001.
(2) The theoretical values on grant date are calculated under the Black-Scholes
Model. The Black-Scholes Model is a mathematical formula used to value
options traded on stock exchanges. This formula considers a number of
factors to estimate the option's theoretical value, including the stock's
historical volatility, dividend rate, exercise period of the option and
interest rates. Except as otherwise noted in footnote (3) below, the grant
date theoretical value above assumes a volatility of 25%, a dividend yield
of 2.19%, a 4.298% risk free rate of return and a ten-year option term.
(3) Mr. Bates received a grant of options upon his employment with the Company
on June 15, 1998. The options vest in three equal annual installments
beginning on the date of grant and on the next two anniversary dates of the
date of grant. The grant date theoretical value for this option assumes a
volatility of 25%, a dividend yield of 1.29%, a 5.349% risk free rate of
return and a ten year option term.
13
<PAGE> 15
AGGREGATED OPTION EXERCISES DURING 1998
AND OPTION VALUES AT DECEMBER 31, 1998
The following table sets forth certain information regarding options that
persons named in the Summary Compensation Table exercised during 1998 and
options that those persons held at December 31, 1998. The values of unexercised
in-the-money stock options at December 31, 1998 shown below are presented
pursuant to SEC rules. The actual amount, if any, realized upon exercise of
stock options will depend upon the market price of the Common Stock relative to
the exercise price per share of the stock option at the time the stock option is
exercised.
<TABLE>
<CAPTION>
OPTION EXERCISES UNEXERCISED OPTIONS AT DECEMBER 31, 1998
-------------------------- -----------------------------------------------------
VALUE OF UNEXERCISED
NUMBER OF OPTIONS IN-THE-MONEY OPTIONS
------------------------- -------------------------
SHARES ACQUIRED VALUE NOT NOT
NAME ON EXERCISE REALIZED EXERCISABLE EXERCISABLE EXERCISABLE EXERCISABLE
---- --------------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
M.L. Lukens............. -- $ -- 424,067(1) 238,095 $ -0- $ -0-
T.R. Bates, Jr.......... -- -- 18,746 365,252 -0- -0-
A.J. Szescila........... -- -- 128,956 306,706 -0- -0-
E.L. Mattson............ 12,000 27,000 196,262(2) 282,406 -0- -0-
G.S. Finley............. -- -- 92,405 241,006 -0- -0-
L. O'Donnell............ -- -- 83,993 215,421 -0- -0-
E.C. Howell............. -- -- 130,648 195,750 -0- -0-
</TABLE>
- ---------------
(1) Includes 19,578 shares issuable upon conversion of convertible debentures.
(2) Includes 8,433 shares issuable upon conversion of convertible debentures.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Corporation has an employment agreement with Max L. Lukens dated as of
January 1, 1998 (the "Employment Agreement"), which provides for the
continuation of employment of Mr. Lukens for an initial three year period ending
January 1, 2001, subject to termination as provided in the Employment Agreement.
Beginning on January 1, 1999 and on each January 1 thereafter, the term of the
Employment Agreement will be automatically extended for one additional year
unless, prior to September 30 of the preceding year, the Company or Mr. Lukens
shall have given notice to not extend the term. During the term of the
Employment Agreement, Mr. Lukens is entitled to receive:
- a base salary in an amount not less than his base salary on December 31,
1997;
- the opportunity to earn annual cash bonuses in amounts that may vary from
year to year and that are based upon achievement of performance goals;
- long term incentives in the form of equity-based compensation no less
favorable than awards made to other senior executives of the Corporation
and that are commensurate with awards granted to CEO's of other public
companies of similar size to the Corporation; and
- benefits and perquisites that other officers and employees of the
Corporation are entitled to receive,
all as established from time to time by the Board of Directors or the
Compensation Committee. Mr. Lukens' base salary will be reviewed at least
annually during the term of the Employment Agreement and may be increased (but
not decreased) based upon the performance of Mr. Lukens during the year. Upon
the termination of the employment of Mr. Lukens due to his Disability (as
defined in the Employment Agreement), for a period of 90 days in the aggregate
during any period of 12 consecutive months, or reasonable expectation of
Disability for more than that period, Mr. Lukens shall be paid one-half of his
then base salary in monthly installments for the remainder of the Employment
Agreement and a lump sum in cash equal to Mr. Lukens' expected value incentive
bonus for the year of termination. In the event of the death of Mr. Lukens
during the term of the Employment Agreement, the Corporation shall pay one-half
of Mr. Lukens' then annual base salary to Mr. Lukens' beneficiary in monthly
installments for the remaining term of
14
<PAGE> 16
the Employment Agreement and a lump sum in cash equal to Mr. Lukens' expected
value incentive bonus for the year of termination. Upon termination of the
Employment Agreement by Mr. Lukens for Good Reason (as defined in the Employment
Agreement) or by the Corporation without Cause (as defined in the Employment
Agreement), Mr. Lukens is entitled to receive, for the remainder of the term of
the Employment Agreement, his then annual base salary and once a year, an amount
equal to Mr. Lukens' expected value incentive bonus for the year of such
termination (all as subject to adjustment by the GNP price deflator), as well as
the continuation of benefits except as may be provided by a successor employer,
and accelerated vesting of all equity-based awards as of the date of such
termination. If the Employment Agreement is terminated by Mr. Lukens for any
reason other than a Good Reason or by the Corporation for Cause, Mr. Lukens
shall only receive his base salary and benefits through the date of termination,
but no annual bonus. During the term of the Employment Agreement, and for a
period of two years following termination of the term, Mr. Lukens is prohibited
from (i) engaging in Competition (as defined in the Employment Agreement) with
the Corporation, and (ii) soliciting customers, employees and consultants of the
Corporation. To the extent any provision of the Employment Agreement is covered
by a provision of the Severance Agreement described below, the Employment
Agreement provision so covered is superseded by the relevant portion of the
Severance Agreement.
