UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Form 10K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 19397
Baker Hughes Incorporated
Delaware
(State or other jurisdiction of incorporation or organization) |
760207995
(IRS Employer Identification No.) |
|
3900 Essex Lane, Suite 1200, Houston, Texas
(Address of principal executive offices) |
770275177
(Zip Code) |
Registrants telephone number, including area code: (713) 4398600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Name of each exchange
on which registered |
|
|
|
|
Common Stock, $1 Par Value Per Share |
New York Stock Exchange
Pacific Exchange SWX Swiss Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation SK is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10K or any amendment to this Form 10K. þ
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b2 of the Act). YES þ NO o
The aggregate market value of the voting and nonvoting Common Stock held by nonaffiliates as of the last business day of the registrants most recently completed second fiscal quarter (based on the closing price on July 2, 2004 reported by the New York Stock Exchange) was approximately $12,551,384,649.
As of February 25, 2005, the registrant has outstanding 338,185,465 shares of Common Stock, $1 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrants 2004 Proxy Statement for the Annual Meeting of Stockholders to be held April 28, 2005 are incorporated by reference into Part III of this Form 10K.
Baker Hughes Incorporated
INDEX
1
PART I
ITEM 1. BUSINESS
Baker Hughes Incorporated (Baker Hughes, Company, we, our or us) is a Delaware
corporation engaged in the oilfield services industry. Baker Hughes is a major supplier of
wellborerelated products and technology services and systems to the worldwide oil and natural gas
industry, including products and services for drilling, formation evaluation, completion and
production of oil and natural gas wells. We conduct part or all of our operations through
subsidiaries, affiliates, ventures or alliances.
Baker Hughes was formed in April 1987 in connection with the combination of Baker
International Corporation and Hughes Tool Company. We acquired Western Atlas Inc. in a merger
completed on August 10, 1998.
As used herein, Baker Hughes, Company, we, our and us may refer to Baker Hughes
Incorporated or its subsidiaries. The use of these terms is not intended to connote any particular
corporate status or relationships.
Our annual reports on Form 10K, quarterly reports on Form 10Q, current reports on Form 8K
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the Exchange Act), are made available free of charge
on our Internet website at
www.bakerhughes.com
as soon as reasonably practicable after these
reports have been electronically filed with, or furnished to, the Securities and Exchange
Commission (the SEC).
We have adopted a Business Code of Conduct to provide guidance to our directors, officers and
employees on matters of business conduct and ethics, including compliance standards and procedures.
We have also required our principal executive officer, principal financial officer and principal
accounting officer to sign a Code of Ethical Conduct Certification. Our Business Code of Conduct
and Code of Ethical Conduct Certifications are available on the Investor Relations section of our
website at
www.bakerhughes.com
. We intend to promptly disclose on our website information about
any waiver of these codes with respect to our executive officers and directors. Our Corporate
Governance Guidelines and the charters of our Audit/Ethics Committee, Compensation Committee,
Executive Committee, Finance Committee and Governance Committee are also available on the Investor
Relations section of our website at www.bakerhughes.com. In addition, a copy of our Business Code
of Conduct, Code of Ethical Conduct Certification, Corporate Governance Guidelines and the charters
of the Committees referenced above are available in print at no cost to any stockholder who
requests them by writing or telephoning us at the following address or telephone number:
Baker Hughes Incorporated
Information contained on or connected to our website is not incorporated by reference into
this annual report on Form 10K and should not be considered part of this report or any other
filing that we make with the SEC.
We have seven operating divisions Baker Atlas, Baker Hughes Drilling Fluids, Baker Oil
Tools, Baker Petrolite, Centrilift, Hughes Christensen and INTEQ that we have aggregated into the
Oilfield segment because they have similar economic characteristics and because the longterm
financial performance of these divisions is affected by similar economic conditions. These
operating divisions manufacture and sell products and provide services used in the oil and natural
gas industry, including drilling, formation evaluation, completion and production of oil and
natural gas wells. They operate in the same markets, which include all of the major oil and
natural gas producing regions of the world: North America, South America, Europe, Africa, the
Middle East and the Far East. The Oilfield segment also includes our 30% interest in WesternGeco,
a seismic venture we entered into with Schlumberger Limited (Schlumberger), as well as other
investments in affiliates.
For additional industry segment information for the three years ended December 31, 2004, see
Note 13 of the Notes to Consolidated Financial Statements in Item 8 herein.
2
Baker Atlas
Baker Atlas is a leading provider of formation evaluation and wireline completion and
production services for oil and natural gas wells.
Formation Evaluation.
Formation evaluation involves measuring and analyzing specific physical
properties of the rock (petrophysical properties) in the immediate vicinity of a wellbore to
determine an oil or natural gas reservoirs boundaries, volume of hydrocarbons and ability to
produce fluids to the surface. Electronic sensor instrumentation is run through the wellbore to
measure porosity and density (how much open space there is in the rock), permeability (how well
connected the spaces in the rock are) and resistivity (is there oil, natural gas or water in the
spaces). At the surface, measurements are recorded digitally and can be displayed on a continuous
graph, or well log, which shows how each parameter varies along the length of the wellbore.
Formation evaluation tools can also be used to record formation pressures and take samples of
formation fluids to be further evaluated on the surface.
Formation evaluation instrumentation can be run in the well in several ways and at different
times over the life of the well. The two most common methods of data collection are wireline
logging (performed by Baker Atlas) and loggingwhiledrilling (LWD) (performed by INTEQ).
Wireline logging is conducted by pulling or pushing instruments through the wellbore after it is
drilled, while LWD instruments are attached to the drill string and take measurements while the
well is being drilled. Wireline logging measurements can be made before the wells protective
steel casing is set (open hole logging) or after casing has been set (cased hole logging). Baker
Atlas also offers geophysical data interpretation services which help the operator interpret the
petrophysical properties measured by the logging instruments and make inferences about the
formation, presence and quantity of hydrocarbons present. This information is used to determine
the next steps in drilling and completing the well.
Wireline Completion and Production Services.
Wireline completion and production services
include using wireline instruments to evaluate well integrity, perform mechanical intervention and
perform cement evaluations. Wireline instruments can also be run in producing wells to perform
production logging. Baker Atlas (and Baker Oil Tools) also provide perforating services, which
involve puncturing a wells steel casing and cement sheath with explosive charges. This creates a
fracture in the formation and provides a path for hydrocarbons in the formation to enter the
wellbore and be produced.
Baker Atlas services allow oil and natural gas companies to define, manage and reduce their
exploration and production risk. As such, the main driver of customer purchasing decisions is the
value added by formation evaluation and wireline completion and production services. Specific
opportunities for competitive differentiation include:
Baker Atlas primary formation evaluation and wireline completion and perforating competitors
are Schlumberger, Halliburton Company (Halliburton), Precision Drilling Corporation, Expro
International Group PLC and various other competitors.
Key business drivers for Baker Atlas include the number of drilling and workover rigs
operating, as well as the current and expected future price of both oil and natural gas.
Baker Hughes Drilling Fluids
Baker Hughes Drilling Fluids is a major provider of drilling fluids (also called mud), and a
provider of completion fluids (also called brines) and fluids environmental services. Drilling
fluids are an important component of the drilling process and are pumped from the surface through
the drill string, exiting nozzles in the drill bit and traveling back up the wellbore where the
fluids are recycled. This process cleans the bottom of the well by transporting the cuttings to
the surface while also cooling and lubricating the bit and drill string. Drilling fluids typically
contain barite or bentonite to give them weight that enables the fluid to hold the wellbore open
and stabilize it. Additionally, the fluids control downhole pressures and seal porous sections of
the wellbore. To ensure maximum efficiency and wellbore stability, drilling fluids are often
customized by the wellsite engineer. For drilling through the reservoir itself, Baker Hughes
Drilling Fluids drillin or completion fluids possess properties that minimize formation damage.
The fluids environmental services of Baker Hughes Drilling Fluids also provide equipment and
services to separate the drill cuttings from
3
the drilling fluids and reinject the processed cuttings into a specially prepared well, or to
transport and dispose of the cuttings by other means.
The main driver of customer purchasing decisions in drilling fluids is cost efficiency.
Specific opportunities for competitive differentiation include:
Baker Hughes Drilling Fluids primary competitors include Halliburton, M-I, LLC, Newpark
Resources, Inc., TETRA Technologies, Inc. and various other competitors.
Key business drivers for Baker Hughes Drilling Fluids include the number of drilling rigs
operating, as well as the current and expected future price of both oil and natural gas.
Baker Oil Tools
Baker Oil Tools is a leading provider of downhole completion, workover and fishing equipment
and services.
Completions.
The economic success of a well depends in large part on how the well is
completed. Completions are the equipment installed in a well after it is drilled to allow the
efficient and safe production of oil and natural gas to the surface. Baker Oil Tools completion
systems are matched to the formation and reservoir for optimum production and can employ a variety
of products and services including:
Workovers.
Workover products and services seek to improve, maintain or restore economical
production from an already producing well. In this area, Baker Oil Tools provides service tools
and inflatable products to repair and stimulate new and existing wells. Service tools function as
surfaceactivated, downhole sealing and anchoring devices to isolate a portion of the wellbore.
Service tool applications range from treating and cleaning to testing components from the wellhead
to the perforations. Service tools also refer to tools and systems that are used for temporary or
permanent well abandonment. An inflatable packer expands to set in pipe that is much larger than
the outside diameter of the packer itself, so it can run through a restriction in the well and then
set in the larger diameter below. Inflatable packers can also set in open hole as opposed to
conventional tools which can only be set inside casing. Thrutubing inflatables enable remedial
operations in producing wells. This results in cost savings as rig requirements are lower and
workovers can occur without having to remove the completion, which can be very costly.
4
Fishing.
Baker Oil Tools is a leading provider of specialized fishing services and equipment
that are used to locate, dislodge and retrieve damaged or stuck pipe, tools or other objects from
inside the wellbore, often thousands of feet below the surface. Other fishing services include
cleaning wellbores and milling windows in the casing to drill a sidetrack or multilateral well.
The main drivers of customer purchasing decisions in completions, workovers and fishing are
superior wellsite service execution and valueadding technologies that improve production rates,
protect the reservoir from damage and reduce cost. Specific opportunities for competitive
differentiation include:
Baker Oil Tools primary competitors in completions are Halliburton, Schlumberger, Weatherford
International Ltd. (Weatherford), BJ Services Company and various other competitors. Its primary
competitors in workover are Halliburton, Schlumberger, Weatherford and various other competitors.
Its major competitors in fishing are Smith International, Inc. (Smith), Weatherford and various
other competitors.
Key business drivers for Baker Oil Tools include the number of drilling and workover rigs
operating, as well as the current and expected future price of both oil and natural gas.
Baker Petrolite
Baker Petrolite is a leading provider of specialty chemicals to a number of industries,
primarily oil and natural gas production, but also including refining, pipeline transportation,
petrochemical, agricultural and iron and steel manufacturing. Additionally, Baker Petrolite
provides polymerbased products to a broad range of industrial and consumer markets.
Baker Petrolite provides oilfield chemical programs for drilling, well stimulation,
production, pipeline transportation and maintenance programs. Its products provide measurable
increases in productivity, decreases in operating and maintenance cost and solutions to
environmental problems. Examples of specialty oilfield chemical programs include:
5
For the refining industry, Baker Petrolite offers various process and water treatment
programs, as well as finished fuel additives. Examples include programs to remove salt from crude
oil and environmentally friendly cleaners that decontaminate refinery equipment and petrochemical
vessels at a lower cost than other methods.
Through its Pipeline Management Group (PMG), Baker Petrolite also offers a variety of
products and services for the pipeline transportation industry. To improve efficiency, Baker
Petrolite offers custom turnkey cleaning programs that combine chemical treatments with brush and
scraper usage. Efficiency can also be improved by adding polymerbased drag reduction agents to
reduce the slowing effects of friction between the pipeline walls and the fluids within, thus
increasing throughput and pipeline capacity. Additional services allow pipelines to operate more
safely. These include inspection and internal corrosion assessment technologies, which physically
confirm the structural integrity of the pipeline. In addition, PMGs flowmodeling capabilities
can identify highrisk segments of a pipeline to ensure proper mitigation programs are in place.
Baker Petrolite also provides chemical technology solutions to other industrial markets
throughout the world, including petrochemicals, fuel additives, plastics, imaging, adhesives, steel
and crop protection.
The main driver of customer purchasing decisions in specialty chemicals is superior
application of technology and service delivery. Specific opportunities for competitive
differentiation include:
Baker Petrolites primary oilfield specialty chemical competitors are GE Water Technologies,
Nalco Company, Champion Technologies and various other competitors.
Key business drivers for Baker Petrolite include oil and natural gas production levels, the
number of producing wells, and the current and expected future price of both oil and natural gas.
Centrilift
Centrilift is a leading manufacturer and supplier of electrical submersible pump systems
(ESPs) and progressing cavity pump systems (PCPs).
Electrical Submersible Pump Systems.
ESPs lift high quantities of oil or oil and water from
wells that do not flow under their own pressure. These artificial lift systems consist of a
centrifugal pump and electric motor installed in the wellbore, armored electric cabling to provide
power to the downhole motor and a surface controller. Centrilift designs, manufactures, markets
and installs all the components of ESP systems and also offers modeling software to size ESPs and
simulate operating performance. ESPs may be used in onshore or offshore applications and are
primarily used in mature oil producing reservoirs.
Progressing Cavity Pump Systems.
PCPs are a form of artificial lift comprised of a downhole
progressing cavity pump powered by either a downhole electric motor or a rod turned by a motor on
the surface. PCP systems are preferred when the fluid to be lifted is viscous or when the volume
is significantly less than could be economically lifted with an ESP system.
6
Specific opportunities for competitive differentiation include:
Centrilifts primary competitors in the ESP market are Schlumberger, John Wood Group PLC and
various other competitors and in the PCP market are Weatherford, Robbins & Myers, Inc. and various
other competitors.
Key business drivers for Centrilift include oil production levels, as well as the current and
expected future price of oil, the volume of water produced in mature basins and the removal of
water from coal bed methane wells.
Hughes Christensen
Hughes Christensen is a leading manufacturer and supplier of drill bits, primarily Tricone®
roller cone bits and fixedcutter polycrystalline diamond compact (PDC) bits, to the worldwide
oil and natural gas industry. The primary objective of a drill bit is to drill a hole as
efficiently as possible.
Tricone® Bits.
