<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
BAKER HUGHES INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
BAKER HUGHES INCORPORATED
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 26, 2000
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 26, 2000, at 11:00 a.m., for the purpose
of considering and voting on:
1. Election of four directors to serve for three year terms and
election of two directors to serve for two year terms.
2. Stockholder Proposal No. 1 on Implementation of the MacBride
Principles in Northern Ireland.
3. Stockholder Proposal No. 2 regarding Classified Boards.
4. Such other business as may properly come before the meeting and any
reconvened meeting after an adjournment thereof.
The Board of Directors has fixed March 1, 2000 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
3:00 p.m. Houston time, on April 25, 2000, 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,
/s/ LINDA J. SMITH
Linda J. Smith
Secretary
Houston, Texas
March 16, 2000
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN
YOUR PROXY AS PROMPTLY AS POSSIBLE. AN ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES, IS ENCLOSED FOR THIS PURPOSE.
<PAGE> 3
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Baker Hughes Incorporated, a Delaware
corporation (hereinafter called the "Corporation," the "Company" or "Baker
Hughes"), to be voted at the Annual Meeting of Stockholders on Wednesday, April
26, 2000, and at any and all reconvened meetings after adjournments thereof.
Solicitation of proxies by mail is expected to commence on or about March
23, 2000 (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 $9,500.00 plus out-of-pocket expenses.
SHARES AS TO WHICH PROXIES HAVE BEEN EXECUTED WILL BE VOTED AS SPECIFIED IN
THE PROXIES. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE
ELECTION OF NOMINEES LISTED HEREIN AS DIRECTORS, AND AGAINST 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 329,931,896 shares were issued and outstanding at the
close of business on March 1, 2000. 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
six 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. Assuming a quorum is present at the Annual
Meeting, the affirmative vote of the holders of a majority of the shares of
Common Stock having voting power present in person or represented by proxy and
entitled to vote on the matter is required for approval of Stockholder Proposal
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.
The following table sets forth information about the holders of the Common
Stock known to the Corporation on December 31, 1999 to own beneficially 5% or
more of the Common Stock. For the purposes of this Proxy Statement beneficial
ownership of securities is defined in accordance with the rules of the
Securities
1
<PAGE> 4
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>
Barrow, Hanley, Mewhinney & Strauss, Inc. 35,017,730 10.7%
One McKinney Plaza
3232 McKinney Avenue, 15th Floor
Dallas, Texas 75204-2429
FMR Corp. 28,853,598 8.764%
82 Devonshire Street
Boston, Massachusetts 02109
Vanguard Windsor Funds -- 24,995,400 7.59%
Vanguard Windsor II Fund
P.O. Box 2600
Valley Forge, Pennsylvania 19482-2600
</TABLE>
2
<PAGE> 5
ELECTION OF DIRECTORS
Four Class III directors will be elected at the Annual Meeting of
Stockholders to serve for three year terms expiring at the Annual Meeting of
Stockholders to be held in April 2003, with the exception of Ms. Filter, whose
term will expire at the 2002 Annual Meeting of Stockholders in accordance with
the tenure provisions of the Corporation's Bylaws. In addition, Messrs. Joe B.
Foster and Lester M. Alberthal, Jr. are each standing for election as Class II
directors, to serve for two-year terms, expiring at the Annual Meeting of
Stockholders to be held in April 2002. Messrs. Foster and Alberthal were each
elected as Class II directors to serve for one-year terms, at the Annual Meeting
of Stockholders held April 28, 1999, as each had planned to retire as a director
of the Company at the Annual Meeting of Stockholders to be held April 26, 2000,
in accordance with the tenure provisions of the Corporation's Bylaws. As Mr.
Foster was named interim Chairman of the Board, President and Chief Executive
Officer of the Company effective January 28, 2000, he is standing for election
for the remainder of the term of the Class II directors. Mr. Foster has advised
the Board of Directors that he plans to retire as a director of the Company upon
the selection of a new Chief Executive Officer of the Company. To provide for
continuity and an orderly selection process, the Board of Directors of the
Company has waived the tenure provision of the Corporation's Bylaws as it
relates to Mr. Alberthal, as it feels his continuance on the Board is in the
best interest of the Company at this time. Mr. Alberthal has also advised the
Board of Directors that he intends to retire as a director of the Company upon
the selection of a new Chief Executive Officer. The Board of Directors expects
that the new Chief Executive Officer selected will be elected to fill the
directorship that Mr. Lukens previously held and that the Board of Directors,
after considering any recommendation by the Governance Committee and input
provided by the new Chief Executive Officer, will act to fill the vacancies on
the Board created by the resignations of Messrs. Alberthal and Foster.