In addition to the employment agreement described above, the Corporation
also has severance agreements (the "Severance Agreements") with Max L. Lukens,
Thomas R. Bates, Jr., Andrew J. Szescila, Eric L. Mattson, G. S. Finley,
Lawrence O'Donnell, III and Edwin C. Howell (each an "Officer"), which provide
for payment of certain benefits to the Officers as a result of termination of
employment following or in connection with a Change in Control (described below)
of the Corporation. The initial term of the Severance Agreements expires on
December 31, 1999. Beginning on January 1, 1998, and on each successive January
1 thereafter (the "Extension Date"), the term of the Severance Agreements is
automatically renewed for an additional year, unless notice of nonextension has
been given by September 30 prior to such Extension Date. The term is
automatically extended for twenty-four months following a Change in Control.
Pursuant to the Severance Agreements, the Company pays severance benefits
to the Officer if the Officer's employment is terminated following a Change in
Control and during the term unless:
(i) the Officer resigns without Good Reason (as defined in the
Severance Agreements);
(ii) the Corporation terminates the Officer for Cause (as defined in
the Severance Agreements); or
(iii) the Officer is terminated by reason of death or disability.
Provided the Officer meets the criteria for payment of severance benefits due to
termination of employment following a Change in Control during the term as
described above, he will receive the following benefits:
(a) a lump sum payment equal to three times the sum of the Officer's
annual base salary in effect on the date of termination of employment or,
if higher, his annual base salary in effect immediately prior to the event
or circumstance constituting Good Reason;
(b) a lump sum payment equal to three times the sum of the average
annual bonus earned by the Officer during the three fiscal years ending
immediately prior to the fiscal year in which termination of employment
occurs or, if higher, immediately prior to the fiscal year in which occurs
the event or circumstance constituting Good Reason; provided, that if the
Officer has not participated in an annual bonus plan of the Company for the
entirety of the three year period, then the average bonus will be
calculated using such lesser number of bonuses as have been earned;
(c) continuation of life, disability, accident and health insurance
benefits and all perquisites for an additional three years;
(d) a lump sum payment equal to the sum of:
(1) any unpaid incentive compensation that has been allocated or
awarded to the Officer for a complete fiscal year or other measuring
period preceding the date of termination under the
15
<PAGE> 17
Corporation's Annual Incentive Compensation Plan and that, as of the
date of termination, is contingent only upon the continued employment of
the Officer to a subsequent date, and
(2) a pro rata portion to the date of termination of the aggregate
value of all contingent incentive compensation awards to the Officer for
all then uncompleted periods under the Corporation's Annual Incentive
Compensation Plan, assuming the achievement of the expected value target
level of the performance goals established for the awards; provided,
however, that if such termination of employment occurs during the same
year in which the Change of Control occurs, the pro rata bonus payment
shall be offset by any payments received under the Corporation's Annual
Incentive Compensation Plan in connection with such Change in Control;
(e) a lump sum payment equal to the present value of the benefits the
Officer would have received had he continued to participate in the
Corporation's thrift and supplemental retirement plans for an additional
three years, assuming for this purpose that:
(1) the Officer's compensation during such three-year period
remained at the levels used for calculating the severance payment
described in paragraph (a) and (b) above, and
(2) the Officer's contributions to such plans remained at the
levels in effect as of the date of the Change in Control or the date of
termination, whichever is greater;
(f) eligibility for the Corporation's retiree medical program if the
Officer would have become entitled to participate in such program had he or
she remained employed for an additional three years;
(g) outplacement services for a period of three years or, if earlier,
until acceptance by the Officer of an offer of employment; and
(h) an additional amount (a "gross-up" payment) in respect of excise
taxes that may be imposed under the "golden parachute" rules on payments
and benefits received in connection with the Change in Control; the
gross-up payment would make the Officer whole for excise taxes (and for all
taxes on the gross-up payment) in respect of payments and benefits received
pursuant to all the Corporation's plans, agreements and arrangements
(including for example, acceleration of equity awards).
In addition to the above, the Severance Agreements provide for full vesting of
all stock options and other equity incentive awards upon the occurrence of a
Change in Control, subject to the provisions of the applicable plan or stock
option agreement.
Pursuant to the Severance Agreements, a "Change in Control" is deemed to
occur if:
(i) any person becomes the owner of 20% of the Corporation's voting
securities;
(ii) a change in the majority of the membership of the Board occurs
without approval of two-thirds of the directors who either were directors
at the beginning of the period, or whose election was previously so
approved;
(iii) there is consummated a merger or consolidation of the
Corporation or a subsidiary thereof with another company in which the
Corporation's stockholders do not continue to hold at least 65% of the
voting securities of the surviving entity (excepting certain
recapitalizations of the Corporation); or
(iv) there occurs a liquidation of the Corporation or a sale or other
disposition of all or substantially all of the Corporation's assets.
The Severance Agreements supersede any other agreements and representations
made by the Officer or the Corporation setting forth the terms and conditions of
the Officer's employment with the Corporation only if the Officer's employment
with the Corporation is terminated in connection with a Change in Control by the
Company other than for Cause (as defined in the Severance Agreements) or by the
Officer other than for Good Reason (as defined in the Severance Agreements).