Tricone® drill bits employ either hardened steel teeth or tungsten carbide
insert cutting structures mounted on three rotating cones. These bits work by crushing and
shearing the formation rock as they are turned. Tricone® drill bits have a wide application range.
PDC Bits.
PDC (also known as Diamond) bits use fixed position cutters that shear the
formation rock with a milling action as they are turned. In many softer and less variable
applications, PDC bits offer higher penetration rates and a longer life than Tricone® bits. A
rental market has developed for PDC bits as improvements in bit life and bit repairs allow a bit to
be used to drill multiple wells.
The main driver of customer purchasing decisions in drill bits is the value added, usually
measured in terms of savings in total operating costs per distance drilled. Specific opportunities
for competitive differentiation include:
Hughes Christensens primary competitors in the oil and natural gas drill bit market are
Smith, Halliburton, Grant Prideco, Inc. and various other competitors.
Key business drivers for Hughes Christensen include the number of drilling rigs operating, as
well as the current and expected future price of both oil and natural gas.
INTEQ
INTEQ is a leading supplier of drilling and evaluation services, which include directional
drilling, measurementwhiledrilling (MWD) and LWD services.
Directional Drilling
. Directional drilling services are used to guide a well along a
predetermined path to optimally recover hydrocarbons from the reservoir. These services are used
to accurately drill vertical wells, deviated or directional wells (which deviate from vertical by a
planned angle and direction), horizontal wells (which are sections of wells drilled perpendicular
or nearly perpendicular to vertical) and extended reach wells.
7
INTEQ is a leading supplier of both conventional and rotary based directional drilling
systems. Conventional directional drilling systems employ a downhole motor which turns the drill
bit independently of drill string rotation from the surface. Placed just above the bit, a
steerable motor assembly has a bend in its housing that is oriented to steer the wells course.
During the rotary mode, the entire drill string is rotated from the surface, negating the effect
of this bend and causing the bit to drill on a straight course. During the sliding mode, drill
string rotation is stopped and a mud motor (which converts hydraulic energy from the drilling
fluids being pumped through the drill string into rotational energy at the bit) allows the bit to
drill in the planned direction by orienting its angled housing, gradually guiding the wellbore
through an are.
INTEQ was a pioneer and is a leader in the development and use of automated rotary steerable
technology. In rotary steerable environments, the entire drill string is turned from the surface
to supply energy to the bit. Unlike conventional systems, INTEQs AutoTrak® rotary steerable
system changes the trajectory of the well using three pads that push against the wellbore from a
nonrotating sleeve and is controlled by a downhole guidance system.
MeasurementWhileDrilling.
Directional drilling systems need realtime measurements of the
location and orientation of the bottom hole assembly to operate effectively. INTEQs MWD systems
are downhole tools that provide this directional information, which is necessary to adjust the
drilling process and guide the wellbore to a specific target. The AutoTrak® rotary steerable
system has these MWD systems built in, allowing the tool to automatically alter its course based on
a planned trajectory.
LoggingWhileDrilling.
LWD is a variation of MWD in which the LWD tool gathers information
on the petrophysical properties of the formation through which the wellbore is being drilled. Many
LWD measurements are the same as those taken via wireline; however, taking them in realtime often
allows for greater accuracy, as measurements occur before any damage has been sustained by the
reservoir as a result of the drilling process. Realtime measurements also enable geosteering
where geological markers identified by LWD tools are used to guide the bit and assure placement of
the wellbore in the optimal location.
In both MWD and LWD systems, surface communication with the tool is achieved through mudpulse
telemetry, which uses pulse signals (pressure changes in the drilling fluid traveling through the
drill string) to communicate the operating conditions and location of the bottom hole assembly to
the surface. The information transmitted is used to maximize the efficiency of the drilling
process, update and refine the reservoir model and steer the well into the optimal location in the
reservoir.
As part of INTEQs mud logging services, engineers monitor the interaction between the
drilling fluid and the formation and perform laboratory analysis of drilling fluids and
examinations of the drill cuttings to detect the presence of hydrocarbons and identify the
different geological layers penetrated by the drill bit.
The main drivers of customer purchasing decisions in these areas are the value added by
technology and the reliability and durability of the tools used in these operations. Specific
opportunities for competitive differentiation include:
INTEQs primary competitors in drilling and evaluation services are Halliburton, Schlumberger
and various other competitors.
Key business drivers for INTEQ include the number of drilling rigs operating, as well as the
current and expected future price of both oil and natural gas.
WesternGeco
WesternGeco is a seismic venture in which we own 30% and Schlumberger owns 70%. WesternGeco
provides comprehensive worldwide reservoir imaging, monitoring and development services, with one
of the most extensive seismic crews and data processing centers in the industry, as well as one of
the worlds largest multiclient seismic libraries. Services range from 3D and timelapse (4D)
seismic surveys to multicomponent surveys for delineating prospects and reservoir management.
WesternGeco is positioned to meet the full range of customer needs in land, marine, and
shallowwater transitionzone areas.
8
Seismic solutions include proprietary QTechnology* for enhanced reservoir description,
characterization and monitoring throughout the life of the field from exploration through
enhanced recovery. Q* singlesensor hardware and software are setting a new quality and capability
standard for seismic solutions.
WesternGecos Omega* Seismic Processing System encompasses one of the industrys most advanced
and comprehensive suites of algorithms and runs on multiplatform technology, ensuring timely
turnaround for even the most complex processing projects. WesternGecos major competitors are
Compagnie Generale de Geophysique, Veritas DGC, Inc. and Petroleum Geo-Services ASA.
For additional information related to WesternGeco, see the Related Party Transactions
section in Item 7 and Note 8 of the Notes to Consolidated Financial Statements in Item 8, both
contained herein.
* Mark of WesternGeco
MARKETING, COMPETITION AND ECONOMIC CONDITIONS
We market our products and services on a product line basis primarily through our own sales
organizations, although certain of our products and services are marketed through supply stores,
independent distributors, agents, licensees or sales representatives. We ordinarily provide
technical and advisory services to assist in our customers use of our products and services.
Stock points and service centers for our products and services are located in areas of drilling and
production activity throughout the world.
Our products and services are sold in highly competitive markets, and revenues and earnings
can be affected by changes in competitive prices, fluctuations in the level of drilling, workover
and completion activity in major markets, general economic conditions, foreign currency exchange
fluctuations and governmental regulation. We compete with the oil and natural gas industrys
largest diversified oilfield services providers, as well as many small companies. We believe that
the principal competitive factors in our industries are product and service quality, availability
and reliability, health, safety and environmental standards, technical proficiency and price.
Further information is contained in Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations.
INTERNATIONAL OPERATIONS
We operate in over 90 countries worldwide, and our operations are subject to the risks
inherent in doing business in multiple countries with various laws and differing political
environments. These risks include, but are not limited to: war, boycotts, political and economic
changes, corruption, terrorism, expropriation, foreign currency exchange controls, taxes and
changes in foreign currency exchange rates. Although it is impossible to predict the likelihood of
such occurrences or their effect on us, division and corporate management routinely evaluate these
risks and take appropriate actions to mitigate the risks where possible. However, there can be no
assurance that an occurrence of any one or more of these events would not have a material adverse
effect on our operations.
Further information is contained in Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations.
RESEARCH AND DEVELOPMENT; PATENTS
We are engaged in research and development activities directed primarily toward the
improvement of existing products and services, the design of specialized products to meet specific
customer needs and the development of new products, processes and services. For information
regarding the amounts of research and development expense in each of the three years in the period
ended December 31, 2004, see Note 17 of the Notes to Consolidated Financial Statements in Item 8
herein.
We have followed a policy of seeking patent and trademark protection both inside and outside
the United States for products and methods that appear to have commercial significance. We believe
our patents and trademarks to be adequate for the conduct of our business, and aggressively pursue
protection of our patents against patent infringement worldwide. While we regard patent and
trademark protection as important to our business and future prospects, we consider our established
reputation, the reliability and quality of our products and the technical skills of our personnel
to be more important. No single patent or trademark is considered to be of a critical nature to
our business.
9
RAW MATERIALS
We purchase various raw materials and component parts for use in manufacturing our products.
The principal materials we purchase are steel alloys (including chromium and nickel), titanium,
beryllium, copper, tungsten carbide, synthetic and natural diamonds, printed circuit boards and
other electronic components and hydrocarbonbased chemical feed stocks. All of these materials are
available from numerous sources and could be subject to rising costs. We have not experienced any
significant shortages of these materials and normally do not carry inventories of such materials in
excess of those reasonably required to meet our production schedules. We do not expect any
significant interruptions in supply, but there can be no assurance that there will be no price or
supply issues over the long term.
OTHER DEVELOPMENTS
In October 2003, we signed a definitive agreement for the sale of BIRD Machine (BIRD), the
remaining division of the former Process segment, and recorded charges totaling $37.4 million, net
of tax of $10.9 million, which consisted of a loss of $13.5 million on the write down of BIRD to
fair value, $6.2 million of severance and warranty accruals and a loss of $17.7 million related to
the recognition of cumulative foreign currency translation adjustments into earnings. In January
2004, we completed the sale of BIRD and recorded an additional loss on the sale of $0.5 million
with no tax benefit. We received $5.6 million in proceeds, which were subject to postclosing
adjustments to the purchase price, and retained certain accounts receivable, inventories and other
assets. During the second quarter of 2004, we made a net payment of $6.8 million to the buyer in
settlement of the final purchase price adjustments. The adjustments were the result of changes in
the value of assets sold to and liabilities assumed by the buyer between the date the initial sales
price was negotiated and the closing of the sale.
In February 2004, we completed the sale of our minority interest in Petreco International for
$35.8 million, of which $7.4 million is held in escrow pending the outcome of potential
indemnification obligations pursuant to the sales agreement. We recognized a gain on the sale of
$1.3 million, net of tax of $1.5 million.
In September 2004, we completed the sale of Baker Hughes Mining Tools, a product line group
within the Oilfield segment that manufactured rotary drill bits used in the mining industry, for
$31.5 million. We recorded a gain on the sale of $0.2 million, net of tax of $3.6 million, which
consisted of a gain on disposal of $6.8 million offset by a loss of $6.6 million related to the
recognition of the cumulative foreign currency translation adjustments into earnings.
EMPLOYEES
At December 31, 2004, we had approximately 26,900 employees, as compared with approximately
26,500 employees at December 31, 2003. Approximately 2,300 of these employees are represented
under collective bargaining agreements or similartype labor arrangements, of which the majority
are outside the U.S. Based upon the geographic diversification of these employees, we believe any
risk of loss from employee strikes or other collective actions would not be material to the conduct
of our operations taken as a whole. We believe that our relations with our employees are good.
EXECUTIVE OFFICERS
The
following table shows as of February 28, 2005, the name of each of our executive officers,
together with his age and all offices presently held.
10
11
There are no family relationships among our executive officers.
ENVIRONMENTAL MATTERS
We are committed to the health and safety of people, protection of the environment and
compliance with laws, regulations and our policies. Our past and present operations include
activities that are subject to domestic (including U.S. federal, state and local) and international
regulations with regard to air and water quality and other environmental matters. We believe we
are in substantial compliance with these regulations. Regulation in this area continues to evolve,
and changes in standards of enforcement of existing regulations, as well as the enactment and
enforcement of new legislation, may require us and our customers to modify, supplement or replace
equipment or facilities or to change or discontinue present methods of operation.
We are involved in voluntary remediation projects at some of our present and former
manufacturing facilities, the majority of which relate to properties obtained in acquisitions or to
sites no longer actively used in operations. On rare occasions, remediation activities are
conducted as specified by a government agencyissued consent decree or agreed order. Remediation
costs are accrued based on estimates of probable exposure using currently available facts, existing
environmental permits, technology and presently enacted laws and regulations. For sites where we
are primarily responsible for the remediation, our cost estimates are developed based on internal
evaluations and are not discounted. Such accruals are recorded when it is probable that we will be
obligated to pay amounts for environmental site evaluation, remediation or related activities, and
such amounts can be reasonably estimated. If the obligation can only be estimated within a range,
we accrue the minimum amount in the range. Such accruals are recorded even if significant
uncertainties exist over the ultimate cost of the remediation. Ongoing environmental compliance
costs, such as obtaining environmental permits, installation of pollution control equipment and
waste disposal, are expensed as incurred.
During the year ended December 31, 2004, we spent approximately $24.4 million to comply with
domestic and international standards regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment (collectively, Environmental
Regulations). This cost includes the total spent on remediation projects at current or former
sites, Superfund projects and environmental compliance activities, exclusive of capital. In 2005,
we expect to spend approximately $26.4 million to comply with Environmental Regulations. Based
upon current information, we believe that our compliance with Environmental Regulations will not
have a material adverse effect upon our capital expenditures, earnings or competitive position
because we have either established adequate reserves or our cost
for that compliance is not expected to be material to our consolidated financial statements.
During the year ended December 31, 2004, we incurred approximately $2.3 million in capital
expenditures for environmental control equipment, and we estimate we will incur approximately $3.9
million during 2005. We believe these capital expenditures for environmental control equipment
will not have a material adverse effect upon our consolidated financial statements because the
aggregate amount of these expenditures is not expected to be material.
The Comprehensive Environmental Response, Compensation and Liability Act (known as Superfund
or CERCLA) imposes liability for the release of a hazardous substance into the environment.
Superfund liability is imposed without regard to fault and even if the waste disposal was in
compliance with laws and regulations. We have been identified as a potentially responsible party
(PRP) in remedial activities related to various Superfund sites, and we accrue our share of the
estimated remediation costs of the site based on the ratio of the estimated volume of waste we
contributed to the site to the total volume of waste disposed at the site. With the joint and
several liability imposed under Superfund, a PRP may be required to pay more than its proportional
share of such costs.
We have been identified as PRPs at various Superfund sites discussed below. The United States
Environmental Protection Agency (the EPA) and appropriate state agencies supervise investigative
and cleanup activities at these sites. At December 31, 2004, we have accrued $3.6 million of
remediation costs related to the sites detailed below. When used in the descriptions of the sites
below, the word
de minimis
refers to the smallest PRPs, whose contribution rate is usually less
than 1%.
12
13
In addition to the sites mentioned above, there are four Superfund sites where we have ongoing
obligations. The remedial work at most of these sites has been completed and remaining operations
are limited to groundwater recovery and/or monitoring. The monitoring phase can continue for up to
30 years. Our aggregate cost for these sites is estimated to be less than $0.1 million over this
period of time.