The following table sets forth for each nominee for election as a director
his or her name, all positions with the Corporation held by the nominee, the
nominee's principal occupation, age, year in which he or she 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>
VICTOR G. BEGHINI Retired Vice Chairman -- Marathon Group, USX 65 1992 III
Corporation and Retired President -- Marathon
Oil Company. Mr. Beghini was Vice Chairman --
Marathon Group, USX Corporation from 1990 to
1999, and President -- Marathon Oil Company
(integrated oil and gas company) from 1987 to
1999. 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 Pitt-
DesMoines, Inc. and a board member of the Sam
Houston Council of the Boy Scouts of America.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
DIRECTOR
NOMINEES PRINCIPAL OCCUPATION AGE SINCE CLASS
-------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
EUNICE M. FILTER Vice President and Secretary of Xerox 59 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, LaBranche & Co., Inc. and Xerox
Canada Inc. and Chair of the Board of Trustees
of Wells College.
CLAIRE W. GARGALLI Former Vice Chairman, Diversified Search and 57 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 Middlebury College.
JAMES F. MCCALL Executive Director of the American Society of 65 1996 III
Military Comptrollers since 1991. He was
Lieutenant General and Comptroller of the 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.
LESTER M. ALBERTHAL, JR. Retired Chairman of the Board of EDS 55 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 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.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
DIRECTOR
NOMINEES PRINCIPAL OCCUPATION AGE SINCE CLASS
-------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
JOE B. FOSTER Chairman of the Board, President and Chief 65 1990 II
Executive Officer of the Company since January
2000. Chairman of the Board of Newfield
Exploration Company (oil and gas exploration)
since 1989. Chief Executive Officer of
Newfield Exploration Company from 1989 to
January 2000. 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>
INFORMATION CONCERNING DIRECTORS NOT STANDING FOR ELECTION
The following table sets forth certain information for those directors
whose present terms will continue after the Annual Meeting of Stockholders. The
term of each Class I and Class II director expires at the 2001 and 2002 Annual
Meeting of Stockholders, respectively.
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>
JOSEPH T. CASEY Retired Vice Chairman and Chief Financial 68 1998 II
Officer of Western Atlas Inc. Mr. Casey served
as Vice Chairman and Chief Financial Officer
of Western Atlas Inc. 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 Asia,
Claremont McKenna College and the Don Bosco
Technical Institute.
RICHARD D. KINDER Chairman and Chief Executive Officer of both 55 1994 II
Kinder Morgan, Inc. and Kinder 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 Transocean Sedco
Forex 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>
5
<PAGE> 8
<TABLE>
<CAPTION>
DIRECTOR
DIRECTORS PRINCIPAL OCCUPATION AGE SINCE CLASS
--------- -------------------- --- -------- -----
<S> <C> <C> <C> <C>
H. JOHN RILEY, JR. Chairman of Cooper Industries, Inc. 59 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 Forum and Central Houston, Inc. 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., The
Business Committee for the Arts and the
National Association of Manufacturers.
CHARLES L. WATSON Chairman and Chief Executive Officer of 49 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. He is a board
member of the Interstate Natural Gas
Association of America and Edison Electric
Institute, as well as a founding member of the
Natural Gas Council. Mr. Watson is also a
board member of Make-A-Wish Foundation,
Houston Arts Fund, Theatre Under the Stars and
the Greater Houston Partnership. He served as
Chairman of the Alexis de Tocqueville Society
1998/99 Campaigns for the United Way of the
Texas Gulf Coast and currently serves as
Chairman of the 1999/2000 fundraising campaign
for the United Way of the Texas Gulf Coast.
MAX P. WATSON, JR. Chairman of BMC Software, Inc. (computer 54 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>
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
During fiscal year 1999, the Board of Directors held eight meetings. During
fiscal year 1999, 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
6
<PAGE> 9
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, a Compensation Committee and a Governance Committee.
The Audit/Ethics Committee, which is comprised of Messrs. Beghini
(Chairman), Casey, McCall, C. Watson and M. Watson and Ms. Filter, held six
meetings during fiscal year 1999. 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. Kinder
(Chairman), Beghini, Riley and C. Watson and Ms. Gargalli, held three meetings
during fiscal year 1999. 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), McCall and Riley and Ms. Filter, held one meeting during fiscal year
1999. 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 12 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, 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, 1999, 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.