16
<PAGE> 18
COMPENSATION COMMITTEE REPORT
TO OUR STOCKHOLDERS
This report is provided in the Proxy Statement, in accordance with SEC
rules, to inform stockholders of the Compensation Committee's compensation
policies for executive officers and the rationale for compensation paid to the
Chief Executive Officer of the Company.
To preserve objectivity in the achievement of its goals, the Compensation
Committee is comprised of five independent, non-employee directors who have no
"interlocking" relationships as defined by the SEC. It is the Compensation
Committee's overall goal to develop executive compensation policies that are
consistent with, and linked to, strategic business objectives and Company values
along with competitive practices. The Compensation Committee approves the design
of, assesses the effectiveness of, and administers executive compensation
programs in support of, Company compensation policies. The Compensation
Committee also reviews and approves all salary arrangements and other
remuneration for executives, evaluates executive performance and considers
related matters.
COMPENSATION PHILOSOPHY
The Company's primary business objective is to maximize stockholder value
over the long term. To accomplish this objective, the Company has developed a
comprehensive business strategy that emphasizes maximizing earnings and stock
price, continuing its leadership in those markets in which the Company
participates, and providing products and services of the highest value.
The following compensation policies are intended to facilitate the
achievement of the Company's business strategies:
- Comprise a significant amount of pay for senior executives in the form of
long-term, at-risk pay to focus management on the long-term interests of
stockholders and balance short-term and long-term business and financial
strategic goals.
- Emphasize variable, at-risk compensation that is dependent upon the level
of success in meeting specified corporate performance goals.
- Encourage a personal proprietary interest to provide executives with a
close identification with the Company and align executives' interests
with those of stockholders.
- Enhance the Company's ability to attract, retain, and encourage the
development of exceptionally knowledgeable and experienced executives
through compensation opportunities.
- Target compensation levels at rates that are reflective of current market
practices to maintain a stable, successful management team.
Competitive market data, including current compensation trends and
movements in the competitive marketplace, is provided by an independent
compensation consultant who also advises the Company with regard to the
competitiveness of its salary levels, incentive compensation awards and various
benefit plans. The data provided compares the Company's compensation practices
to a group of comparative companies. The Company's market for compensation
comparison purposes is comprised of a group of companies who tend to have
national and international business operations and similar sales volumes, market
capitalizations, employment levels, and lines of business. The Compensation
Committee reviews and approves the selection of companies used for compensation
comparison purposes.
The companies chosen for the comparative group used for compensation
comparison purposes generally are not the same companies that comprise the S&P
Oil and Gas Drilling and Equipment Index in the Performance Graph included in
this Proxy Statement. The Compensation Committee believes that the Company's
most direct competitors for executive talent are not necessarily all of the
companies that would be included in a published industry index established for
comparing stockholder returns. The formula used by the
17
<PAGE> 19
Compensation Committee for determining annual incentive bonuses, as discussed
below, does however take into account the S&P Oil and Gas Drilling and Equipment
Index.
The key elements of the Company's executive compensation are base salary,
annual incentives, long-term compensation and benefits. These key elements
(other than benefits) are addressed separately below. In determining
compensation, the Compensation Committee regularly reviews all elements of an
executive's total compensation package, including severance plans, insurance and
other benefits. Total compensation is targeted between the 50th and 75th
percentile for public companies of Baker Hughes' relative size and industry,
with the upper levels being reserved for those executives who the Compensation
Committee considers exceptions for individual situations based on an executive's
specific experience or expertise, or the means necessary to retain a valued
contributor with the Company.
In 1993, the Internal Revenue Service adopted Section 162(m) of the
Internal Revenue Code of 1986, as amended. Section 162(m) places a limit of
$1,000,000 on the amount of compensation that may be deducted by the Company in
any year with respect to the Company's Chief Executive Officer and its four
other highest paid executive officers. Certain performance-based compensation
and certain other compensation that has been approved by stockholders is not
subject to the deduction limit. The Company has qualified certain compensation
paid to executive officers for deductibility under Section 162(m), including
compensation expense related to options granted pursuant to the Company's 1993
Stock Option Plan and shares awarded pursuant to the 1993 Employee Stock Bonus
Plan, as well as options and stock appreciation rights granted, and shares
awarded in respect of the exercise of a stock option, pursuant to the Company's
Long Term Incentive Plan. The 1995 Employee Annual Incentive Compensation Plan
produces performance-based compensation within the meaning of Section 162(m);
thus the payments under the plan will remain deductible by the Company. To the
extent stock awards under the 1995 Stock Award Plan and the Long Term Incentive
Plan produce compensation payable to the applicable executive officers, it will
be subject to the limitation requirements for deductibility of Section 162(m).
The Company may from time to time pay compensation to its executive officers
that may not be deductible.
BASE SALARIES
Base salaries are targeted at median levels for public companies of Baker
Hughes' relative size. Base salaries for executives are initially determined by
evaluating executives' levels of responsibility, prior experience, breadth of
knowledge, as well as internal equity issues and external pay practices.
Increases to base salaries are driven primarily by individual performance.
Individual performance is evaluated based on sustained levels of individual
contribution to the Company. When evaluating individual performance, the
Compensation Committee considers the executive's efforts in promoting Company
values; continuing educational and management training; improving product
quality; developing relationships with customers, suppliers and employees;
demonstrating leadership abilities among coworkers; and other goals.