While PRPs in Superfund actions have joint and several liability for all costs of remediation,
it is not possible at this time to quantify our ultimate exposure because some of the projects are
either in the investigative or early remediation stage. Based upon current information, we do not
believe that probable or reasonably possible expenditures in connection with the sites described
above are likely to have a material adverse effect on our consolidated financial statements because
we have established adequate reserves to cover the estimate we presently believe will be our
ultimate liability with respect to the matter. Further, other PRPs involved in the sites have
substantial assets and may reasonably be expected to pay their share of the cost of remediation,
and, in some circumstances, we have insurance coverage or contractual indemnities from third
parties to cover the ultimate liability.
We are subject to various other governmental proceedings and regulations, including foreign
regulations, relating to environmental matters, but we do not believe that any of these matters is
likely to have a material adverse effect on our consolidated financial statements. See Note 16 of
the Notes to Consolidated Financial Statements in Item 8 herein for further discussion of
environmental matters.
Environmental Matters contains forwardlooking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act (each a
forwardlooking statement). The words will, believe, to be, expect, estimate and
similar expressions are intended to identify forwardlooking statements. Our expectations
regarding our compliance with Environmental Regulations and our expenditures to comply with
Environmental Regulations, including (without limitation) our capital expenditures for
environmental control equipment, are only our forecasts regarding these matters. These forecasts
may be substantially different from actual results, which may be affected by the following factors:
changes in Environmental Regulations; a material change in our allocation or other unexpected,
adverse outcomes with respect to sites where we have been named as a PRP, including (without
limitation) the Superfund sites described above; the discovery of new sites of which we are not
aware and where additional expenditures may be required to comply with Environmental Regulations;
an unexpected discharge of hazardous materials in the course of our business or operations; a
catastrophic event causing discharges into the environment; or an acquisition of one or more new
businesses.
ITEM 2. PROPERTIES
We are headquartered in Houston, Texas and operate 40 principal manufacturing plants, all
within the Oilfield segment, ranging in size from approximately 4,600 to 333,000 square feet of
manufacturing space. The total area of the plants is more than 3.1 million square feet, of which
approximately 2.1 million square feet (68%) are located in the United States, 0.3 million square
feet (9%) are located in South America, 0.7 million square feet (23%) are located in Europe, and a
minimal amount of space is located in the Far East. Our principal manufacturing plants are located as
follows: United States Houston, Texas; Broken Arrow and Claremore, Oklahoma; Lafayette,
Louisiana; South America various cities in Venezuela; and Europe Aberdeen and East Kilbride,
Scotland; Liverpool, England; Celle, Germany; Belfast, Northern Ireland.
14
We own or lease numerous service centers, shops and sales and administrative offices
throughout the geographic areas in which we operate. We also have a significant investment in
service vehicles, rental tools and manufacturing and other equipment. We believe that our
manufacturing facilities are well maintained and suitable for their intended purposes. The table
below shows our principal manufacturing plants by geographic area:
ITEM 3. LEGAL PROCEEDINGS
We are involved in litigation or proceedings that have arisen in our ordinary business
activities. We insure against these risks to the extent deemed prudent by our management and to
the extent insurance is available, but no assurance can be given that the nature and amount of that
insurance will be sufficient to fully indemnify us against liabilities arising out of pending and
future legal proceedings. Many of these insurance policies contain deductibles or selfinsured
retentions in amounts we deem prudent and for which we are responsible for payment. In determining
the amount of selfinsurance, it is our policy to selfinsure those losses that are predictable,
measurable and recurring in nature, such as claims for automobile liability, general liability and
workers compensation. We record accruals for the uninsured portion of losses related to these
types of claims. The accruals for losses are calculated by estimating losses for claims using
historical claim data, specific loss development factors and other information as necessary.
On September 12, 2001, the Company, without admitting or denying the factual allegations
contained in the Order, consented with the SEC to the entry of an Order making Findings and
Imposing a CeaseandDesist Order (the Order) for violations of Section 13(b)(2)(A) and Section
13(b)(2)(B) of the Exchange Act. Among the findings included in the Order were the following: In
1999, we discovered that certain of our officers had authorized an improper $75,000 payment to an
Indonesian tax official, after which we embarked on a corrective course of conduct, including
voluntarily and promptly disclosing the misconduct to the SEC and the Department of Justice (the
DOJ). In the course of our investigation of the Indonesia matter, we learned that we had made
payments in the amount of $15,000 and $10,000 in India and Brazil, respectively, to our agents,
without taking adequate steps to ensure that none of the payments would be passed on to foreign
government officials. The Order found that the foregoing payments violated Section 13(b)(2)(A).
The Order also found the Company in violation of Section 13(b)(2)(B) because it did not have a
system of internal controls to determine if payments violated the Foreign Corrupt Practices Act
(FCPA). The FCPA makes it unlawful for U.S. issuers, including the Company, or anyone acting on
their behalf, to make improper payments to any foreign official in order to obtain or retain
business. In addition, as discussed below, the FCPA establishes accounting and internal control
requirements for U.S. issuers. We cooperated with the SECs investigation.
By the Order, dated September 12, 2001 (previously disclosed by us and incorporated by
reference in this annual report as Exhibit 99.1), we agreed to cease and desist from committing or
causing any violation and any future violation of Section 13(b)(2)(A) and Section 13(b)(2)(B) of
the Exchange Act. Such Sections of the Exchange Act require issuers to (x) make and keep books,
records and accounts, which, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the issuer and (y) devise and maintain a system of internal
accounting controls sufficient to provide reasonable assurances that: (i) transactions are
executed in accordance with managements general or specific authorization; and (ii) transactions
are recorded as necessary: (I) to permit preparation of financial statements in conformity with
generally accepted accounting principles or any other criteria applicable to such statements, and
(II) to maintain accountability for assets.
On March 29, 2002, we announced that we had been advised that the SEC and the DOJ are
conducting investigations into allegations of violations of law relating to Nigeria and other
related matters. The SEC has issued a formal order of investigation into possible violations of
provisions under the FCPA regarding antibribery, books and records and internal controls. On
August 6, 2003, the SEC issued a subpoena seeking information about our operations in Angola and
Kazakhstan as part of its ongoing investigation. We are providing documents to and cooperating
fully with the SEC and DOJ. The DOJ and the SEC have issued subpoenas to, or otherwise asked for
interviews with, current and former employees in connection with the investigations regarding
Nigeria, Angola and Kazakhstan. In addition, we have conducted internal investigations into these
matters.
Our internal investigations have identified issues regarding the propriety of certain payments
and apparent deficiencies in our books and records and internal controls with respect to certain
operations in Nigeria, Angola and Kazakhstan, as well as potential
15
liabilities to governmental authorities in Nigeria. The investigation in Nigeria was
substantially completed during the first quarter of 2003 and, based upon current information, we do
not expect that any such potential liabilities will have a material adverse effect on our
consolidated financial statements. The internal investigations in Angola and Kazakhstan were
substantially completed in the third quarter of 2004. Evidence obtained during the course of the
investigations has been provided to the SEC and DOJ.
The Department of Commerce, Department of the Navy and the DOJ (the U.S. agencies) are
investigating compliance with certain export licenses issued to Western Geophysical from 1994
through 2000 for export of seismic equipment leased by the Peoples Republic of China. We acquired
Western Geophysical in August 1998 and subsequently transferred related assets to WesternGeco in
December 2000. Under the WesternGeco formation agreement, we owe indemnity to WesternGeco for
certain matters. We are cooperating fully with the U.S. agencies.
We have received a subpoena from a grand jury in the Southern District of New York regarding
goods and services we delivered to Iraq from 1995 through 2003 during the United Nations
Oil-for-Food Program (the U.N. Program). We have also received a request from the SEC to provide
a written statement and certain information regarding our participation in the U.N. Program. We
are responding to both the subpoena and the request. Other companies in the energy industry are
believed to have received similar subpoenas and requests.
The U.S. agencies, the SEC and other authorities have a broad range of civil and criminal
sanctions they may seek to impose against corporations and individuals in appropriate circumstances
including, but not limited to, injunctive relief, disgorgement, fines, penalties and modifications
to business practices and compliance programs. During 2004, such agencies and authorities entered
into agreements with, and obtained a range of sanctions against, several public corporations and
individuals arising from allegations of improper payments and deficiencies in books and records and
internal controls, whereby civil and criminal penalties were imposed, including in some cases
multimillion dollar fines and other sanctions. It is not possible to accurately predict at this
time when any of the investigations related to the Company will be completed. Based on current
information, we cannot predict the outcome of such investigations or what, if any, actions may be
taken by the U.S. agencies, the SEC or other authorities or the effect it may have on our
consolidated financial statements.
On May 10, 2004, the District Court of Andrews County, Texas entered a judgment in favor of
LOTUS, LLC and against INTEQ in the amount of $14.8 million for lost profits resulting from a
breach of contract in drilling a well to create a salt cavern for disposing of naturally occurring
radioactive waste. We have filed an appeal and taken other actions. We believe that any liability
that we may incur as a result of this litigation would not have a material adverse financial effect
on our consolidated financial statements.
Further information is contained in the Environmental Matters section of Item 1 herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Our Common Stock, $1.00 par value per share (the Common Stock), is principally traded on the
New York Stock Exchange. Our Common Stock is also traded on the Pacific Exchange and the SWX Swiss
Exchange. As of February 25, 2005, there were approximately 62,700 stockholders and approximately
17,300 stockholders of record.
For information regarding quarterly high and low sales prices on the New York Stock Exchange
for our Common Stock during the two years ended December 31, 2004 and information regarding
dividends declared on our Common Stock during the two years ended December 31, 2004 see Note 18 of
the Notes to Consolidated Financial Statements in Item 8 herein.
16
The following table contains information about our purchases of equity securities during the
fourth quarter of 2004.
Issuer Purchases of Equity Securities
17
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data should be read in conjunction with Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial
Statements and Supplementary Data, both contained herein.
NOTES TO SELECTED FINANCIAL DATA
18
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
should be read in conjunction with Item 8. Financial Statements and Supplementary Data contained
herein.
EXECUTIVE SUMMARY
We are a leading provider of drilling, formation evaluation, completion and production
products and services to the worldwide oil and natural gas industry. We compete as one of the
three largest diversified oilfield services companies. Our Oilfield segment is comprised of seven
product line focused divisions. Baker Hughes Drilling Fluids (drilling fluids), Hughes Christensen
(oilfield drill bits) and INTEQ (drilling and measurementwhiledrilling) provide products and
services used to drill oil and natural gas wells. Baker Atlas (wireline formation evaluation) and
INTEQ (formation evaluation while drilling) provide formation evaluation services. Baker Atlas
(tubing conveyed perforating) and Baker Oil Tools (completion equipment) provide completion
systems. Baker Petrolite (oilfield specialty chemicals), Centrilift (electric submersible pumps
and progressing cavity pumps) and Baker Oil Tools (workover and completion equipment) provide
equipment and services used during the production phase of oil and natural gas wells.
Our headquarters are in Houston, Texas, and we have significant manufacturing operations in
various countries including, but not limited to, the United States (Texas, Oklahoma, and
Louisiana), Scotland (Aberdeen), Germany (Celle), Northern Ireland (Belfast) and Venezuela
(Maracaibo). We operate in over 90 countries around the world and employ approximately 26,900
employees about onehalf of which work outside the U.S. Our revenue in 2004 was in excess of $6
billion approximately 35% of which came from providing products and services to oil and natural
gas companies operating in the U.S.
The customers for our products and services include the supermajor and major integrated oil
and natural gas companies, independent oil and natural gas companies and stateowned national oil
companies (NOCs). Our ability to compete in the oilfield services market is dependent on our
ability to differentiate our product and service offerings by technology, service and the price
paid for the value we deliver. Our primary competitors include the other two large diversified
oilfield service companies Schlumberger and Halliburton, as well as a number of smaller
competitors, including Smith, Weatherford and Grant Prideco.
The primary driver of our business is our customers capital and operating expenditures
dedicated to exploring, drilling, developing, and producing oil and natural gas. Our business is
cyclical and is dependent upon our customers forecasts of future oil and natural gas prices,
future economic growth and hydrocarbon demand and estimates of future oil and natural gas
production. In 2004, our customers spending directed to both worldwide oil and North American oil
and natural gas projects increased. These increases were driven by the perceived, multiyear
requirement to produce more hydrocarbons to meet the growth in demand, offset production declines,
increase inventory levels and rebuild excess productive capacity. The increases were supported by
historically high oil and natural gas prices. Our customers spending on oil projects is expected
to continue to grow in 2005 and in the near future, with a bias towards those projects in the
Middle East, Russia and the Caspian region and Africa. Spending in North America is dominated by
spending on natural gas projects. In North America, customer activity is expected to grow modestly
in 2005 compared with 2004 levels, which were the highest in over two decades.
In 2004, we reported revenues of $6,103.8 million, a 16.2% increase compared with 2003.
Income from continuing operations for 2004 was $528.2 million compared with $177.9 million in 2003.
Included in income from continuing operations for 2003 are charges,
19
net of tax, of $105.9 million related to our share of a WesternGeco restructuring charge and
$45.3 million related to the impairment of our investment in WesternGeco. Both our revenues and
operating profits set all time records in 2004.
During 2004, the Baker Hughes rig count rose to its highest level since 1986, as oil and
natural gas companies around the world recognized the need to increase productive capacity to meet
the growing demand for hydrocarbons. Oil and natural gas prices were at historic highs in 2004,
reflecting strong demand and relatively low inventories. The lack of excess productive capacity
and several geopolitical and weather events also contributed to higher and more volatile commodity
prices in 2004. In 2004, our revenues increased 16.2% compared with 2003, outpacing the 10.1%
increase in the worldwide average rig count for 2004 compared with 2003. In North America, our
2004 revenues increased 14.4% compared with 2003, while the rig count increased 10.9% for 2004
compared with 2003, driven primarily by landbased drilling for natural gas. Outside North
America, our 2004 revenues increased 17.5% compared with 2003, while the rig count increased 8.6%
for 2004 compared with 2003. Revenue growth was particularly noteworthy in Russia and the Caspian
region, Latin America, the Middle East, Africa and Asia. Our European revenues in 2004 were up
modestly compared with 2003, despite a 15.2% drop in the North Sea rig count.