7
<PAGE> 10
SECURITY OWNERSHIP OF MANAGEMENT
Set forth below is certain information with respect to beneficial ownership
of the Common Stock as of March 1, 2000 by each director, nominee director, the
five most highly compensated executive officers and by directors and executive
officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
----------------------------------------------------------
SHARES SUBJECT TO
OPTIONS/CONVERTIBLE DEBENTURES
SHARES WHICH ARE OR WILL BECOME TOTAL
OWNED EXERCISABLE OR CONVERTIBLE BENEFICIAL % OF
NAME AS OF 3/1/00 PRIOR TO 5/1/00 OWNERSHIP CLASS(1)
---- ------------ ------------------------------ ---------- --------
<S> <C> <C> <C> <C>
Lester M. Alberthal, Jr. ............. 16,030 3,000 19,030 --
Victor G. Beghini..................... 4,000 33,371 37,371 --
Joseph T. Casey....................... 586,437(2) 17,315 603,752 --
Eunice M. Filter...................... 3,500 6,000 9,500 --
Joe B. Foster......................... 7,000 6,000 13,000 --
Claire W. Gargalli.................... 7,532 28,359 35,891 --
Richard D. Kinder..................... 4,000 7,000 11,000 --
James F. McCall....................... 2,000 5,000 7,000 --
H. John Riley, Jr..................... 10,000 4,000 14,000 --
Charles L. Watson..................... 0 5,805 5,805 --
Max P. Watson, Jr..................... 0 3,000 3,000 --
Max L. Lukens......................... 153,639 503,432 657,071 --
Thomas R. Bates, Jr. ................. 201,003(3) 73,607 274,610 --
Andrew J. Szescila.................... 20,760 145,492 166,252 --
George S. Finley...................... 35,093 97,610 132,590 --
Lawrence O'Donnell, III............... 36,477 107,929 144,406 --
All directors and executive officers
as a group (17 persons)............. 1,092,061 1,061,792 2,153,853 --
</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 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 that the Company has adopted. The matched
shares vested upon the resignation of Mr. Bates from the Company on January
29, 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 29, 1999, Andrew J. Szescila received a loan from the Company
pursuant to the Corporate Executive Loan Program, in the principal amount of
$125,000, at an interest rate of 6.2% per annum. The principal of the loan is
due and payable on March 29, 2004, with interest due the last day of March,
June, September and December, commencing on June 30, 1999 to and including the
date of maturity of the loan (March 29, 2004). At the present, Mr. Szescila's
outstanding principal is $125,000. The Company is authorized to deduct due and
unpaid amounts on the loan from Mr. Szescila's earnings, amounts due Mr.
Szescila under any severance plan or policy, amounts due Mr. Szescila under the
Company's Supplemental Retirement Plan or any other of Mr. Szecila's
compensation.
8
<PAGE> 11
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires executive officers and directors, and persons who
beneficially own more than 10% of the 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, 1999, the Corporation's executive officers and directors complied with all
applicable Section 16(a) filing requirements.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation that the Company and its
subsidiaries paid to each of the five most highly compensated executive officers
of the Company, for services rendered to the Company for the calendar years
ended December 31, 1999, 1998 and 1997:
<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)(1) PAYOUTS(2) COMPENSATION(3)
- --------------------------- ---- -------- -------- ------------ ---------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
M.L. Lukens, Chairman of 1999 $830,790 $ -- -- -- 476,190 $ -- $ 93,000
the
Board, President and 1998 800,000 -- -- -- 238,095 1,918,589(5) 552,252
Chief
Executive Officer(4) 1997 730,769 942,500 -- -- 94,771 -- 76,160
T.R. Bates, Jr., Senior 1999 525,069 -- -- 1,693,750(7) -- -- 48,885
Vice
President(6) 1998 270,351 91,666 -- -- 381,266 -- 18,581
A.J. Szescila, Senior Vice 1999 459,648 -- -- -- -- -- 46,124
President 1998 425,577 -- -- -- 306,706 391,563(8) 266,152
1997 336,385 254,901 -- -- 41,656 -- 27,747
G.S. Finley, Senior Vice 1999 404,397 -- -- -- -- -- 36,741
President -- Finance and 1998 335,540 -- -- -- 241,006 323,543(9) 179,684
Administration and 1997 283,515 252,000 -- -- 26,352 -- 28,808
Chief Financial Officer
L. O'Donnell, III, Vice 1999 348,003 -- -- -- -- -- 29,443
President and General 1998 284,620 -- -- -- 215,421 410,559(11) 136,101
Counsel(10) 1997 238,584 212,220 -- -- 22,192 -- 21,866
</TABLE>
- ---------------
(1) See Footnote (1) to table in, "-- Stock Options Granted During 1999,"
below.