The base salary for Mr. Max L. Lukens (Chairman of the Board, President and
Chief Executive Officer) was last reviewed at the December 1997 meeting of the
Compensation Committee, and an increase of 10.34% of his base salary was
approved. In setting Mr. Lukens' base salary for fiscal year 1998, the
Compensation Committee reviewed the compensation of chief executive officers in
a group of comparative companies, as well as the Company's positive financial
performance during fiscal year 1997 with respect to revenue growth, expense
control, net income and earnings per share. The base salary for Mr. Lukens is in
line with the base salary of chief executive officers for companies included in
the comparative group used in evaluating all base salaries of the Company's
executive officers.
ANNUAL INCENTIVES
The annual incentive plan promotes the Company's pay-for-performance
philosophy by providing executives with direct financial incentives in the form
of annual cash bonuses to achieve corporate, business unit and individual
performance goals. Annual bonus opportunities allow the Company to communicate
specific goals that are of primary importance during the coming year and
motivate executives to achieve these goals.
18
<PAGE> 20
Each year, the Compensation Committee establishes specific goals relating
to each executive's bonus opportunity. Eligible executives are assigned
threshold, target and maximum bonus levels based on a percentage of base salary.
The percentages have been established based on bonus practices and opportunities
within companies comparable to Baker Hughes' size or industry. Executives earn
bonuses to the extent to which preestablished goals are achieved.
Corporate goals are determined each year by the Compensation Committee and
are based upon financial objectives of the Company deemed appropriate by the
Compensation Committee. These objectives may include earnings per share, profit
after tax, return on net capital employed, return on shareholder investment or
other financial objectives for the year. Where executives have strategic
business unit responsibilities, a portion of the goal may be based on financial
performance measures that support strategic business unit performance. This
portion varies with the position of each individual and the particular
objectives of the Company. However, no bonus is paid unless predetermined
threshold performance levels are reached. During fiscal year 1998, the corporate
objective was based on (i) earnings per share with a return on net capital
employed hurdle required to be met before a participant could be eligible to
earn more than a target bonus, and (ii) achievement against the goals set for
the Company's major business process redesign project ("Project Renaissance.")
An alternative bonus calculation is also made each year. This calculation
determines the Company's total stockholder return versus a group of peers. Under
this approach, no more than one-half a target bonus can be paid. The higher of
the financial or alternative bonus is paid in any given year. This feature
provides motivation and reward to executives for superior performance in the
market, even when economic circumstances outside the control of the executive
render the Company's financial plans unachievable.
Target bonus awards are set at a market level (discussed previously).
Targets are considered by the Compensation Committee to be achievable, but
require above-average performance from each of the executives. Target bonus
awards for the executive officers range from 45% of base salary to 65% of base
salary (for Mr. Lukens).
Based on the Company's fiscal year 1998 financial performance,
predetermined bonus objectives, as set by the Compensation Committee and
discussed above, were partially achieved by each of the named executive
officers. Upon consummation of the merger with Western Atlas, Mr. Lukens was
paid $476,667, which amount was equivalent to a prorated target bonus, due to
the change in control provisions contained in the Company's Incentive
Compensation Plan. Any bonus amount earned by Mr. Lukens due to the achievement
of predetermined objectives was offset by the amount paid in connection with the
change in control provisions of the Company's Incentive Compensation Plan, and
no additional bonus amount was paid to Mr. Lukens for fiscal year 1998.
LONG-TERM INCENTIVES
In keeping with the Company's commitment to provide a total compensation
package that favors at-risk components of pay, long-term incentives comprise the
largest portion of an executive's total compensation package. The Compensation
Committee's objective is to provide executives with long-term incentive award
opportunities that are on par with grants made within the Company's industry and
are reflective of prior performance.
Long-term incentive award guidelines have been developed based on the same
method used as establishing bonus award guidelines. Practices of comparable
companies have been adapted for use at Baker Hughes. The actual percent granted
varies by position within the Company.
Long-term incentives are provided pursuant to the Company's stock option
plan. Stock options are granted at an option price not less than the fair market
value of the Common Stock on the date of grant. Accordingly, stock options have
value only if the stock price appreciates from the date the options are granted.
This design focuses executives on the creation of stockholder value over the
long term and encourages equity ownership in the Company.
19
<PAGE> 21
In fiscal year 1998, Mr. Lukens received options to purchase 238,095 shares
of Common Stock. The option granted to Mr. Lukens in fiscal year 1998 was based
on a multiple of 6.25 times his base salary and represented approximately 3.9%
of the total options granted to employees of the Company during the 1998 fiscal
year. The Compensation Committee determines each year the total amount of
options that will be made available to the Company's executives, as well as the
multiple on base salary that will be used for each group of executives who will
be receiving options, including Mr. Lukens. These amounts vary each year and are
based upon what the Compensation Committee believes is appropriate taking into
account the executive's total compensation package and the desire of the
Compensation Committee to create stockholder value, to encourage equity
ownership by the Company's executives, to provide an appropriate link to the
interests of the stockholders, and to provide long-term incentive award
opportunities on par with the Company's industry.
In fiscal year 1998, the Compensation Committee awarded a grant of options
to certain members of the Company's Leadership Team (excluding Mr. Lukens) to
cover the years 1999 and 2000 to incent top performance in the timely completion
of various post-merger activities involving Western Atlas, as well as to act as
a retention device after the Merger. The Compensation Committee does not intend
to grant options in 1999 or 2000 to those members of the Leadership Team who
received the multi-year grants.