The critical success factors for our business are embodied in our longterm strategy, which we
call our Strategic Framework. This strategy includes the development and maintenance of a high
performance culture founded on our Core Values and Keys to Success; our product line focused
organization and our focus on bestinclass opportunities; maintaining our financial flexibility
and financial discipline; and execution of our strategies for product development and
commercialization, manufacturing quality and service quality.
Our ongoing effort to develop and maintain a high performance culture starts with our Core
Values of integrity, teamwork, performance and learning and with our Keys to Success. We employ
succession planning efforts to develop leaders across all our businesses that embody these Core
Values and represent the diversity of our customer base. We hire and train employees from around
the world to ensure that we have a welltrained workforce in place to support our business plans.
Our focus on bestinclass opportunities starts with our product line focused organization
structure. We believe that through our product line focused divisions, we develop the technologies
that deliver bestinclass value to our customers. As an enterprise, we are also focused on those
markets that we believe provide bestinclass opportunities for growth. Our management team has
identified markets for immediate focus including Russia and the Caspian region and NOCs.
Our focus on financial flexibility and financial discipline is the backbone of our effort to
deliver differential growth at superior margins while earning an acceptable return on our
investments throughout the business cycle. Investments are given priority and funded depending on
their ability to provide riskadjusted returns in excess of our cost of capital. Our effort to
obtain the best price we can for our products and services begins with our approach to capital
discipline. Over the past few years, we have invested for growth in our business, repaid debt,
paid dividends and repurchased stock, and we expect to maintain the flexibility to be able to
undertake such activities in the future.
The last element of our Strategic Framework focuses on our ability to identify, develop and
commercialize new products and services that will lead to differential growth at superior margins
in our business. The effort extends to every phase of our operations, including continuous
improvement programs in our manufacturing facilities and field operations that support our goal of
flawless execution at the well site.
The execution of our 2005 business plan and the ability to meet our 2005 financial objectives
are dependent on a number of factors. These factors include, but are not limited to, our ability
to: manage raw material and component costs (especially steel alloys, copper and chemicals) which
are expected to increase in 2005 compared with 2004; continue to make ongoing improvements in the
productivity of our manufacturing organization; recruit, train and retain the skilled and diverse
workforce necessary to meet our business needs; expand our business in areas that are growing
rapidly (such as Russia and the Caspian region) with customers whose spending is expected to
increase the most rapidly (such as NOCs), and in areas in which we are underrepresented (such as
the Middle East); and realize price increases commensurate with the value we provide to our
customers. For a full discussion of risk factors and forwardlooking statements, please see the
Risk Factors Related to the Worldwide Oil and Natural Gas Industry, Risk Factors Related to Our
Business and ForwardLooking Statements sections contained herein.
20
BUSINESS ENVIRONMENT
Our business environment and its corresponding operating results are significantly affected by
the level of energy industry spending for the exploration and production (E&P) of oil and natural
gas reserves. An indicator for this spending is the rig count because when drilling and workover
rigs are active, many of the products and services provided by the oilfield services industry are
required. Our products and services are used during the drilling and workover phases, during the
completion of the oil and natural gas wells and during actual production of the hydrocarbons. This
E&P spending by oil and natural gas companies is, in turn, influenced strongly by expectations
about the supply and demand for oil and natural gas products and by current and expected prices for
both oil and natural gas. Rig counts, therefore, generally reflect the relative strength and
stability of energy prices.
Rig Counts
We have been providing rig counts to the public since 1944. We gather all relevant data
through our field service personnel, who obtain the necessary data from routine visits to the
various rigs, customers, contractors or other outside sources. This data is then compiled and
distributed to various wire services and trade associations and is published on our website. Rig
counts are compiled weekly for the U.S. and Canada and monthly for all international and U.S.
workover rigs. Published international rig counts do not include rigs drilling in certain
locations, such as Russia and onshore China, because this information is extremely difficult to
obtain.
North American rigs are counted as active if, on the day the count is taken, the well being
drilled has been started, drilling has not been completed and the well is anticipated to be of
sufficient depth to be a potential consumer of our drill bits. In most international areas, rigs
are counted as active if drilling operations have taken place for at least 15 days during the
month. The rig count does not include rigs that are in transit from one location to another, are
rigging up, are being used in nondrilling activities, including production testing, completion and
workover, or are not significant consumers of drill bits. In some active international areas where
better data is available, a weekly or daily average of active rigs is taken.
Our rig counts are summarized in the table below as averages for each of the periods
indicated.
The U.S. land and inland waters rig count increased 18.5% in 2004 compared with 2003 due to
the increase in drilling for natural gas. The U.S. offshore rig count decreased 10.2% in 2004
compared with 2003 primarily related to a reduced level of spending by major diversified oil and
natural gas companies who have continued to redirect a portion of their spending towards larger
international projects. The Canadian rig count decreased 1.9%, primarily as a result of unusually
wet weather in the summer and fall of 2004.
Outside North America, the rig count increased 8.6% in 2004 compared with 2003. The rig count
in Latin America increased 18.9% in 2004 compared with 2003, driven primarily by spending increases
in Mexico, Venezuela and Argentina. The North Sea rig count decreased 15.2% in 2004 compared with
2003 primarily driven by continued declines in drilling activity in both the U.K. and Norwegian
sectors. Increases in spending in the North Sea by independent oil and natural gas companies were
not large enough to offset decreases in spending by major diversified oil and natural gas
companies, which continue to redirect spending towards other larger international projects,
especially in Russia and the Caspian region. The rig count in Africa declined 9.3% in 2004
compared with 2003 primarily due to project delays in West Africa. Activity in the Middle East
continued to rise steadily, with a 9.0% increase in the rig count in 2004 compared with 2003. The
rig count in the Asia Pacific region was up 11.3% in 2004 compared with 2003 primarily due to
activity increases in India, Indonesia, Australia and offshore China.
21
Oil and Natural Gas Prices
Generally, changes in the current price and expected future prices of oil or natural gas drive
both customers expectations about their prospects from oil and natural gas sales and their
expenditures to explore for or produce oil and natural gas. Accordingly, changes in these
expenditures will normally result in increased or decreased demand for our products and services.
Oil (Bloomberg West Texas Intermediate (WTI) Cushing Crude Oil Spot Price) and natural gas (Bloomberg Henry Hub
Natural Gas Spot Price) prices are summarized in the table below as averages of the daily closing
prices during each of the periods indicated.
Oil prices averaged a historic high of $41.51/Bbl in 2004. Prices increased from the low
$30s/Bbl in January 2004 to a high of $56.17/Bbl in late October 2004, before moderating and ending
the year in the low $40s/Bbl. Inventories of crude and petroleum products were relatively low
throughout the year, supporting high prices. Worldwide demand for hydrocarbons was driven by
strong worldwide economic growth, which was particularly strong in China and developing Asia.
Worldwide excess productive capacity was at the lowest level in 30 years, and disruptions, or the
potential for disruptions, in oil supply resulted in volatile oil prices throughout the year.
Events in 2004 which either disrupted, or had the potential to disrupt, oil supplies included: the
August recall elections in Venezuela; sabotage of Iraqi oil production assets; actions taken by the
Russian government regarding Yukos and their tax obligations; terrorism in the Middle East,
including the possibility of a disruption in oil supply from Saudi Arabia; labor strikes in Norway;
labor strikes and violence in Nigeria; and weather, especially the impact of hurricanes in the Gulf
of Mexico. By the end of the year, a number of these issues were resolved without significant
disruptions to oil supply, which led to oil prices of just above $40/Bbl. In addition to these
events, the weakness of the U.S. dollar relative to many worldwide currencies contributed to high
U.S. dollardenominated oil prices.
During 2004, natural gas prices averaged a historic high of $5.90/mmBtu. Throughout the year,
a tight balance between supply and demand supported prices between $5/mmBtu and $7/mmBtu, with
weather related spikes outside of this range. High natural gas drilling activity in 2004 combined
with increasing depletion rates resulted in limited production growth. We began the year with U.S.
natural gas storage levels slightly greater than the fiveyear average storage levels. Natural gas
prices peaked above $7/mmBtu in January as a result of colder than normal winter weather. Prices
fell to just above $5/mmBtu in late February, as winter weather moderated and storage remained just
above the fiveyear average. However, by the end of the winter heating season, natural gas
inventories fell below the fiveyear average. In the first half of the summer, the market required
natural gas prices in excess of $6/mmBtu in order to limit consumption of natural gas and allow
storage to refill. In July and August, below average summer temperatures allowed storage to fill
more rapidly and, as storage increased above the fiveyear average, prices fell to a low of
$4.40/mmBtu in early September. High oil prices, hurricanedriven supply disruptions and the start
of the winter heating season resulted in a peak price of $8.14/mmBtu in late October. Prices fell
below $5/mmBtu in November, as the beginning of the winter was milder than normal and storage was
above the fiveyear average. A late December cold snap resulted in a natural gas price in excess
of $7/mmBtu. Prices ended the year at approximately $6/mmBtu.
Worldwide Oil and Natural Gas Industry Outlook
This section should be read in conjunction with the factors described in the Risk Factors
Related to the Worldwide Oil and Natural Gas Industry, Risk Factors Related to Our Business and
ForwardLooking Statements sections contained herein. These factors could impact, either
positively or negatively, our expectation for oil and natural gas demand, oil and natural gas
prices and drilling activity.
Oil
Oil prices in 2005 are expected to trade between $35/Bbl and $55/Bbl. Continuing the
trend from 2004, low inventories of crude oil and products, combined with strong worldwide economic
growth, are expected to support prices that could average above $40/Bbl. Growth in oil demand is
expected to slow in 2005 compared with 2004, as worldwide economic growth and, in particular,
economic growth in China moderates from the extraordinarily strong growth exhibited in 2004. The
ongoing lack of excess productive capacity will leave the energy markets susceptible to price
volatility should there be any disruptions or threat of disruptions in oil supplies.
Factors that could lead to prices at the lower end of our range include but are not limited
to: a more significant than expected slowing of worldwide economic growth, particularly economic
growth in China; greater than planned growth in Russian oil exports; Organization of Petroleum
Exporting Countries (OPEC) exports in excess of their stated goals; or other factors which result
in oil inventories increasing significantly from historically low levels.
22
Factors that could lead to prices at the top of our range include but are not limited to:
more rapid than planned expansion of the worldwide economy, particularly the economy in China; a
significant slowing of exports from Russia; or other factors which result in oil inventories that
remain at historically low levels.
Factors that could lead to disruptions or the threat of disruptions in oil supply and
volatility in oil prices include but are not limited to: terrorist attacks targeting oil
production from Saudi Arabia or other key producers; labor strikes in key oil producing areas such
as Nigeria; the potential for other military actions in the Middle East; and adverse weather
conditions, especially in the Gulf of Mexico. The potential for these and other events to cause
volatility will be mitigated by the degree to which OPEC, and in particular Saudi Arabia, are able
to increase excess productive capacity.
Natural Gas
Natural gas prices in 2005 are expected to remain volatile, trading between
$4/mmBtu and $7/mmBtu. Natural gas prices could trade at the top of this range if weather is
colder than normal, the U.S. economy, particularly the industrial sector, exhibits greater than
expected growth and continued levels of customer spending are not sufficient to support the
production growth required to meet the growth of natural gas demand. Natural gas prices could move
to the bottom of this range if the U.S. economic recovery is weaker than expected or weather is
milder than expected. During the summer, natural gas prices are expected to trade at a level
necessary to curtail price sensitive demand and allow storage to refill.
Customer Spending
Based upon our discussions with major customers, review of published
industry reports and our outlook for oil and natural gas prices described above, anticipated
customer spending trends are as follows:
Drilling Activity
Based upon our outlook for oil and natural gas prices and customer
spending described above, our outlook for drilling activity, as measured by the Baker Hughes rig
count, is as follows:
Risk Factors Related to the Worldwide Oil and Natural Gas Industry
Our business is focused on providing products and services to the worldwide oil and natural
gas industry; therefore, our risk factors are centered on those factors that impact, either
positively or negatively, the markets for oil and natural gas. Key risk factors currently
influencing the worldwide oil and natural gas markets are discussed below.
23
24
For additional risk factors and cautions regarding forwardlooking statements, see the Risk
Factors Related to Our Business and the ForwardLooking Statements sections contained herein.
This list of risk factors is not intended to be all inclusive.
BUSINESS OUTLOOK
In our outlook for 2005, we took into account the factors described herein. We expect that
2005 will be a stronger year than 2004, with revenues increasing 9% to 11%, in line with the
expected increase in customer spending. We expect that the growth in our revenues will primarily
be due to increased activity and, to a lesser extent, price improvement. Our assumptions regarding
overall growth in customer spending assume strong economic growth in the U.S. and China, and OPEC
discipline, resulting in an average oil price exceeding $35/Bbl. Our assumptions regarding
customer spending in North America assume strong economic growth in the U.S. and natural gas prices
exceeding an average of $5/mmBtu.
In North America, we expect revenues to increase 11% to 13% in 2005 compared with 2004, with
the majority of the increase occurring in the second half of 2005. We expect spending on
landbased projects to continue to increase in 2005 driven by demand for natural gas, following the
trend evident in 2004. We also expect offshore spending in the Gulf of Mexico to increase modestly
in 2005 compared with 2004. The normal weatherdriven seasonal decline in U.S. and Canadian
spending in the first half of the year should result in sequentially softer revenues in the first
and second quarters of 2005.
In 2004, 2003 and 2002, revenues outside North America were 58.4%, 57.7% and 59.9% of total
revenues, respectively. In 2005, we expect revenues outside North America to continue to be
between 55% and 60% of total revenues, and we expect these revenues to increase 7% to 9% in 2005
compared with 2004, continuing the multiyear trend of modest growth in customer spending.
Spending on large projects by NOCs will reflect established seasonality trends, resulting in softer
revenues in the first half of the year and stronger revenues in the second half. In addition,
customer spending should be affected by weatherrelated reductions in the North Sea in the first
and second quarters of 2005. The Middle East, Africa and Latin America are expected to grow
modestly in 2005 compared with 2004. Our expectations for spending and revenue growth could
decrease if average prices fall below $35/Bbl for oil or $5/mmBtu for natural gas or if there are
disruptions in key oil and natural gas production markets, such as Venezuela or Nigeria.