(2) Messrs. Lukens, Szescila, and Finley 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
Company's merger (the "Merger") with Western Atlas Inc., 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
9
<PAGE> 12
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.
(3) For fiscal years 1999 and 1997, All Other Compensation includes Company
contributions to the Thrift Plan, Supplemental Retirement Plan and life
insurance premiums for the named executive officers. 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 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 an amount 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. Amounts for fiscal year 1999 for the persons named above are as
follows:
<TABLE>
<CAPTION>
THRIFT SRP LIFE
------- ------- -------
<S> <C> <C> <C>
Lukens................................................ $26,277 $58,728 $ 7,994
Bates................................................. 14,569 32,154 2,162
Szescila.............................................. 15,730 28,501 1,893
Finley................................................ 8,973 24,104 3,664
O'Donnell............................................. 7,938 18,562 2,943
</TABLE>
(4) Mr. Lukens resigned as Chairman of the Board, President and Chief Executive
Officer of the Company, effective January 28, 2000.
(5) 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.
(6) Mr. Bates joined the Company on June 15, 1998 as Senior Vice President and
resigned as Senior Vice President of the Company, effective January 29,
2000.
(7) Mr. Bates was awarded 100,000 shares of Common Stock, valued at $1,693,750,
on February 1, 1999, pursuant to the Award Plan. See Footnote (3) to
"Security Ownership of Management". Mr. Bates received a cash payment
equivalent to the Company's ordinary dividend payment on the award on a
quarterly basis. At December 31, 1999, Mr. Bates held 100,000 shares of
restricted stock, valued at $2,106,250, based upon the closing stock price
of $21.0625 per share of Common Stock on the New York Stock Exchange on
December 31, 1999.
(8) Mr. Szescila received 17,500 shares that vested on August 10, 1998 pursuant
to the Award Plan.
(9) 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.
(10) Mr. O'Donnell resigned as Vice President and General Counsel of the
Company, effective February 14, 2000.
(11) 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.
10
<PAGE> 13
STOCK OPTIONS GRANTED DURING 1999
The following table sets forth certain information regarding stock options
granted during fiscal year 1999 to the persons named in the Summary Compensation
Table above. The theoretical values on date of grant of stock options granted in
1999 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...................... 476,190 92% $21.00 1/27/09 $3,992,158
T.R. Bates, Jr................... 0 -- -- -- --
A.J. Szescila.................... 0 -- -- -- --
G.S. Finley...................... 0 -- -- -- --
L. O'Donnell..................... 0 -- -- -- --
</TABLE>
- ---------------
(1) In 1998, the Compensation Committee awarded a grant of options to certain
members of the Company's Leadership Team (not including Mr. Lukens) to cover
the years 1998, 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 did not grant options in 1999, and does not intend to grant
options in 2000, to those members of the Leadership Team who received the
multi-year grants. The Compensation Committee deferred Mr. Lukens multi-year
grant of options, as reflected above, until January 1999. The Compensation
Committee did not grant options to Mr. Lukens in 2000. Additionally, in
connection with the change of the Company's fiscal year, the Company changed
the date it typically grants options to key employees from October until
January. Therefore, as options were granted to key employees in October
1998, no options were granted in 1999, other than an initial grant of
options to certain key executives at the time they joined the Company and
the grant to Mr. Lukens. The options granted to Mr. Lukens in 1999 became
fully vested on January 28, 2000, the date of his resignation from the
Company.
(2) The theoretical values on grant date are calculated under the Black-Scholes
Model. The Black-Scholes Model is a mathematical formula used to value
options traded on stock exchanges. This formula considers a number of
factors to estimate the option's theoretical value, including the stock's
historical volatility, dividend rate, exercise period of the option and
interest rates. The grant date theoretical value above assumes a volatility
of 25%, a dividend yield of 2.19%, a 6.63% risk free rate of return and a
ten-year option term.