SUMMARY
The Compensation Committee believes that the compensation program for the
executives of the Company is comparable with the compensation programs provided
by comparable companies and serves the best interests of the stockholders of the
Company. The Compensation Committee also believes that annual performance pay is
appropriately linked to individual performance, annual financial performance of
the Company, and stockholder value.
John F. Maher (Chairman)
Claire W. Gargalli
Richard D. Kinder
H. J. Riley, Jr.
Charles L. Watson
20
<PAGE> 22
CORPORATE PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the
Corporation's cumulative total stockholder return on its Common Stock (assuming
reinvestment of dividends at date of payment into Common Stock) with the
cumulative total return on the published Standard & Poor's 500 Stock Index and
the cumulative total return on Standard & Poor's Oil and Gas Drilling and
Equipment Index over the preceding five year period. The following graph is
presented pursuant to SEC rules. The Corporation believes that while total
stockholder return is an important corporate performance indicator, it is
subject to the vagaries of the market. In addition to the creation of
stockholder value, the Corporation's executive compensation program is based on
financial and strategic results, and the other factors set forth and discussed
above in "Compensation Committee Report".
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
BAKER HUGHES INCORPORATED; S&P 500; AND S&P OIL AND GAS DRILLING AND EQUIPMENT
<TABLE>
<CAPTION>
S&P OIL AND
GAS DRILLING
MEASUREMENT PERIOD BAKER AND
(FISCAL YEAR COVERED) HUGHES S&P 500 EQUIPMENT
<S> <C> <C> <C>
1993 100.00 100.00 100.00
1994 93.51 101.36 91.92
1995 127.62 139.32 127.32
1996 183.27 171.23 180.64
1997 234.36 228.27 277.58
1998 96.42 293.04 158.36
</TABLE>
* Total return assumes reinvestment of dividends on a quarterly basis.
The comparison of total return on investment (change in year-end stock
price plus reinvested dividends) assumes that $100 was invested on December 31,
1993 in Baker Hughes Common Stock, the S&P 500 Index and the S&P Oil and Gas
Drilling and Equipment Index.
21
<PAGE> 23
PROPOSAL TO APPROVE AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors deems it advisable and in the best interest of the
Corporation to amend, subject to stockholder approval, the Corporation's
Restated Certificate of Incorporation to increase the number of shares of common
stock authorized from 400,000,000 shares to 750,000,000 shares. Due to the
Merger with Western Atlas, the number of the Corporation's shares outstanding
increased by approximately 156,000,000, increasing the total number of shares
outstanding to approximately 327,000,000. In addition, the Corporation has
reserved for issuance approximately 37,000,000 shares of common stock pursuant
to various benefit plans, convertible securities and certain royalty payments in
connection with a prior acquisition, which results in approximately 36,000,000
authorized shares remaining pursuant to the Corporation's Restated Certificate
of Incorporation.
The number of shares of common stock authorized pursuant to the
Corporation's Restated Certificate of Incorporation has not been increased since
the Restated Certificate of Incorporation was filed with the State of Delaware
on April 3, 1987.
The purpose of the increased number of authorized shares of Common Stock is
to give the Corporation greater flexibility in its financial affairs, by making
additional shares available for issuance by the Board of Directors from time to
time for any proper corporate purpose, including for acquisitions, employee
benefits plans or other transactions as the Board of Directors may approve,
without any action required by the Corporation's stockholders (except as may be
required by law or stock exchange rules). The additional shares of Common Stock
will be identical to the shares of Common Stock of the Corporation now
authorized, and the increase in authorized shares of Common Stock will not
change current stockholders' equity interest in the Corporation. Holders of
Common Stock do not and will not have preemptive rights to acquire additional
securities which may be issued by the Corporation, including the additional
authorized shares of Common Stock.
The Corporation has no current plans, understandings or agreements for the
issuance or use of the additional authorized shares of Common Stock.
In accordance with Delaware law, approval of the proposed amendment
requires the affirmative vote, in person or by proxy, of the holders of a
majority of the outstanding shares of Common Stock. Upon approval, the proposed
amendment to the Restated Certificate of Incorporation will become effective
upon filing with the Secretary of State of the State of Delaware.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Your Board of Directors recommends a vote FOR approval of the amendment to
the Corporation's Restated Certificate of Incorporation.
PROPOSAL TO APPROVE AMENDMENT TO THE
1987 EMPLOYEE STOCK PURCHASE PLAN
The Corporation's 1987 Employee Stock Purchase Plan (the "Purchase Plan")
was initially adopted in fiscal year 1987, with 1,500,000 shares of Common Stock
authorized for issuance. Subsequently, the Board of Directors and stockholders
of the Company authorized an increase of 2,000,000 shares of Common Stock to be
issued pursuant to the Purchase Plan in each of the years 1990 and 1995,
bringing the total number of shares authorized pursuant to the Purchase Plan to
5,500,000.
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Purchase Plan to make an additional 4,000,000 shares of Common
Stock available under the Purchase Plan. Except as so amended, the provisions of
the Purchase Plan will remain the same as those presently in effect.
The Purchase Plan is administered by the Compensation Committee of the
Board of Directors. The Committee has the power to make, amend and repeal rules
and regulations for the interpretation and administration of the Purchase Plan.
Under the Purchase Plan, the Corporation grants eligible employees options
to purchase shares of Common Stock through a payroll deduction program. These
options are granted once a year on a grant date
22
<PAGE> 24
selected by the Committee administering the Purchase Plan. The term of each
option is a 12-month period ending on the last day of the option period. The
number of shares of Common Stock subject to each option is the sum of the
payroll deductions authorized by the participant divided by the option price per
share. An option is exercised automatically on the last day of the option period
(the "exercise date") at which time the Corporation deducts from the
participant's account an amount which is sufficient to purchase at the "option
price" the number of whole shares of Common Stock subject to his option. If any
balance remains in the participant's account, it is carried forward to the next
exercise date. The option price per share is equal to 85% of the fair market
value of the Common Stock on the grant date or the exercise date, whichever is
less.