In 2004, WesternGeco contributed $34.5 million of equity in income of affiliates compared with
equity in loss of affiliates of $9.9 million in 2003, which excludes $135.7 million related to our
portion of certain restructuring and impairment charges taken by WesternGeco in the third quarter
of 2003, which we recorded in Equity in income (loss) of affiliates in our consolidated statement
of operations. We expect the trend of improving operating results for WesternGeco to continue
throughout 2005; however, based on the historical trend of operating losses and weakness in the
seismic industry in prior years, there is uncertainty regarding the future operating results of
WesternGeco. Information regarding WesternGecos profitability in 2005 is based on information
that WesternGeco has provided to us. Should this information not be accurate, our forecasts for
profitability could be impacted, either positively or negatively.
In 2005, we modified our stock award program to provide a combination of both restricted stock
and stock option awards. Restricted stock awards and stock option awards were granted in January
and stock option awards may also be granted in July. As required under the current accounting
rules, awards of restricted stock are expensed over the vesting period based on their fair value
when granted. We will begin expensing the fair value of stock option awards and stock issued under
the employee stock purchase plan in July 2005, when we adopt the revised Statement of Financial
Accounting Standards No. 123,
ShareBased Payment
(SFAS No. 123R). We are currently in the
process of evaluating different option pricing models and the impact of SFAS No. 123R on our
consolidated financial statements. If we were to adopt SFAS No. 123R in July 2005 using a
prospective application, we expect that income from continuing operations per diluted share will be
reduced by approximately $0.03 for 2005. For further information, see Note 1 of the Notes to the
Consolidated Financial Statements in Item 8 herein.
Based on the above forecasts, we believe that income from continuing operations per diluted
share in 2005 will be in the range of $1.80 to $1.95, which includes the impact of expensing
restricted stock awards but excludes the impact of expensing stock option awards and stock issued
under the employee stock purchase plan. Significant price increases or significantly better than
expected results from WesternGeco could cause earnings per share to reach the upper end of this
range. Conversely, significant price decreases or significantly worse than expected results at
WesternGeco could result in earnings per share being at or below the bottom of this range. Our
ability to improve pricing is dependent on demand for our products and services and our competitors
strategies of managing capacity. While the commercial introduction of new technology is an
important factor in realizing price improvement, without pricing discipline throughout the industry
as a whole, meaningful improvements in our prices are not likely to be realized. Additionally,
significant changes in drilling activity outside our expectations, as well as changes in expected
costs of raw materials, could impact operating results positively or negatively.
25
We do business in approximately 90 countries including over onehalf of the 35 countries
having the lowest scores, which indicates high levels of corruption, in Transparency
Internationals Corruption Perception Index (CPI) survey for 2004. We devote significant
resources to the development, maintenance and enforcement of our Business Code of Conduct policy,
our Foreign Corrupt Practices Act (the FCPA) policy, our internal control processes and
procedures and other compliance related policies. Notwithstanding the devotion of such resources,
and in part as a consequence thereof, from time to time we discover or receive information alleging
potential violations of laws and regulation, including the FCPA and our policies, processes and
procedures. We conduct internal investigations of these potential violations and take appropriate
action depending upon the outcome of the investigation. In addition, U.S. government agencies and
authorities are conducting investigations into allegations of potential violations of laws. We
anticipate that the devotion of significant resources to compliance related issues, including the
necessity for investigations, will continue to be an aspect of doing business in a number of the
countries in which oil and natural gas exploration, development and production take place and in
which we are requested to conduct operations. Compliance related issues could limit our ability to
do business in these countries. In order to provide products and services in some of these
countries, we may in the future utilize ventures with third parties, sell products to distributors
or otherwise modify our business approach in order to improve our ability to conduct our business
in accordance with laws and regulations and our Business Code of Conduct.
Risk Factors Related to Our Business
Our expectations regarding our business outlook, including changes in revenue, pricing,
capital spending and profitability, are only our forecasts regarding these matters. These
forecasts may be substantially different from actual results, which are affected by the following
risk factors and the timing of any of these risk factors:
26
For additional risk factors and cautions regarding forwardlooking statements, see the Risk
Factors Related to the Worldwide Oil and Natural Gas Industry and ForwardLooking Statements
sections contained herein. This list of risk factors is not intended to be all inclusive.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our consolidated financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosures about contingent assets and liabilities. We base these estimates and judgments
on historical experience and other assumptions and information that are believed to be reasonable
under the circumstances. Estimates and assumptions about future events and their effects cannot be
perceived with certainty, and accordingly, these estimates may change as new events occur, as more
experience is acquired, as additional information is obtained and as the business environment in
which we operate changes.
We have defined a critical accounting estimate as one that is both important to the portrayal
of our financial condition and results of operations and requires us to make difficult, subjective
or complex judgments or estimates about matters that are uncertain. We have discussed the
development and selection of our critical accounting estimates with the Audit/Ethics Committee of
our Board of Directors and the Audit/Ethics Committee has reviewed the disclosure presented below.
During the past three fiscal years, we have not made any material changes in accounting methodology
used to establish the critical accounting estimates discussed below. We believe that the following
are the critical accounting estimates used in the preparation of our consolidated financial
statements. In addition, there are other items within our consolidated financial statements that
require estimation but are not deemed critical as defined above.
Allowance for Doubtful Accounts
The determination of the collectibility of amounts due from our customers requires us to use
estimates and make judgments regarding future events and trends, including monitoring our
customers payment history and current credit worthiness to determine that collectibility is
reasonably assured, as well as consideration of the overall business climate in which our customers
operate. Inherently, these uncertainties require us to make frequent judgments and estimates
regarding our customers ability to pay amounts due us in order to determine the appropriate amount
of valuation allowances required for doubtful accounts. Provisions for doubtful accounts are
recorded when it becomes evident that the customer will not make the required payments at either
contractual due dates or in the future. At December 31, 2004 and 2003, reserves for doubtful
accounts totaled $50.5 million, or 3.6%, and $61.8 million, or 5.1%, of total accounts receivable
before reserves, respectively. We believe that our reserve for doubtful accounts is adequate to
cover anticipated losses under current conditions; however, uncertainties regarding changes in the
financial condition of our customers, either adverse or positive, could impact the amount and
timing of any additional provisions for doubtful accounts that may be required. A five percent
change in this reserve would have had a pretax impact of approximately $2.5 million in 2004.
Inventory Reserves
Inventory is a significant component of current assets and is stated at the lower of cost or
market. This requires us to record provisions and maintain reserves for excess or obsolete
inventory. To determine these reserve amounts, we regularly review inventory quantities on hand
and compare them to estimates of future product demand, market conditions, production requirements
and technological developments. These estimates and forecasts inherently include uncertainties and
require us to make judgments regarding potential outcomes. At December 31, 2004 and 2003,
inventory reserves totaled $221.1 million, or 17.6%, and $232.5 million, or 18.7%, of gross
inventory, respectively. We believe that our reserves are adequate to cover anticipated losses
under current conditions. Significant or unanticipated changes to our estimates and forecasts,
either adverse or positive, could impact the amount and timing of any additional provisions for
excess or obsolete inventory that may be required. A five percent difference in this reserve would
have had a pretax impact of approximately $11.1 million in 2004.
Impairment of LongLived Assets
Longlived assets, which include property, goodwill, intangible assets, investments in
affiliates and certain other assets, comprise a significant amount of our total assets. We review
the carrying values of these assets for impairment periodically, and at least annually for
goodwill, or whenever events or changes in circumstances indicate that the carrying amounts may not
be recoverable. An
27
impairment loss is recorded in the period in which it is determined that the carrying amount
is not recoverable. This requires us to make judgments regarding longterm forecasts of future
revenues and costs related to the assets subject to review. In turn, these forecasts are uncertain
in that they require assumptions about demand for our products and services, future market
conditions and technological developments. Significant and unanticipated changes to these
assumptions could require a provision for impairment in a future period. Given the nature of these
evaluations and their application to specific assets and specific times, it is not possible to
reasonably quantify the impact of changes in these assumptions; however, based upon our evaluation
of the current business climate in which we operate, we do not currently anticipate that any
significant asset impairment losses will be necessary.
Income Taxes
The liability method is used for determining our income taxes, under which current and
deferred tax liabilities and assets are recorded in accordance with enacted tax laws and rates.
Under this method, the amounts of deferred tax liabilities and assets at the end of each period are
determined using the tax rate expected to be in effect when taxes are actually paid or recovered.
Valuation allowances are established to reduce deferred tax assets when it is more likely than not
that some portion or all of the deferred tax assets will not be realized. In determining the need
for valuation allowances, we have considered and made judgments and estimates regarding estimated
future taxable income and ongoing prudent and feasible tax planning strategies. These estimates
and judgments include some degree of uncertainty and changes in these estimates and assumptions
could require us to adjust the valuation allowances for our deferred tax assets. Historically,
changes to valuation allowances have been caused by major changes in the business cycle in certain
countries and changes in local country law. The ultimate realization of the deferred tax assets
depends on the generation of sufficient taxable income in the applicable taxing jurisdictions.
We operate in more than 90 countries under many legal forms. As a result, we are subject to
the jurisdiction of numerous domestic and foreign tax authorities, as well as to tax agreements and
treaties among these governments. Our operations in these different jurisdictions are taxed on
various bases: actual income before taxes, deemed profits (which are generally determined using a
percentage of revenues rather than profits) and withholding taxes based on revenue. Determination
of taxable income in any jurisdiction requires the interpretation of the related tax laws and
regulations and the use of estimates and assumptions regarding significant future events such as
the amount, timing and character of deductions, permissible revenue recognition methods under the
tax law and the sources and character of income and tax credits. Changes in tax laws, regulations,
agreements and treaties, foreign currency exchange restrictions or our level of operations or
profitability in each taxing jurisdiction could have an impact on the amount of income taxes that
we provide during any given year.
Our tax filings for various periods are subjected to audit by the tax authorities in most
jurisdictions where we conduct business. These audits may result in assessments of additional
taxes that are resolved with the authorities or potentially through the courts. We believe that
these assessments may occasionally be based on erroneous and even arbitrary interpretations of
local tax law. Resolution of these situations inevitably includes some degree of uncertainty;
accordingly, we provide taxes only for the amounts we believe will ultimately result from these
proceedings. The resulting change to our tax liability, if any, is dependent on numerous factors
which are difficult to estimate. These include, among others, the amount and nature of additional
taxes potentially asserted by local tax authorities; the willingness of local tax authorities to
negotiate a fair settlement through an administrative process; the impartiality of the local
courts; the sheer number of countries in which we do business; and the potential for changes in the
tax paid to one country to either produce, or fail to produce, an offsetting tax change in other
countries. Our experience has been that the estimates and assumptions we have used to provide for
future tax assessments have proven to be appropriate. However, past experience is only a guide,
and the potential exists, however limited, that the tax resulting from the resolution of current
and potential future tax controversies may differ materially from the amount accrued. While we
have provided for the taxes that we believe will ultimately be payable as a result of these
assessments, the aggregate assessments are approximately $34.0 million in excess of the taxes
provided for in our consolidated financial statements.
In addition to the aforementioned assessments that have been received from various taxing
authorities, we provide for taxes in certain situations where assessments have not been received.
In those situations, we consider it probable that the taxes ultimately payable will exceed those
amounts reflected in filed tax returns; accordingly, taxes are provided in those situations under
the guidance in Statement of Financial Accounting Standards (SFAS) No. 5,
Accounting for
Contingencies
.
Pensions and Postretirement Benefit Obligations
Pensions and postretirement benefit obligations and the related plan expenses are calculated
using actuarial models and methods. This involves the use of two critical assumptions, the
discount rate and the expected rate of return on assets, both of which are important elements in
determining plan expenses and in measuring plan assets and liabilities. We evaluate these critical
assumptions at least annually. Other less critical assumptions used
in determining benefit obligations and plan expenses, such as demographic factors
28
like retirement age, mortality and turnover, are also evaluated periodically and are updated
accordingly to reflect our actual experience.
The discount rate enables us to state expected future cash flows at a present value on the
measurement date. A lower discount rate increases the present value of benefit obligations and
increases plan expenses. We used a discount rate of 6.25% in 2004, 6.75% in 2003 and 7.00% in 2002
to determine plan expenses. A 75 basis point reduction in the discount rate would have increased
plan expenses in 2004 by $6.2 million.
To determine the expected rate of return on plan assets, we consider the current and expected
asset allocations, as well as historical and expected returns on various categories of plan assets.
A lower rate of return increases plan expenses. We assumed that rates of return on our plan
investments were 8.50% in 2004 and 2003 and 9.00% in 2002. A 50 basis point decrease in the
expected rate of return on assets of our principal plans would have increased plan expenses in 2004
by $1.8 million.
DISCONTINUED OPERATIONS
In September 2004, we completed the sale of Baker Hughes Mining Tools (BHMT), a product line
group within the Oilfield segment that manufactured rotary drill bits used in the mining industry,
for $31.5 million. We recorded a gain on the sale of $0.2 million, net of tax of $3.6 million,
which consisted of a gain on the disposal of $6.8 million offset by a loss of $6.6 million related to
the recognition of the cumulative foreign currency translation adjustments into earnings.
In October 2003, we signed a definitive agreement for the sale of BIRD Machine (BIRD), the
remaining division of the former Process segment, and recorded charges totaling $37.4 million, net
of tax of $10.9 million, which consisted of a loss of $13.5 million on the writedown of BIRD to
fair value, $6.2 million of severance and warranty accruals and a loss of $17.7 million related to
the recognition of cumulative foreign currency translation adjustments into earnings. In January
2004, we completed the sale of BIRD and recorded an additional loss on the sale of $0.5 million
with no tax benefit. We received $5.6 million in proceeds, which were subject to postclosing
adjustments to the purchase price, and retained certain accounts receivable, inventories and other
assets. During the second quarter of 2004, we made a net payment of $6.8 million to the buyer in
settlement of the final purchase price adjustments. The adjustments were the result of changes in
the value of assets sold to and liabilities assumed by the buyer between the date the initial sales
price was negotiated and the closing of the sale.
In December 2002, we entered into exclusive negotiations for the sale of our interest in our
oil producing operations in West Africa for $32.0 million in proceeds. The transaction was
effective as of January 1, 2003, and resulted in a gain on the sale of $4.1 million, net of a tax
benefit of $0.2 million. We received $10.0 million as a deposit in 2002 and the remaining $22.0
million in April 2003.
In November 2002, we sold EIMCO Process Equipment (EIMCO), a division of the former Process
segment, and recorded a loss on the disposal of $22.3 million, net of tax of $1.2 million, which
consisted of a loss of $2.3 million on the writedown to fair value and a loss of $20.0 million
related to the recognition of cumulative foreign currency translation adjustments into earnings.