11
<PAGE> 14
AGGREGATED OPTION EXERCISES DURING 1999
AND OPTION VALUES AT DECEMBER 31, 1999
The following table sets forth certain information regarding options that
persons named in the "Summary Compensation Table" exercised during 1999 and
options that those persons held at December 31, 1999. The values of unexercised
in-the-money stock options at December 31, 1999 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, 1999
-------------------------- -----------------------------------------------------
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.............. -- $ -- 503,432(1) 634,920 $219,607 $39,683
T.R. Bates, Jr........... -- -- 73,607 307,659 2,257 18,057
A.J. Szescila............ 17,543 245,979 145,492 272,627 63,708 17,039
G.S. Finley.............. 21,574 246,995 97,610 214,227 20,721 13,389
L. O'Donnell............. -- -- 107,929 191,485 54,319 11,968
</TABLE>
- ---------------
(1) Includes 19,578 shares issuable upon conversion of convertible debentures.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Until his resignation from the Company on January 28, 2000, the Corporation
had an employment agreement with Max L. Lukens dated as of January 1, 1998 (the
"Employment Agreement"), which provided 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 was
to be automatically extended for one additional year unless, prior to September
30 of the preceding year, the Company or Mr. Lukens had given notice to not
extend the term. During the term of the Employment Agreement, Mr. Lukens was
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 was to be reviewed at least
annually during the term of the Employment Agreement and could have been
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 was to 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 was to
pay one-half of Mr. Lukens' then annual base salary to Mr. Lukens' beneficiary
in monthly installments for the remaining term of the Employment Agreement and a
lump sum in cash equal to Mr. Lukens' expected value incentive bonus for
12
<PAGE> 15
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
was 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 was terminated by Mr. Lukens for any reason other than a
Good Reason or by the Corporation for Cause, Mr. Lukens was to 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 was and 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. The terms of the Severance Agreement described below
prevailed upon Mr. Lukens' resignation from the Company on January 28, 2000.
In addition to the employment agreement described above, the Corporation
also has severance agreements (the "Severance Agreements") with Andrew J.
Szescila and G. S. Finley, and, until their respective resignations, had
Severance Agreements with Max L. Lukens, Thomas R. Bates, Jr. and Lawrence
O'Donnell, III (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 expired 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. With the exception of Mr. Bates' Severance
Agreement, consummation of the Merger with Western Atlas constituted a Change in
Control under the Severance Agreements.
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;
13
<PAGE> 16
(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 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,
that if such termination of employment occurs during the same year in
which the Change in 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
14
<PAGE> 17
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).
Upon his resignation from the Company on January 28, 2000, Mr. Lukens was
paid a lump sum of approximately $4.1 million, pursuant to the terms of the
Severance Agreement described above.
In addition, the Corporation has an Executive Severance Policy that
provides salary continuation for between 15 and 18 months for the named
executive officers, based upon salary grade, if the executive's employment is
terminated for certain specific reasons, other than a Change in Control of the
Corporation covered by the Severance Agreements described above.
Effective January 29, 2000, the date of his resignation from the Company,
Mr. Bates will receive salary continuation for up to 18 months, based on the
Executive Severance Policy. Mr. O'Donnell's resignation from the Company did not
trigger a payment under the Severance Agreement or the Executive Severance
Policy.
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 in the employment market. 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.
15
<PAGE> 18
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 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 awards 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.
After evaluating the competitive market data, increases to base salaries,
if any, are driven primarily by individual performance. Individual performance
is evaluated based on sustained levels of individual contribution to the
Company. When evaluating individual performance, the Compensation Committee
considers the executive's efforts in promoting Company values; continuing
educational and management training; improving product quality; developing
relationships with customers, suppliers and employees; demonstrating leadership
abilities among coworkers; and other goals.
16
<PAGE> 19
The base salary for Mr. Max L. Lukens (former Chairman of the Board,
President and Chief Executive Officer) was last reviewed at the January 1999
meeting of the Compensation Committee, at which time no increase in Mr. Lukens'
base salary was recommended. In setting Mr. Lukens' base salary for fiscal year
1999, the Compensation Committee reviewed the compensation of chief executive
officers in a group of comparative companies, as well as the Company's financial
performance during fiscal year 1998 with respect to revenue growth, expense
control, net income and earnings per share. The base salary for Mr. Lukens for
fiscal year 1999, was below the median 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.
In February 2000, the Compensation Committee set the base salary for Mr.
Joe B. Foster, interim Chairman of the Board, President and Chief Executive
Officer, at $40,000 per month.
ANNUAL INCENTIVES
The annual incentive plan promotes the Company's pay-for-performance
philosophy by providing executives with the opportunity to earn direct financial
incentives in the form of annual cash bonuses to achieve corporate, business
unit and individual performance goals. Annual bonus opportunities allow the
Company to communicate specific goals that are of primary importance during the
coming year and motivate executives to achieve these goals.
Each year, the Compensation Committee establishes specific goals relating
to each executive's bonus opportunity. Eligible executives are assigned
threshold, target and maximum bonus levels based on a percentage of base salary.