All employees of the Corporation at the beginning of the option term who
are scheduled to work at least 20 hours per week during the option term are
eligible under the Purchase Plan to purchase shares of Common Stock through
regular payroll deductions (valued in United States dollars) of not less than
$5.00 nor more than 10% of their eligible compensation each pay period but not
to exceed $25,000 in fair market value of the Common Stock at the time of grant.
The following table sets forth certain information with respect to shares
purchased under the Purchase Plan during fiscal year 1998 by the six most highly
compensated executive officers, one individual who would have been included in
the group of five most highly compensated executive officers but for the fact
that he was not serving as an executive officer at December 31, 1998, all
current executive officers as a group, and all employees as a group (excluding
current executive officers).
AMENDMENT TO
1987 EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
NUMBER
OF SHARES
NAME AND POSITION DOLLAR VALUE(1) PURCHASED
----------------- --------------- ---------
<S> <C> <C>
M.L. Lukens................................................. $ 25,000 982.8
Chairman of the Board, President and
Chief Executive Officer
T.R. Bates, Jr. ............................................ 0 0
Senior Vice President
A.J. Szescila............................................... 0 0
Senior Vice President
E.L. Mattson................................................ 25,000 982.8
Senior Vice President and Chief Financial Officer
G.S. Finley................................................. 16,471 647.49
Senior Vice President and Chief Administrative Officer
L. O'Donnell, III........................................... 25,000 982.8
Vice President and General Counsel
E.C. Howell................................................. 25,000 982.8
Vice President and President,
Baker Oil Tools
All current executive officers as a group................... 135,658 5,333
All employees as a group (excluding current executive
officers)................................................. 17,532,822 689,251
</TABLE>
- ---------------
(1) Based on $25.4375 per share, the fair market value of the Corporation's
Common Stock on July 30, 1998.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Your Board of Directors recommends a vote FOR approval of the amendment to
the 1987 Employee Stock Purchase Plan.
23
<PAGE> 25
STOCKHOLDER PROPOSAL NO. 1 ON
IMPLEMENTATION OF THE MACBRIDE PRINCIPLES IN NORTHERN IRELAND
The following proposal was submitted to Baker Hughes by New York City
Comptroller Alan G. Hevesi on behalf of the New York City Police Pension Fund,
the New York City Fire Department Pension Fund, the New York City Employees'
Retirement System, and the New York City Teachers' Retirement System, which hold
beneficially 92,900 shares, 23,500 shares, 167,900 shares and 295,100 shares,
respectively, of the Corporation's Common Stock, by the Minnesota State Board of
Investment, which holds beneficially 181,897 shares of the Corporation's Common
Stock, and by the Adrian Dominican Sisters, which hold beneficially 1,200 shares
of the Corporation's Common Stock, and is included in this Proxy Statement in
compliance with SEC rules and regulations.
"WHEREAS, Baker Hughes Incorporated operates a wholly-owned subsidiary in
Northern Ireland, the Hughes Tool Company Ltd.;
WHEREAS, the securing of a lasting peace in Northern Ireland encourages us
to search for non-violent means for establishing justice and equality;
WHEREAS, Dr. Sean MacBride, founder of Amnesty International and Nobel
Peace laureate, has proposed several equal opportunity employment principles to
serve as guidelines for corporations in Northern Ireland. These include:
1. Increasing the representation of individuals from underrepresented
religious groups in the workforce including managerial, supervisory,
administrative, clerical and technical jobs.
2. Adequate security for the protection of minority employees both at
the workplace and while traveling to and from work.
3. The banning of provocative religious or political emblems from the
workplace.
4. All job openings should be publicly advertised and special
recruitment efforts should be made to attract applicants from
underrepresented religious groups.
5. Layoff, recall and termination procedures should not in practice,
favor particular religious groupings.
6. The abolition of job reservations, apprenticeship restrictions, and
differential employment criteria, which discriminate on the basis of
religion or ethnic origin.
7. The development of training programs that will prepare substantial
numbers of current minority employees for skilled jobs, including the
expansion of existing programs and the creation of new programs to train,
upgrade and improve the skills of minority employees.
8. The establishment of procedures to assess, identify and actively
recruit minority employees with potential for further advancement.
9. The appointment of a senior management staff member to oversee the
company's affirmative action efforts and the setting up of timetables to
carry out affirmative action principles.
RESOLVED, Stockholders request the Board of Directors to:
1. Make all possible lawful efforts to implement and/or increase
activity on each of the nine MacBride Principles."
PROPONENT'S STATEMENT IN SUPPORT OF PROPOSAL
"-- We believe that our Company benefits by hiring from the widest
available talent pool. An employee's ability to do the job should be the primary
consideration in hiring and promotion decisions.
-- Implementation of the MacBride Principles by Baker Hughes will
demonstrate its concern for human rights and equality of opportunity in its
international operations.
Please vote your proxy FOR these concerns."