We received total proceeds of $48.9 million, of which $4.9 million was held in escrow pending
completion of final adjustments to the purchase price. In 2003, all purchase price adjustments
were completed, resulting in the release of the escrow balance, of which we received $2.0 million
and $2.9 million was returned to the buyer. In 2003, we also recorded an additional loss on the
sale due to purchase price adjustments of $2.5 million, net of tax of $1.3 million.
We have reclassified the consolidated financial statements for all prior periods presented to
reflect these operations as discontinued. See Note 2 of the Notes to Consolidated Financial
Statements in Item 8 herein for additional information regarding discontinued operations.
RESULTS OF OPERATIONS
The discussions below relating to significant line items represent our analysis of significant
changes or events that impact the comparability of reported amounts. Where appropriate, we have
identified specific events and changes that affect comparability or trends and, where possible and
practical, have quantified the impact of such items.
29
The table below details certain consolidated statement of operations data and their percentage
of revenues for 2004, 2003 and 2002, respectively.
Revenues
Revenues for 2004 increased 16.2% compared with 2003, reflecting a 10.1% increase in the
worldwide rig count. Revenues in North America, which accounted for 41.6% of total revenues,
increased 14.4% compared with 2003. This increase reflects increased drilling activity in the U.S.
and Canada, as evidenced by a 10.9% increase in the North American rig count, and $24.8 million
related to intellectual property license fees, which is not expected to recur in the same magnitude
in the future. Revenues outside North America, which accounted for 58.4% of total revenues,
increased 17.5% compared with 2003. This increase reflects the improvement in international
drilling activity, as evidenced by an 8.6% increase in the rig count outside North America,
primarily in Latin America and Asia Pacific, partially offset by decreased drilling activity in the
North Sea and Africa. During 2004, our revenue growth was primarily due to increases in activity
and, to a lesser extent, pricing improvements.
Revenues for 2003 increased 8.1% compared with 2002, reflecting a 19.1% increase in the
worldwide rig count. Revenues in North America, which accounted for 42.3% of total revenues,
increased 14.0% compared with 2002. This increase reflects increased drilling activity in the U.S.
and Canada, as evidenced by a 28.4% increase in the North American rig count. Revenues outside
North America, which accounted for 57.7% of total revenues, increased 4.1% compared with 2002.
This increase reflects the improvement in international drilling activity, as evidenced by the 5.2%
increase in the rig count outside North America, primarily in Latin America and the Middle East,
partially offset by decreased drilling activity in the North Sea and Africa. During 2003, pricing
was not a significant contributor to our revenue growth, as deterioration in prices for certain
product lines at our INTEQ division were partially offset by pricing improvement realized from our
other product lines.
Cost of Revenues
Cost of revenues for 2004 increased 14.3% compared with 2003. Cost of revenues as a
percentage of revenues was 71.6% and 72.7% for 2004 and 2003, respectively. The decrease in cost
of revenues as a percentage of revenues is primarily related to limited pricing improvement in
certain markets and product lines and improved cost control measures, including lower repair and
maintenance costs at our INTEQ division, partially offset by increased material costs and higher
employee bonus expense. A change in the geographic and product mix from the sale of our products
and services also contributed to the decrease in the cost of revenues as a percentage of revenues.
During 2004, our revenue increases came predominantly from outside North America and our margins on
revenues generated outside North America are typically higher than margins generated in North
America.
Cost of revenues for 2003 increased 9.5% compared with 2002. Cost of revenues as a percentage
of revenues was 72.7% and 71.8% for 2003 and 2002, respectively. The increase in cost of revenues
as a percentage of revenues is primarily related to our INTEQ division. In 2003, INTEQ experienced
the highest revenue growth of our divisions; however, margins deteriorated as they were impacted by
increased downward pricing trends, increased repair and maintenance costs for newly developed
downhole rental tools and other nonrecurring costs. A change in the geographic and product mix
from the sale of our products and services also contributed to the increase in the cost of revenues
as a percentage of revenues. During 2003, our revenue increases came predominantly from North
America and our margins on revenues generated in North America are typically lower than margins
generated outside of North America.
Selling, General and Administrative
Selling, general and administrative (SG&A) expenses for 2004 increased 10.7% compared with
2003. This increase was primarily due to higher marketing and administrative expenses as a result
of increased activity, including higher annual employee bonus expense, and increased costs related
to our continued focus on compliance, including legal investigations and increased staffing in our
legal, compliance and audit groups. The increase was also due to the implementation of programs
and procedures as a result of the requirements of the SarbanesOxley Act of 2002.
SG&A expenses for 2003 increased 2.4% compared with 2002. This increase was primarily due to
an $8.9 million increase in net costs related to corporate activities and an increase of
approximately $17.0 million in costs related to our self insurance programs, offset by improvement
in the impact of foreign currency exchange activity of $18.3 million.
30
Reversal of Restructuring Charge
In 2000, our Board of Directors approved a plan to substantially exit the oil and natural gas
exploration business and we recorded a restructuring charge of $29.5 million. Included in the
restructuring charge was $1.1 million for a contractual obligation related to an oil and natural
gas property in Angola. The property was subsequently sold in 2003 and we reversed the liability
related to this contractual obligation.
Impairment of Investment in Affiliate
In 2003, as a result of the continued weakness in the seismic industry, we evaluated the
carrying value of our investment in WesternGeco and recorded an impairment loss of $45.3 million to
writedown the investment to its fair value. The fair value was determined using a combination of
a market capitalization and discounted cash flows approach. We were assisted in the determination
of the fair value by a third party. Although not anticipated, further declines in the fair value
of the investment in WesternGeco would result in additional impairments.
Equity in Income (Loss) of Affiliates
Equity in income of affiliates was $36.3 million in 2004 compared with equity in loss of
affiliates of $2.1 million in 2003, which excludes the $135.7 million related to our portion of the
restructuring and impairment charge taken by WesternGeco in the third quarter of 2003. During
2003, the operating results of WesternGeco continued to be adversely affected by the weakness in
the seismic industry and, as a result of this weakness, WesternGeco recorded certain impairment and
restructuring charges of $452.0 million for impairment of its multiclient seismic library and
rationalization of its marine seismic fleet.
Operating results for WesternGeco are expected to continue to improve in 2005; however, based
on the trend of operating losses and weakness in the seismic industry in prior years, there is
uncertainty regarding the future operating performance of WesternGeco.
Interest Expense
Interest expense for 2004 decreased $19.5 million compared with 2003 primarily due to lower
total debt levels and the effect of the interest rate swap agreement entered into in April 2004.
The lower total debt levels are the result of the repayment of $350.0 million of longterm debt in
the second quarter of 2004, which decreased interest expense by $16.0 million in 2004 compared with
2003. Additionally, the interest rate swap agreement decreased interest expense by $4.1 million in
2004 compared with 2003.
Interest expense for 2003 decreased $8.0 million compared with 2002 due to lower total debt
levels, lower weighted average interest rates on our commercial paper and money market borrowings
and increased amortization of deferred gains related to terminated interest rate swap agreements.
The lower total debt levels are the result of the repayment of $100.0 million of longterm debt in
February 2003. The approximate weighted average interest rate on our commercial paper and money
market borrowings was 1.2% in 2003 compared with 1.8% for 2002. The amortization of deferred gains
related to terminated interest rate swap agreements reduced interest expense by $9.9 million in
2003 compared with $6.0 million in 2002.
Income Taxes
Our effective tax rates differ from the U.S. statutory income tax rate of 35% due to state
income taxes, differing rates of tax on international operations and higher taxes within the
WesternGeco venture.
During 2003, we recognized an incremental effect of $36.3 million of additional taxes
attributable to our portion of the operations of WesternGeco. Of this amount, $15.9 million
related to the reduction in the carrying value of our equity investment in WesternGeco for which
there was no tax benefit. The remaining $20.4 million arose from operations of the venture due to:
(i) the venture being taxed in certain foreign jurisdictions based on a deemed profit basis, which
is a percentage of revenues rather than profits and (ii) unbenefitted foreign losses of the
venture, which are operating losses and impairment and restructuring charges in certain foreign
jurisdictions where there was no current tax benefit and where a deferred tax asset was not
recorded due to the uncertainty of realization. In 2002, the amount of additional taxes resulting
from operations of the venture was $40.2 million.
During 2003, a benefit of $3.3 million was recognized as the result of various refund claims
filed in the U.S. During 2002, a $14.4 million benefit was recognized as the result of the
settlement of an IRS examination related to our September 30, 1996 through September 30, 1998 tax
years.
Our tax filings for various periods are subjected to audit by tax authorities in most
jurisdictions where we conduct business. These audits may result in assessments of additional
taxes that are resolved with the authorities or potentially through the courts. We believe
31
that these assessments may occasionally be based on erroneous and even arbitrary
interpretations of local tax law. We have received tax assessments from various taxing authorities
and are currently at varying stages of appeals and/or litigation regarding these matters. We have
provided for the amounts we believe will ultimately result from these proceedings. We believe we
have substantial defenses to the questions being raised and will pursue all legal remedies should
an unfavorable outcome result. However, resolution of these matters involves uncertainties and
there are no assurances that the outcomes will be favorable.
Cumulative Effect of Accounting Change
On January 1, 2003, we adopted SFAS No. 143,
Accounting for Asset Retirement Obligations
.
SFAS No. 143 requires that the fair value of a liability associated with an asset retirement
obligation (ARO) be recognized in the period in which it is incurred if a reasonable estimate can
be made. The liability for the ARO is revised each subsequent period due to the passage of time
and changes in estimates. The associated retirement costs are capitalized as part of the carrying
amount of the longlived asset and subsequently depreciated over the estimated useful life of the
asset. The adoption of SFAS No. 143 in 2003 resulted in a charge of $5.6 million, net of tax of
$2.8 million, recorded as the cumulative effect of accounting change in the consolidated statement
of operations. In conjunction with the adoption, we recorded ARO liabilities of $11.4 million
primarily for anticipated costs of obligations associated with the future disposal of power source
units at certain of our divisions and refurbishment costs associated with certain leased facilities
in Europe and with a fleet of leased railcars and tanks.
On January 1, 2002, we adopted SFAS No. 142,
Goodwill and Other Intangible Assets
. The
adoption of SFAS No. 142 required us to cease amortizing goodwill and to perform a transitional
impairment test of goodwill in each of our reporting units as of January 1, 2002. The reporting units were
based on our organizational and reporting structure. Corporate and other assets and liabilities
were allocated to the reporting units to the extent that they related to the operations of these
reporting units. Valuations of the reporting units were performed by a third party. The goodwill
in both the EIMCO and BIRD operating divisions of the former Process segment was determined to be
impaired using a combination of a market value and discounted cash flows approach to estimate fair
value. Accordingly, we recognized transitional impairment losses of $42.5 million, net of tax of
$20.4 million, in 2002 as the cumulative effect of accounting change in the consolidated statement
of operations.
LIQUIDITY AND CAPITAL RESOURCES
Our objective in financing our business is to maintain adequate financial resources and access
to additional liquidity. During 2004, cash flows from operations and shortterm borrowings were
the principal sources of funding. We anticipate that cash flows from operations will cover our
liquidity needs in 2005. We also have a $500.0 million committed revolving credit facility that
provides backup liquidity in the event of an unanticipated
significant demand on cash flows that
could not be funded by operations or shortterm borrowings. This facility expires in July 2006.
Our capital planning process is focused on utilizing cash flows generated from operations in
ways that enhance the value of our company. In 2004, we used cash for a variety of activities
including working capital needs, payment of dividends, repayments of indebtedness and capital
expenditures.
Cash Flows
Cash flows provided (used) by continuing operations by type of activity were as follows for
the years ended December 31:
Statements
of cash flows for entities with international operations that are local currency
functional exclude the effects of the changes in foreign currency exchange rates that occur during
any given year, as these are considered to be noncash changes. As a result, changes reflected in
certain accounts on the consolidated statements of cash flows may not reflect the changes in
corresponding accounts on the consolidated balance sheets.
Operating Activities
Cash flows from operating activities have been steadily increasing over the last three years
and we expect this trend to continue in 2005. We attribute the
increases in our cash flows to
successful management of working capital and increasing levels of income from continuing operations
adjusted for noncash items.
32
Cash flows from operating activities of continuing operations increased $132.0 million in 2004
compared with 2003. This increase was primarily due to increased operating performance, which is
directly related to our increased revenues. In addition, changes in working capital, primarily
consisting of changes in accounts receivable, inventories, accounts
payable and other current liabilities, provided $12.7 million less in cash flows during 2004
compared with 2003.
The underlying drivers of the changes in working capital are as follows:
Our pension contributions in 2004 were approximately $110.0 million, an increase of
approximately $82.0 million compared with 2003, due to our decision to improve the funded status of
certain pension plans and to provide us with increased flexibility on the future funding of these
pension plans.
Cash flows from operating activities of continuing operations increased $31.5 million in 2003
compared with 2002 primarily due to increased operating performance attributable to our increased
revenues. In addition, working capital decreased with the effect of increasing cash flows from
operating activities.
The underlying drivers of the changes in working capital are as follows:
Investing Activities
Our principal recurring investing activity is the funding of capital expenditures to ensure
that we have the appropriate levels and types of rental tools in place to generate revenues from
operations. Expenditures for capital assets totaled $348.3 million, $404.3 million and $355.9
million for 2004, 2003 and 2002, respectively. The majority of these expenditures were for rental
tools, including wireline, and machinery and equipment.
In December 2004, we paid $1.0 million in cash for the remaining 60% interest in Luna Energy
L.L.C. (Luna), a venture we entered into in 2002. During 2004, we also paid $5.6 million in
settlement of the final purchase price related to an acquisition completed in a prior year and
invested an additional $7.1 million in certain of our investments in affiliates.
In 2003, we made two acquisitions having an aggregate purchase price of $16.9 million, of
which $9.5 million was paid in cash. In addition, during 2003, we invested $38.1 million in
affiliates, of which $30.1 million related to our 50% interest in the QuantX Wellbore
Instrumentation venture, which is engaged in the permanent inwell monitoring market.
In 2002, we made three acquisitions having an aggregate cash purchase price of $39.7 million,
net of cash acquired. In addition, during 2002, we invested $16.5 million in Luna.