The percentages have been established based on bonus practices and opportunities
within companies comparable to Baker Hughes' size 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 1999, 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) Baker Value Added, a metric that
measures profit after tax less the cost of capital employed. Baker Value Added
integrates the profit and loss results and balance sheet investments of the
Company by assuring that the cost of any capital used to earn those profits is
fully taken into account.
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 40% of base salary to 70% of base
salary (for Mr. Lukens).
Based on the Company's fiscal year 1999 financial performance,
predetermined bonus objectives, as set by the Compensation Committee and
discussed above, were not achieved. Thus, no bonus amount was paid to Mr. Lukens
or any other executive officer for fiscal year 1999. However, pursuant to Mr.
Lukens' Severance Agreement, Mr. Lukens did receive certain contractually
committed payments relating to his bonus opportunity as part of the lump sum
amount (approximately $4.1 million) paid to him upon his resignation from the
Company in January 2000.
17
<PAGE> 20
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.
Long-term incentive award guidelines have been developed based on the same
method used as establishing bonus award guidelines. 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.
In fiscal year 1999, Mr. Lukens received options to purchase 476,190 shares
of Common Stock. This large grant of options in 1999 was intended to cover
fiscal year 2000 as well, to incent top performance in the timely completion of
various post-merger activities involving Western Atlas. The Compensation
Committee did not grant options to Mr. Lukens in 2000. The percentage of options
granted to Mr. Lukens in 1999 is large due to the change in the date that the
Company typically grants options to key employees. Prior to the change of the
Company's fiscal year, the Company typically granted options to key employees in
October of each year. In connection with the change of the fiscal year, the
Company changed the date it typically grants options to January. As options were
granted to key employees in October 1998, no options were granted in 1999, other
than an initial grant of options to certain key executives at the time they
joined the Company and the grant to Mr. Lukens. 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 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 did not grant options in 1999 and
does not intend to grant options in 2000 to those members of the Leadership Team
who received the multi-year grants.
The Compensation Committee awarded Mr. Foster (interim Chairman of the
Board, President and Chief Executive Officer) an initial grant of stock options
to purchase 50,000 shares of Common Stock, effective February 3, 2000. The
option will vest and become exercisable with respect to increments of
thirty-three and one-third percent (33 1/3%) of the shares subject to the option
on the 3rd day of February in each of the years 2001, 2002 and 2003. In
addition, the option will fully vest upon Mr. Foster's retirement as a director
of the Company.
18
<PAGE> 21
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.
Richard D. Kinder (Chairman)
Victor G. Beghini
Claire W. Gargalli
H. J. Riley, Jr.
Charles L. Watson
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
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Baker Hughes 100.00 136.47 195.99 250.62 103.11 125.40
S&P 500 100.00 137.45 168.93 225.21 289.43 350.26
S&P Oil and Gas Drilling and Equipment 100.00 138.52 196.53 301.99 172.67 235.45
</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,
1994 in Baker Hughes Common Stock, the S&P 500 Index and the S&P Oil and Gas
Drilling and Equipment Index.
19
<PAGE> 22
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 (address 1 Centre Street, New York, NY 10007-2341),
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 151,364
shares, 41,588 shares, 492,885 shares and 341,070 shares, respectively, of the
Corporation's Common Stock, by the Minnesota State Board of Investment (address
590 Park Street, Suite 200, St. Paul, MN 55103), which holds beneficially
195,638 shares of the Corporation's Common Stock, and by the Adrian Dominican
Sisters (address 1257 East Siena Heights Drive, Adrian, MI 49221-1793), which
hold beneficially 52,200 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;
WHEREAS, the on-going peace process in Northern Ireland encourages us to
search for means for establishing justice and equality;
WHEREAS, employment discrimination in Northern Ireland has been cited by
the International Commission of Jurists as one of the major causes of sectarian
strife in that country;
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 Incorporated
will demonstrate its concern for human rights and equality of opportunity in its
international operations.
Please vote your proxy FOR these concerns."
20
<PAGE> 23
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 twelve years, and
such proposal has never received more than 21.6% 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.
21
<PAGE> 24
STOCKHOLDER PROPOSAL NO. 2
REGARDING CLASSIFIED BOARDS
The following proposal was submitted to Baker Hughes by John J. Gilbert
(address 29 East 64(th) Street, New York, NY 10021-7043), John J. Gilbert,
executor of the Estate of Lewis D. Gilbert and Trustee u/w Caston J. Gilbert and
Harold J. Mathis, Jr. (address P.O. Box 1209, Richmond, Texas 77406-1209; e-mail
address: [email protected]), which hold beneficially 54 shares, 54 shares, 572
shares and 810 shares, respectively, of the Corporation's Common Stock, and is
included in this Proxy Statement in compliance with SEC rules and regulations.