24
<PAGE> 26
STATEMENT OF THE BOARD OF DIRECTORS AND
MANAGEMENT IN OPPOSITION TO PROPOSAL NO. 1
Baker Hughes has a long standing policy of being an equal opportunity
employer worldwide. This policy requires managers to conduct their employment
practices in a manner that does not discriminate on the basis of race, color,
religion, sex, national origin, age, handicap or veteran's status. Baker Hughes'
operating unit in Northern Ireland, now known as Hughes Christensen Company, a
division of Baker Hughes Limited ("HCC"), has subscribed to this policy.
In addition, HCC has signed a Declaration of Principle and Intent under the
Northern Ireland Fair Employment Act of 1989 (the "Northern Ireland Fair
Employment Act") indicating its commitment to be an equal opportunity employer.
The Northern Ireland Fair Employment Act has as its purposes the promotion of
equal opportunity and the elimination of discrimination in employment for
persons of different religious and political beliefs.
HCC also continues to cooperate fully with the Fair Employment Commission
for Northern Ireland and, in January 1997, adopted an Affirmative Action Plan
pursuant to a voluntary agreement with the Fair Employment Commission to ensure
fair participation of the Roman Catholic community in HCC's workforce in
Northern Ireland.
Your Board of Directors believes HCC's employment policies and practices
ensure that HCC does not discriminate in its employment practices and that HCC's
hiring and promotion practices do not make it more difficult for persons of a
given religious belief to obtain employment or advancement.
The MacBride Principles and the Northern Ireland Fair Employment Act both
seek to eliminate employment discrimination in Northern Ireland. By adopting the
MacBride Principles, HCC would become unnecessarily accountable to two sets of
similar but not identical fair employment guidelines. For these reasons, your
Board of Directors believes that implementation of the MacBride Principles would
be burdensome, superfluous and unnecessary, particularly in light of HCC's own
policies, its compliance with the requirements of the Northern Ireland Fair
Employment Act and its cooperation with the Fair Employment Commission.
Your Board of Directors has determined that HCC's policies on equal
employment opportunity are entirely consistent with Baker Hughes' obligations
and goals to act as an ethical and responsible member of the business community.
Your Board of Directors does not believe that endorsement of the MacBride
Principles is necessary, appropriate, or in the best interest of Baker Hughes,
its subsidiaries or affiliates, or their respective employees.
A proposal in substantially this form has been submitted to Baker Hughes'
stockholders for their consideration every year for the last eleven years, and
such proposal has never received more than 17.7% of the vote in favor of the
proposal. SEC rules require that the proposal be included in this Proxy
Statement again this year since the proposal received more than 10% of the vote
in favor of the proposal last year.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Your Board of Directors recommends a vote AGAINST approval of Stockholder
Proposal No. 1 on implementation of the MacBride Principles in Northern Ireland.
STOCKHOLDER PROPOSAL NO. 2 ON
DEVELOPMENT OF GUIDELINES FOR COUNTRY SELECTION
The following proposal was submitted to Baker Hughes by Franklin Research &
Development Corporation on behalf of Mr. Jasper Brinton, who holds beneficially
100 shares of the Corporation's Common Stock, and is included in this Proxy
Statement in compliance with SEC rules and regulations.
25
<PAGE> 27
"WHEREAS: Levi Strauss bases its decision on whether to do business in
certain countries based on criteria that include whether:
"Brand image would be adversely affected by a country's perception or
image among our customers and/or consumers"
"Human rights environment would prevent us from conducting business
activities in a manner that is consistent with the Global Sourcing
Guidelines and other Company policies"
"Political, economic and social environment would threaten the
Company's reputation and/or commercial interests"
Nobel Peace Prize Laureate and Burmese democracy movement leader Aung San
Suu Kyi has called for economic sanctions on Burma, stating that corporations
that do business in Burma "do create jobs for some people but what they're
mainly going to do is make an already wealthy elite wealthier, and increase its
greed and strong desire to hang on to power . . . these companies harm the
democratic process a great deal."
Because of the Burmese military junta's repression of the democracy
movement, on May 20, 1997, President Clinton signed an executive order banning
new US investment in Burma;
Several cities, including New York and San Francisco, and the Commonwealth
of Massachusetts have enacted laws that effectively prohibit contracts with
companies that do business in Burma;
The Oil, Chemical and Atomic Workers Union (OCAW) and the AFL-CIO support
economic sanctions on Burma;
A four-year investigation conducted by Francois Casanier, a research
analyst with the Geopolitical Drugwatch in Paris, found that the Myanmar Oil and
Gas Enterprise (MOGE), the Burmese state-owned oil company, was the major
channel for laundering revenues of heroin produced and exported by the Burmese
army;
Baker Hughes, through its Baker Hughes Solutions subsidiary, is engaged in
a joint venture with MOGE to enhance production at the Mann Oil Field in
northern Burma;
On February 26, 1998, Arthur Downey, Vice President of Baker Hughes,
testified before the Senate Foreign Relations Subcommittee on East Asia and
Pacific Affairs attacking the US Administration's policy of economic sanctions
on Burma;
Human rights organizations have documented human rights abuses committed by
Burmese troops securing the Yadana gas pipeline built by the Total and Unocal,
including the use of forced labor on infrastructure connected to the pipeline
project;
On October 3, 1996, a lawsuit was filed in US federal court seeking a halt
to Unocal's participation in the Yadana pipeline and seeking compensatory and
punitive damages on behalf of victims of human rights abuses connected to the
pipeline;
Baker Hughes also does business in other countries with controversial human
rights records, including Algeria, China and Nigeria;
BE IT RESOLVED: the shareholders request the Board to review and develop
guidelines for country selection and report these guidelines to shareholders and
employees by October 1999. In its review, the Board shall develop guidelines on
maintaining investments in or withdrawing from countries where:
- there is a pattern of ongoing and systematic violation of human rights
- a government is illegitimate
- there is a call for economic sanctions by human rights advocates,
pro-democracy organizations or legitimately elected representatives of
that country"
26
<PAGE> 28
STATEMENT OF THE BOARD OF DIRECTORS AND
MANAGEMENT IN OPPOSITION TO PROPOSAL NO. 2
Baker Hughes conducts business operations in many countries around the
world, each of which has a unique culture and political situation. These
operations, conducted directly or through our non-U.S. affiliates, vary widely
from substantial presence with manufacturing facilities to merely an occasional
sale of product or provision of service. In all our dealings, Baker Hughes
endeavors to adhere to its Standards of Conduct which include the principle of
being a "responsible corporate citizen of the communities in which we reside,"
along with a commitment to "strive to improve the well-being of our
communities."