33
In 2004, we received $58.7 million in net proceeds from the sale of businesses and our
interest in an affiliate. In January, we completed the sale of BIRD and received $5.6 million in
proceeds, which were subject to postclosing adjustments to the purchase price. During the second
quarter, we made a net payment of $6.8 million to the buyer in settlement of the final purchase
price adjustments. In February, we completed the sale of our minority interest in Petreco
International, a venture we entered into in 2001, and received proceeds of $35.8 million, of which
$7.4 million is held in escrow pending the outcome of potential indemnification obligations
pursuant to the sales agreement. A portion of the escrow will be released in May 2005, with the
remainder released in February 2006. In September, we also completed the sale of BHMT and received
proceeds of $31.5 million.
In 2003, we completed the sale of our interest in an oil producing property in West Africa for
$32.0 million in proceeds. We received a deposit of $10.0 million in 2002 and the remaining $22.0
million in 2003. During 2002, we also disposed of our EIMCO division for $48.9 million in
proceeds. We received $44.0 million in proceeds in 2002, with the remainder of the sales price
held in escrow pending completion of final adjustments of the purchase price. In 2003, all
purchase price adjustments were completed, resulting in the release of the escrow balance. We
received $2.0 million and $2.9 million was returned to the buyer.
Proceeds from disposal of assets were $106.9 million, $66.8 million and $77.7 million for
2004, 2003 and 2002, respectively. These disposals relate to rental tools that were lostinhole,
as well as machinery, rental tools and equipment no longer used in operations that were sold
throughout the year. Included in the proceeds for 2004 was $12.2 million related to the sale of
certain real estate properties held for sale.
Financing Activities
We had net borrowings (repayments) of commercial paper and other shortterm debt of $35.5
million, $11.2 million and $(162.4) million in 2004, 2003 and 2002, respectively. In 2004, we
repaid the $100.0 million 8.0% Notes due May 2004 and the $250.0 million 7.875% Notes due June
2004. In 2003, we repaid the $100.0 million 5.8% Notes due February 2003. These repayments were
funded with cash on hand, cash flows from operations and the issuance of commercial paper.
Total debt outstanding at December 31, 2004 was $1,162.3 million, a decrease of $322.1 million
compared with December 31, 2003. The total debt to total capitalization (defined as total debt
plus stockholders equity) ratio was 0.23 at December 31, 2004 and 0.31 at December 31, 2003.
At different times during 2003, we entered into three separate interest rate swap agreements,
each for a notional amount of $325.0 million, associated with our 6.25% Notes due January 2009.
These agreements had been designated and had qualified as fair value hedging instruments. Due to
our outlook for interest rates, we terminated the three agreements and received payments totaling
$26.9 million. Each of the three agreements was terminated prior to entering into a new agreement.
The deferred gains are being amortized as a reduction of interest expense over the remaining life
of the underlying debt security, which matures in January 2009.
During 2002, we terminated two interest rate swap agreements that had been entered into in
prior years. These agreements had been designated and had qualified as fair value hedging
instruments. Upon termination, we received proceeds of $4.8 million and $11.0 million. The
deferred gain of $4.8 million was amortized as a reduction of interest expense over the remaining
life of the underlying debt security, which matured in June 2004. The deferred gain of $11.0
million is being amortized as a reduction of interest expense over the remaining life of the
underlying debt security, which matures in January 2009.
We received proceeds of $115.9 million, $61.8 million and $38.3 million in 2004, 2003 and
2002, respectively, from the issuance of common stock through the exercise of stock options and our
employee stock purchase plan.
During 2002, we were authorized by our Board of Directors to repurchase up to $275.0 million
of our common stock. During 2003, we repurchased 6.3 million shares at an average price of $28.78
per share, for a total of $181.4 million. During 2002, we repurchased 1.8 million shares at an
average price of $27.52 per share, for a total of $49.1 million. Upon repurchase, the shares were
retired. We did not repurchase any shares during 2004.
We paid dividends of $153.6 million, $154.3 million and $154.9 million in 2004, 2003 and 2002,
respectively.
Available Credit Facilities
At December 31, 2004, we had $897.4 million of credit facilities with commercial banks, of
which $500.0 million is a committed revolving credit facility (the facility) that expires in July
2006. The facility contains certain covenants which, among other things, require the maintenance
of a funded indebtedness to total capitalization ratio (a defined formula per the facility) of less
than or equal to 0.50, limit the amount of subsidiary indebtedness and restrict the sale of
significant assets, defined as 10% or more of total
34
consolidated assets. At December 31, 2004, we were in compliance with all the facility
covenants. There were no direct borrowings under the facility during the year ended December 31,
2004; however, to the extent we have outstanding commercial paper, our ability to borrow under the
facility is reduced. At December 31, 2004, we had no outstanding commercial paper or money market
borrowings.
If market conditions were to change and revenues were to be significantly reduced or operating
costs were to increase, our cash flows and liquidity could be reduced. Additionally, it could
cause the rating agencies to lower our credit rating. We do not have any ratings triggers in the
facility that would accelerate the maturity of any borrowings under the facility. However, a
downgrade in our credit ratings could increase the cost of borrowings under the facility. Also, a
downgrade in our credit ratings could limit or preclude our ability to issue commercial paper.
Should this occur, we would seek alternative sources of funding, including borrowing under the
facility.
Cash Requirements
In 2005, we believe operating cash flows will provide us with sufficient capital resources and
liquidity to manage our working capital needs, meet contractual obligations, fund capital
expenditures, pay dividends, repurchase common stock and support the development of our shortterm
and longterm operating strategies.
We currently expect that 2005 capital expenditures will be between $440.0 million and $460.0
million, excluding acquisitions. The expenditures are expected to be used primarily for normal,
recurring items necessary to support the growth of our business and operations.
In 2005, we expect to make interest payments of approximately $80.0 million to $90.0 million.
This is based on our current expectations of debt levels during 2005.
We have authorization remaining to repurchase up to $44.5 million in common stock. We may
continue to repurchase our common stock in 2005 depending on the price of our common stock, our
liquidity and other considerations. In 2005, we anticipate paying dividends of $0.46 per share of
common stock. However, our Board of Directors is free to change the dividend policy at any time.
During 2005, we estimate that we will contribute approximately $12.0 million to $19.0 million
to our pension plans and make benefit payments related to postretirement welfare plans of
approximately $16.3 million. We also estimate that we will contribute approximately $70.0 million
to $80.0 million to our defined contribution plans.
We anticipate making income tax payments of approximately $230.0 million to $260.0 million in
2005.
We do not believe that there are any other material trends, demands, commitments, events or
uncertainties that would have, or are reasonably likely to have, a material impact on our financial
condition and liquidity. Other than previously discussed, we currently have no information that
would create a reasonable likelihood that the reported levels of revenues and cash flows from
operations in 2004 are not indicative of what we can expect in the future.
35
Contractual Obligations
In the table below, we set forth our enforceable and legally binding obligations as of
December 31, 2004. Some of the figures we include in this table are based on our estimates and
assumptions about these obligations, including their duration, anticipated actions by third parties
and other factors. The enforceable and legally binding obligations we will actually pay in future
periods may vary from those reflected in the table because the estimates and assumptions are
subjective.
OffBalance Sheet Arrangements
In the normal course of business with customers, vendors and others, we have entered into
offbalance sheet arrangements, such as letters of credit and other bank issued guarantees, which
totaled approximately $312.3 million at December 31, 2004. In addition, at December 31, 2004, we
have guaranteed debt and other obligations of third parties with a maximum potential exposure of
$7.4 million. None of these offbalance sheet arrangements either has, or is likely to have, a
material effect on our current or future financial condition, results of operations, liquidity or
capital resources.
Other than normal operating leases, we do not have any offbalance sheet financing
arrangements such as securitization agreements, liquidity trust vehicles, synthetic leases or
special purpose entities. As such, we are not materially exposed to any financing, liquidity,
market or credit risk that could arise if we had engaged in such financing arrangements.
NEW ACCOUNTING STANDARDS
In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 46 (FIN 46),
Consolidation of Variable Interest Entities
. An entity is subject to the
consolidation rules of FIN 46 and is referred to as a variable interest entity (VIE) if the
entitys equity investors lack the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its operations without additional
financial support. In December 2003, the FASB issued modifications to FIN 46 (FIN 46R),
resulting in multiple effective dates based on the nature as well as the creation date of a VIE.
The adoption of FIN 46 and FIN 46R in 2004 had no impact on our consolidated financial statements.
36
In
May 2004, the FASB issued FASB Staff Position No. 1062 (FSP 1062),
Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization
Act of 2003
, which provides guidance on the accounting for the effects of the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 for employers that sponsor postretirement health
care plans that provide prescription drug benefits. We adopted the provisions of FSP 1062 in the
third quarter of 2004, resulting in a reduction in our accumulated postretirement benefit
obligation of $18.8 million. We recognized a reduction in our net periodic postretirement benefit
costs of $2.0 million for 2004 as a result of the adoption of FSP 1062.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs an Amendment of ARB No. 43,
Chapter 4
, which amends the guidance in ARB No. 43 to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs and wasted material. SFAS No. 151 requires that
these items be recognized as current period charges. In addition, SFAS No. 151 requires the
allocation of fixed production overheads to inventory based on the normal capacity of the
production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. We are currently evaluating the
provisions of SFAS No. 151 and will adopt SFAS No. 151 on January 1, 2006.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets an amendment
of APB Opinion No. 29
, to address the measurement of exchanges of nonmonetary assets. SFAS No. 153
eliminates the exception from fair value measurement for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of nonmonetary assets that
do not have commercial substance. A nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the exchange. SFAS
No. 153 is effective for nonmonetary exchanges occurring after June 30, 2005. We will adopt SFAS
No. 153 on July 1, 2005.
In December 2004, the FASB revised SFAS No. 123,
ShareBased Payment
(SFAS No. 123R). SFAS
No. 123R is a revision of SFAS No. 123,
Accounting for StockBased Compensation
, and supersedes
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
. SFAS No.
123R requires a public entity to measure the cost of employee services received in exchange for an
award of equity instruments based on the grantdate fair value of the award. That cost will be
recognized over the period in which an employee is required to provide service in exchange for the
award. SFAS No. 123R also requires a public entity to initially measure the cost of employee
services rendered in exchange for an award of liability instruments at its current fair value. The
fair value of that award is to be remeasured subsequently at each reporting date through the
settlement date. Changes in the fair value during the required service period are to be recognized
as compensation cost over that period. We are currently in the process of evaluating different
option pricing models and the impact of SFAS No. 123R on our consolidated financial statements. We
will adopt SFAS No. 123R on July 1, 2005.
In December 2004, the FASB issued FASB Staff Position No. 1091 (FSP 1091),
Application of
FASB Statement No. 109, Accounting for Income Taxes (SFAS No. 109) to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of 2004
, which provides
guidance on the recently enacted American Jobs Creation Act of 2004 (the Act). The Act provides
a tax deduction for income from qualified domestic production activities. FSP 1091 provides for
the treatment of the deduction as a special deduction as described in SFAS No. 109. As such, the
deduction will have no effect on existing deferred tax assets and liabilities. The impact of the
deduction is to be reported in the period in which the deduction is claimed on our U.S. tax return.
We do not expect that this deduction will have a material impact on our effective tax rate in
future years. FSP 1091 is effective prospectively as of January 1, 2005.
In December 2004, the FASB issued FASB Staff Position No. 1092 (FSP 1092),
Accounting and
Disclosure Guidance for the Foreign Repatriation Provision within the American Jobs Creation Act of
2004,
which provides guidance under SFAS No. 109 with respect to recording the potential impact of
the repatriation provisions of the Act on a companys income tax expense and deferred tax
liability. FSP 1092 states that a company is allowed time beyond the financial reporting period
of enactment to evaluate the effect of the Act on its plan for reinvestment or repatriation of
foreign earnings for purposes of applying SFAS No. 109. We have not yet decided on whether, and to
what extent, we might elect to repatriate foreign earnings under the provisions in the Act. Any
such repatriation under the Act must occur by December 31, 2005. Accordingly, our consolidated
financial statements do not reflect a provision for taxes related to this election. The maximum
amount we could elect to repatriate is $500 million as prescribed in the Act. Our evaluation of
the effect of the election is expected to be completed by the end of the second quarter of 2005.
RELATED PARTY TRANSACTIONS
In conjunction with the formation of WesternGeco in November 2000, we entered into an
agreement with Schlumberger whereby a cash trueup payment will be made by either of the parties
based on a formula comparing the ratio of the net present value of sales revenue from each partys
contributed multiclient seismic data libraries during the fouryear period ending November 30, 2004
and the ratio of the net book value of those libraries as of November 30, 2000. The maximum
payment that either party will be required to make as a result of this adjustment is $100.0
million. We currently estimate that Schlumberger will make a payment to us in the range
37
of $9.0 million to $11.5 million, pending final determination of the adjustment. When
received, this payment will be recorded as a reduction to the carrying value of our investment in
WesternGeco. This payment will be taxable when paid and the tax effect will be recorded as current
income tax expense.
In November 2000, we also entered into an agreement with WesternGeco whereby WesternGeco
subleased a facility from us for a period of ten years at then current market rates. During 2004,
2003 and 2002, we received payments of $5.5 million, $5.0 million and $5.5 million, respectively,
from WesternGeco related to this lease.
On or after December 1, 2005, either party to the WesternGeco Master Formation Agreement may
offer to sell their entire interest in the venture to the other party at a cash purchase price per
percentage interest specified in an offer notice. If the offer to sell is not accepted, the
offering party will be obligated to purchase the entire interest of the other party at the same
price per percentage interest as the price specified in the offer notice. We cannot predict when,
or if, we or Schlumberger may exercise this right.
At December 31, 2004 and 2003, net accounts (payable) receivable from affiliates totaled
$(1.1) million and $0.7 million, respectively. There were no other significant related party
transactions.
FORWARDLOOKING STATEMENTS
MD&A and certain statements in the Notes to Consolidated Financial Statements include
forwardlooking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (each a
forwardlooking statement). The words anticipate, believe, ensure, expect, if,
intend, estimate, project, forecasts, predict, outlook, aim, will, could,
should, would, may, likely and similar expressions, and the negative thereof, are intended
to identify forwardlooking statements. We undertake no obligation to publicly update or revise
any forwardlooking statement. Our expectations regarding our business outlook, including changes
in revenue, pricing, capital spending, profitability, oil and natural gas market conditions, market
share and contract terms, costs and availability of resources, economic and regulatory conditions,
and environmental matters are only our forecasts regarding these matters.