"RESOLVED: That the stockholders of Baker Hughes Incorporated, assembled in
annual meeting in person and by proxy, hereby request that the Board of
Directors take the needed steps to provide that at future elections of directors
new directors be elected annually and not by classes, as is now provided, and
that on expiration of present terms of directors their subsequent elections
shall also be on an annual basis."
PROPONENT'S STATEMENT IN SUPPORT OF PROPOSAL
"REASONS
Strong support along the lines we suggest was shown at the last annual
meeting of Western Atlas, Inc. when 42.36%, 19,038,439 shares, were cast in
favor of this proposal. As former Western Atlas shareholders this proposal was
excluded from last year's proxy material on the basis that Baker Hughes shares
had been held for less than one year.
It is our belief that classification of the Board of Directors is not in
the best interest of Baker Hughes Incorporated and its shareholders. We believe
that it makes a Board less accountable to shareholders when all directors do not
stand for election each year.
- Baker Hughes has dramatically under-performed its peers in profit growth,
return on capital, share price appreciation -- you name it.
FORBES -- AUGUST 9, 1999
- Underperforming managements generally do hate the idea of destaggering.
FORTUNE -- APRIL 26, 1999
The current piecemeal election insulates directors and senior management
from the impact of poor performance.
Majority vote companies in 1998 regarding initiatives to elect all
directors annually include Avondale Industries, Bausch & Lomb, Bristol-Myers
Squibb (74.3%), Eastman Kodak (71.4%), Federated Department Stores (84.6%),
Great Lakes Chemical, Huffy, Jostens, Ogden, Tenet Healthcare, and Sybase.
Corporations currently electing their directors annually include Compaq
Computer, Bank of America, Motorola, AT&T, American Express, Atlantic Richfield,
General Electric, Johnson and Johnson, Halliburton, Schlumberger, Hewlett
Packard, Exxon, IBM, General Motors, Time Warner, Disney, Chevron, Chase
Manhattan Corporation, Xerox Corporation, LITTON INDUSTRIES, NEWFIELD
EXPLORATION COMPANY and BMC SOFTWARE.
Your support is needed to allow shareholders the opportunity to register
their vote on the performance of all directors annually. Your favorable vote
will help build on the 42.36% approval rate established by shareholders at
Western Atlas prior to the Baker Hughes merger.
PLEASE MARK YOUR PROXY IN FAVOR OF THIS PROPOSAL; otherwise it is
automatically cast against it, unless you have marked to abstain."
22
<PAGE> 25
STATEMENT OF THE BOARD OF DIRECTORS AND
MANAGEMENT IN OPPOSITION TO PROPOSAL NO. 2
Since the Company's formation in 1987 with the combination of Baker
International Corporation and Hughes Tool Company, the Board of Directors has
been divided into three classes. Under this system, each director serves a
three-year term, each class is nearly as equal as possible in size and one of
the three classes is elected each year. This staggered election of directors is
a common practice that has been approved by the stockholders of many major
corporations.
The Board of Directors believes that the Company's classified Board
enhances stockholder value by providing continuity and stability to the
Company's business strategies and policies. The Company's system of electing
one-third of the directors at each annual meeting of stockholders helps to
ensure that at least a majority of the directors at all times will have in-depth
knowledge of the Company and its business, which assists the Board in conducting
effective long-term strategic planning. At the same time, stockholders have an
opportunity each year to renew and reinvigorate corporate decision-making by
electing a class of directors, while avoiding the sudden and disruptive changes
in corporate policies that could arise if an entirely new group of directors
were elected in a single year.
The Board of Directors also believes that the staggered system of electing
directors affords the Company valuable protection against unsolicited, coercive
proposals to take control of the Company. In the event of a hostile takeover
attempt, the Board of Directors believes the fact that approximately two-thirds
of the directors have tenure for more than one year would encourage a person
seeking control of the Company to enter into arms' length negotiations with the
Board and would afford the Company critically needed time and bargaining power
to negotiate, to consider alternative proposals and to ensure that stockholder
value is maximized.
If approved by the stockholders, the proposal would not in itself
declassify the Board. Instead, it would serve as a recommendation to the Board
to take the necessary steps to end the staggered system of electing directors.