In addition, Baker Hughes has policies and procedures in place that are
designed to ensure that our Company is in compliance with the laws of the United
States and of those countries in which we operate. These laws often contain
restrictions on doing business in countries outside the United States, and some
of these restrictions may arise out of concerns relating to the human rights
situations in certain countries.
While Baker Hughes has a commercial presence in the countries in which it
operates, the Company does not have the expertise or resources required to
assess the human rights situation in each and every country in which we operate.
Your Board of Directors believes that the proper response for Baker Hughes to
legitimate concern for the plight of those who suffer from human rights abuses,
is to continue to ensure that our Company adheres strictly to the relevant laws
in force in the countries in which we do business.
Thus, your Board of Directors does not believe that the establishment of
human rights based "guidelines" on "maintaining investments in or withdrawing
from countries" is necessary, appropriate or in the best interests of Baker
Hughes, its affiliates or their employees.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Your Board of Directors recommends a vote AGAINST approval of Stockholder
Proposal No. 2 on the development of guidelines for country selection.
ANNUAL REPORT
The 1998 Annual Report of the Corporation, which includes audited financial
statements for the fiscal year ended December 31, 1998, accompanies this Proxy
Statement; however, that report is not part of the proxy soliciting information.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, the Corporation's independent certified public
accountants, have advised the Corporation that they will have representatives
attending the Annual Meeting prepared to answer appropriate questions, and those
representatives will be given an opportunity to make a statement at the meeting
if they desire to do so.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2000 Annual
Meeting must be received by the Corporation by November 17, 1999 to be properly
brought before the 2000 Annual Meeting and to be considered for inclusion in the
Proxy Statement and form of proxy relating to that meeting. Nominations of
directors by stockholders must be received by the Corporation by November 17,
1999 to be properly nominated before the 2000 Annual Meeting, although the
Corporation is not required to include such nominees in its Proxy Statement.
OTHER MATTERS
The Board of Directors knows of no other matter to be presented at the
Annual Meeting. If any additional matter should be presented properly, it is
intended that the enclosed proxy will be voted in accordance with the discretion
of the persons named in the proxy.
27
<PAGE> 29
[BAKER HUGHES LOGO]
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
AND PROXY STATEMENT
APRIL 28, 1999
BAKER HUGHES INCORPORATED
3900 ESSEX LANE
HOUSTON, TEXAS
<PAGE> 30
P BAKER HUGHES INCORPORATED
P.O. BOX 4740, HOUSTON, TX 77210-4740
R
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
O THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
X The undersigned hereby appoints M. L. Lukens and L. O'Donnell, III as
Proxies, each with the power to appoint a substitute, and hereby authorizes
Y them to represent and to vote as designated below, all the shares of common
stock of Baker Hughes Incorporated held of record by the undersigned on
March 3, 1999, at the Annual Meeting of Stockholders to be held on April
28, 1999, or any reconvened meeting after an adjournment thereof.
The Board of Directors favors a vote FOR COMMENTS: (change of address)
Election of L.M. Alberthal, Jr., J.T.
Casey, J.B. Foster and R.D. Kinder as ----------------------------------
Class II Directors.
----------------------------------
----------------------------------
----------------------------------
(over)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 31
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES, FOR THE APPROVAL OF THE AMENDMENT TO THE RESTATED
CERTIFICATE OF INCORPORATION, FOR THE APPROVAL OF THE AMENDMENT TO THE 1987
EMPLOYEE STOCK PURCHASE PLAN AND AGAINST EACH OF STOCKHOLDER PROPOSAL
NOS. 1 AND 2. IF ANY OTHER MATTER SHOULD BE PRESENTED PROPERLY, THIS PROXY
WILL BE VOTED IN ACCORDANCE WITH THE DISCRETION OF THE PERSONS NAMED HEREIN.
Please mark ------
your votes as X
indicated in ------
this example.
FOR WITHHELD
1. FOR / / WITHHELD / /
all nominees from all nominees
For, except vote withheld from the following
nominee(s):
___________________________________________
FOR AGAINST ABSTAIN
2. Amendment to / / / / / /
Restated Certificate of
Incorporation
3. Amendment to 1987 / / / / / /
Employee Stock
Purchase Plan
4. Stockholder / / / / / /
Proposal No. 1
5. Stockholder
Proposal No. 2 / / / / / /
Change of Address/Comments / /
on Reverse side
Please sign name(s) exactly as printed hereon. In
signing as attorney, administrator, guardian or
trustee, please give title as such.
PLEASE MARK, SIGN AND DATE BELOW AND RETURN
PROMPTLY.
___________________________________________
___________________________________________
SIGNATURE(S) DATE
O FOLD AND DETACH HERE O