To declassify the Board, the Board would be required to propose to the
stockholders amendments to the relevant provisions of the Company's Restated
Certificate of Incorporation and Bylaws. For such amendments to be adopted, an
affirmative vote of 75% of the total voting power of all shares of stock of the
Company entitled to vote in the election of directors would be required. In only
two of the 11 majority-vote companies cited by the proponent, however, did even
a majority of the outstanding shares adopt the amendment, and none reached the
75% threshold. In fact, the proposal for two of the three companies for which
the proponent provides percentages failed to garner support from half of the
outstanding shares; only 44% of the outstanding shares voted in favor of
declassifying the board of Bristol-Myers Squibb Company and only 39% of the
outstanding shares voted in favor of declassifying the board of Eastman Kodak
Company.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Your Board of Directors recommends a vote AGAINST approval of Stockholder
Proposal No. 2 regarding classified boards.
ANNUAL REPORT
The 1999 Annual Report on Form 10-K of the Corporation, which includes
audited financial statements for the fiscal year ended December 31, 1999,
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.
23
<PAGE> 26
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2001 Annual
Meeting must be received by the Corporation by November 24, 2000 to be properly
brought before the 2001 Annual Meeting and to be considered for inclusion in the
Proxy Statement and form of proxy relating to that meeting. Such proposals
should be mailed to Baker Hughes Incorporated, Attention: Corporate Secretary,
P.O. Box 4740, Houston, Texas 77210-4740. Nominations of directors by
stockholders must be received by the Corporation by November 24, 2000 to be
properly nominated before the 2001 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.
24
<PAGE> 27
[BAKER HUGHES LOGO]
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
AND PROXY STATEMENT
APRIL 26, 2000
BAKER HUGHES INCORPORATED
3900 ESSEX LANE
HOUSTON, TEXAS
<PAGE> 28
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 J.B. Foster and G.S. Finley as Proxies,
each with the power to appoint a substitute, and hereby authorizes them to
Y 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 1,
2000, at the Annual Meeting of Stockholders to be held on April 26, 2000,
or any reconvened meeting after an adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR ALL NOMINEES, AND AGAINST 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.
<TABLE>
<S> <C>
The Board of Directors favors a vote FOR Election of COMMENTS: (change of address)
01 V.G. Beghini, 02 E.M. Filter,
03 C.W. Gargalli and 04 J.F. McCall ----------------------------------------
as Class III Directors and FOR Election of ----------------------------------------
05 L.M. Alberthal, Jr. and ----------------------------------------
06 J.B. Foster as Class II Directors. ----------------------------------------
(over)
</TABLE>
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
<PAGE> 29
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
PLEASE MARK
YOUR VOTE AS [X]
INDICATED IN
THIS EXAMPLE
FOR WITHHELD FOR AGAINST ABSTAIN
1. FOR [ ] WITHHELD [ ] 2. Stockholder Proposal No. 1 [ ] [ ] [ ]
all nominees from all nominees
3. Stockholder Proposal No. 2 [ ] [ ] [ ]
For, except vote withheld from the following nominee(s):
Change of Address/Comments [ ] PLEASE MARK, SIGN AND DATE
-------------------------------------------------------- on Reverse side BELOW AND RETURN PROMPTLY.
Signature Signature Date
-------------------------------------------------------- ------------------------------------------ ----------
Please sign name(s) exactly as printed hereon, in signing as attorney, administrator,
guardian or trustee, please give title as such.
- ------------------------------------------------------------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
VOTE BY TELEPHONE
QUICK *** EASY *** IMMEDIATE
YOUR VOTE IS IMPORTANT! -- YOU CAN VOTE IN ONE OF TWO WAYS:
1. TO VOTE BY PHONE: Call toll-free 1-800-840-1208 on a touch tone telephone 24 hours a day-7 days a week
There is NO CHARGE to you for this call. -- Have your proxy card in hand.
You will be asked to enter a Control Number, which is located in the box in the lower right hand corner of this form
OPTION 1: To vote as the Board of Directors recommends on ALL proposals, press 1
When asked, please confirm by Pressing 1.
OPTION 2: If you choose to vote on each Proposal separately, press 0. You will hear these instructions:
Proposal 1 - To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees, press 9
To WITHHOLD FOR AN INDIVIDUAL nominee, press 0 and listen to the instructions
Proposal 2 - To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
When asked, please confirm by Pressing 1.
The instructions are the same for all remaining proposals.
OR
2. VOTE BY PROXY: Mark, sign and date your proxy card and return promptly in the enclosed envelope.
NOTE: If you vote by telephone, THERE IS NO NEED TO MAIL BACK your Proxy Card.
THANK YOU FOR VOTING.
</TABLE>