These forecasts may be substantially different from actual results, which are affected by
those risk factors and the timing of any of those risk factors identified in the Environmental
Matters section in Item 1 herein and the Risk Factors Related to the Worldwide Oil and Natural
Gas Industry and Risk Factors Related to Our Business sections contained herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks that are inherent in our financial instruments that
arise in the normal course of business. We may enter into derivative financial instrument
transactions to manage or reduce market risk but do not enter into derivative financial instrument
transactions for speculative purposes. A discussion of our primary market risk exposure in
financial instruments is presented below.
INDEBTEDNESS
We are subject to interest rate risk on our longterm fixed interest rate debt. Commercial
paper borrowings, other shortterm borrowings and variable rate longterm debt do not give rise to
significant interest rate risk because these borrowings either have maturities of less than three
months or have variable interest rates. All other things being equal, the fair market value of
debt with a fixed interest rate will increase as interest rates fall and will decrease as interest
rates rise. This exposure to interest rate risk is managed by borrowing money that has a variable
interest rate or using interest rate swaps to change fixed interest rate borrowings to variable
interest rate borrowings.
38
At December 31, 2004 and 2003, we had fixed rate debt aggregating $1,075.2 million and
$1,425.6 million, respectively. The following table sets forth the required cash payments for our
indebtedness, which bear a fixed rate of interest and are denominated in U.S. Dollars, and the
related weighted average effective interest rates by expected maturity dates as of December 31,
2004 and 2003 (dollar amounts in millions).
INTEREST RATE SWAP AGREEMENTS
In April 2004, we entered into an interest rate swap agreement for a notional amount of $325.0
million associated with our 6.25% Notes due January 2009. Under this agreement we receive interest
at a fixed rate of 6.25% and pay interest at a floating rate of sixmonth LIBOR plus a spread of
2.741%. The interest rate swap agreement has been designated and qualifies as a fair value hedging
instrument. The interest rate swap agreement is fully effective, resulting in no gain or loss
recorded in the consolidated statement of operations. We recorded the fair value of the interest
rate swap agreement, which was a $2.3 million liability at December 31, 2004, based on quoted
market prices for contracts with similar terms and maturity dates.
At different times during 2003, we entered into three separate interest rate swap agreements,
each for a notional amount of $325.0 million, associated with our 6.25% Notes due January 2009.
These agreements had been designated and had qualified as fair value hedging instruments. Due to
our outlook for interest rates, we terminated the three agreements and received payments totaling
$26.9 million. Each of the three agreements was terminated prior to entering into a new agreement. The
deferred gains are being amortized as a reduction of interest expense over the remaining life of
the underlying debt security, which matures in January 2009.
During 2002, we terminated two interest rate swap agreements that had been entered into in
prior years. These agreements had been designated and had qualified as fair value hedging
instruments. Upon termination, we received proceeds of $4.8 million and $11.0 million. The
deferred gain of $4.8 million was amortized as a reduction of interest expense over the remaining
life of the underlying debt security, which matured in June 2004. The deferred gain of $11.0
million is being amortized as a reduction of interest expense over the remaining life of the
underlying debt security, which matures in January 2009.
FOREIGN CURRENCY AND FOREIGN CURRENCY FORWARD CONTRACTS
We conduct operations around the world in a number of different currencies. The majority of
our significant foreign subsidiaries have designated the local currency as their functional
currency. As such, future earnings are subject to change due to changes in foreign currency
exchange rates when transactions are denominated in currencies other than our functional
currencies. To minimize the need for foreign currency forward contracts to hedge this exposure,
our objective is to manage foreign currency exposure by maintaining a minimal consolidated net
asset or net liability position in a currency other than the functional currency.
39
At December 31, 2004, we had entered into several foreign currency forward contracts with
notional amounts aggregating $78.0 million to hedge exposure to currency fluctuations in various
foreign currencies, including the British Pound Sterling, the Norwegian Krone, the Euro and the
Brazilian Real. These contracts are designated and qualify as fair value hedging instruments.
Based on quoted market prices as of December 31, 2004 for contracts with similar terms and maturity
dates, we recorded a loss of $0.4 million to adjust these foreign currency forward contracts to
their fair market value. This loss offsets designated foreign exchange gains resulting from the
underlying exposures and is included in selling, general and administrative expense in the
consolidated statement of operations.
At December 31, 2004, we had also entered into several foreign currency forward contracts with
notional amounts aggregating $122.4 million to hedge exposure to currency fluctuations in various
foreign currencies, including the British Pound Sterling and the Canadian Dollar. These exposures
arise when local currency operating expenses are not in balance with local currency revenue
collections. The funding of such imbalances is supported by shortterm intercompany borrowing
commitments that have definitive amounts and funding dates. All fundings are scheduled to take
place on or before December 31, 2005. These foreign currency forward contracts were designated as
cash flow hedging instruments and are fully effective. Based on quoted market prices as of
December 31, 2004 for contracts with similar terms and maturity dates, we recorded a loss of $0.1
million to adjust these foreign currency forward contracts to their fair market value. The loss is
recorded in other comprehensive income in the consolidated balance sheet.
At December 31, 2003, we had entered into several foreign currency forward contracts with
notional amounts aggregating $62.5 million to hedge exposure to currency fluctuations in various
foreign currencies, including the British Pound Sterling, the Norwegian Krone, the Euro, the
Brazilian Real and the Argentine Peso. These contracts are designated and qualify as fair value
hedging instruments. Based on quoted market prices as of December 31, 2003 for contracts with
similar terms and maturity dates, we recorded a gain of $1.5 million to adjust these foreign
currency forward contracts to their fair market value. This gain offsets designated foreign
exchange losses resulting from the underlying exposures and is included in selling, general and
administrative expense in the consolidated statement of operations.
The counterparties to the forward contracts are major financial institutions. The credit
ratings and concentration of risk of these financial institutions are monitored on a continuing
basis. In the unlikely event that the counterparties fail to meet the terms of a foreign currency
contract, our exposure is limited to the foreign currency rate differential.
40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
our financial reporting, as such term is defined in Exchange Act Rules 13a15(f). Our internal
control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Our control environment is
the foundation for our system of internal control and is embodied in our Business Code of Conduct,
which sets the tone of our company and includes our Core Values of Integrity, Teamwork, Performance
and Learning. Included in our system of internal control are written policies, an organizational
structure providing division of responsibilities, the selection and training of qualified personnel
and a program of financial and operations reviews by a professional staff of corporate auditors.
Our internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
underlying transactions, including the acquisition and disposition of assets; (ii) provide
reasonable assurance that our assets are safeguarded and transactions are executed in accordance
with managements and our directors authorization and are recorded as necessary to permit
preparation of our financial statements in accordance with generally accepted accounting
principles; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of our assets that could have a material effect on
the financial statements.
Under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, we conducted an evaluation of the effectiveness
of our internal control over financial reporting. Our evaluation was based on the framework in
Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
Based on our evaluation under the framework in
Internal Control Integrated Framework
, our
principal executive officer and principal financial officer concluded that our internal control
over financial reporting was effective as of December 31, 2004. The conclusion of our principal
executive officer and principal financial officer is based on the recognition that there are
inherent limitations in all systems of internal control. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Our managements assessment of the effectiveness of our internal control over financial
reporting as of December 31, 2004 has been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report which is included herein.
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
We have audited managements assessment, included in the accompanying Managements Report on
Internal Control Over Financial Reporting, that Baker Hughes Incorporated and subsidiaries (the
Company) maintained effective internal control over financial reporting as of December 31, 2004,
based on criteria established in
Internal Control Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinions.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that the Company maintained effective internal control
over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based
on the criteria established in
Internal Control Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31,
2004, based on the criteria established in
Internal Control Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements of the Company as of
December 31, 2004 and for the year then ended, and the financial statement schedule II; and our
report dated February 24, 2005 expressed an unqualified opinion on those consolidated financial
statements and financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
We have audited the accompanying consolidated balance sheets of Baker Hughes Incorporated and
subsidiaries (the Company) as of December 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders equity, and cash flows for each of the three years in the
period ended December 31, 2004. Our audits also included the financial statement schedule II,
valuation and qualifying accounts. These financial statements and financial statement schedule are
the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Baker Hughes Incorporated and subsidiaries at December 31, 2004
and 2003, and the results of their operations and their cash flows for each of the three years in
the period ended December 31, 2004, in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
As described in Note 1 to the consolidated financial statements: effective as of January 1,
2003, the Company adopted Statement of Financial Accounting Standards No. 143, which established
new accounting and reporting standards for asset retirement obligations; and effective as of
January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, which
established new accounting and reporting standards for the recording, amortization and impairment
of goodwill and other intangibles.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Companys internal control over financial
reporting as of December 31, 2004, based on the criteria established in
Internal ControlIntegrated
Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 24, 2005 expressed an unqualified opinion on managements assessment of the
effectiveness of the Companys internal control over financial reporting and an unqualified opinion
on the effectiveness of the Companys internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
43
Baker Hughes Incorporated
See Notes to Consolidated Financial Statements
44
Baker Hughes Incorporated
See Notes to Consolidated Financial Statements
45
Baker Hughes Incorporated
See Notes to Consolidated Financial Statements
46
Baker Hughes Incorporated
See Notes to Consolidated Financial Statements
47
Baker Hughes Incorporated
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Baker Hughes Incorporated (Baker Hughes) is engaged in the oilfield services industry.
Baker Hughes is a major supplier of wellborerelated products and technology services and systems
to the worldwide oil and natural gas industry and provides products and services for drilling,
formation evaluation, completion and production of oil and natural gas wells.
Basis of Presentation
The consolidated financial statements include the accounts of Baker Hughes and all majority
owned subsidiaries (we, our or us). Investments over which we have the ability to exercise
significant influence over operating and financial policies, but do not hold a controlling
interest, are accounted for using the equity method of accounting. All significant intercompany
accounts and transactions have been eliminated in consolidation. In the Notes to Consolidated
Financial Statements, all dollar and share amounts in tabulations are in millions of dollars and
shares, respectively, unless otherwise indicated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and judgments that
affect the reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. We base our estimates and judgments on historical experience
and on various other assumptions and information that are believed to be reasonable under the
circumstances. Estimates and assumptions about future events and their effects cannot be perceived
with certainty and, accordingly, these estimates may change as new events occur, as more experience
is acquired, as additional information is obtained and as our operating environment changes. While
we believe that the estimates and assumptions used in the preparation of the consolidated financial
statements are appropriate, actual results could differ from those estimates. Estimates are used
for, but are not limited to, determining the following: allowance for doubtful accounts and
inventory valuation reserves, recoverability of longlived assets, useful lives used in
depreciation and amortization, income taxes and related valuation allowances, and insurance,
environmental, legal and pensions and postretirement benefit obligations.
Revenue Recognition
Our products and services are generally sold based upon purchase orders or contracts with the
customer that include fixed or determinable prices and that do not include right of return or other
similar provisions or other significant postdelivery obligations. Our products are produced in a
standard manufacturing operation, even if produced to our customers specifications, and are sold
in the ordinary course of business through our regular marketing channels. We recognize revenue
for these products upon delivery, when title passes and when collectibility is reasonably assured.
Provisions for estimated warranty returns or similar types of items are made at the time the
related revenue is recognized. Revenue for services is recognized as the services are rendered and
when collectibility is reasonably assured. Rates for services are typically priced on a per day,
per meter, per man hour or similar basis.
Cash Equivalents
We consider all highly liquid investments with an original maturity of three months or less at
the time of purchase to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the firstin,
firstout (FIFO) method or the average cost method, which approximates FIFO, and includes the
cost of materials, labor and manufacturing overhead.
Property and Depreciation
Property is stated at cost less accumulated depreciation, which is generally provided by using
the straightline method over the estimated useful lives of the individual assets. We manufacture
a substantial portion of our rental tools and equipment and the cost of these items, which includes
direct and indirect manufacturing costs, are capitalized and carried in inventory until the tool is
completed. Once the tool has been completed, the cost of the tool is reflected in capital
expenditures and the tool is classified as rental tools and equipment in property. Significant
improvements and betterments are capitalized if they extend the useful life of the asset.
48
Baker Hughes Incorporated
We had an interest in an oil producing property in West Africa that was sold effective January
2003 and is classified as a discontinued operation. We used the fullcost method of accounting for
this property. Under this method, we capitalized all acquisition, exploration and development
costs incurred for the purpose of finding oil reserves. In accordance with full cost accounting
rules, we performed ceiling tests on the carrying value of our oil properties. During 2002, there
was no ceiling test charge recorded. Depreciation, depletion and amortization of oil properties
were computed using the unitofproduction method based upon production and estimates of proved
reserves and totaled $16.6 million in 2002. No costs were excluded from the full cost amortization
pool. At December 31, 2002, our only cost center related to these properties was in West Africa.
Goodwill, Intangible Assets and Amortization
Goodwill, including goodwill associated with equity method investments, and intangible assets
with indefinite lives are not amortized. Intangible assets with finite useful lives are amortized
either on a straightline basis over the assets estimated useful life or on a basis that reflects
the pattern in which the economic benefits of the intangible assets are realized.
Impairment of LongLived Assets
We review property, intangible assets and certain other assets for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be recoverable. The
determination of recoverability is made based upon the estimated undiscounted future net cash
flows, excluding interest expense. The amount of impairment loss, if any, is determined by
comparing the fair value, as determined by a discounted cash flows analysis, with the carrying
value of the related assets.
We perform an annual impairment test of goodwill as of October 1, or more frequently if
circumstances indicate that impairment may exist. Investments in affiliates are also reviewed for
impairment whenever events or changes in circumstances indicate that impairment may exist. The
determination of impairment is made by comparing the carrying amount with its fair value, which is
calculated using a combination of a market capitalization and discounted cash flows approach.
Income Taxes
We use the liability method for determining our income taxes, under which current and deferred
tax liabilities and assets are recorded in accordance with enacted tax laws and rates. Under this
method, the amounts of deferred tax liabilities and assets at the end of each period are determined
using the tax rate expected to be in effect when taxes are actually paid or recovered. Future tax
benefits are recognized to the extent that realization of such benefits is more likely than not.
Deferred income taxes are provided for the estimated income tax effect of temporary
differences between financial and tax bases in assets and liabilities. Deferred tax assets are
also provided for certain tax credit carryforwards. A valuation allowance to reduce deferred tax
assets is established when it is more likely than not that some portion or all of the deferred tax
assets will not be realized.
We intend to indefinitely reinvest certain earnings of our foreign subsidiaries in operations
outside the U.S., and accordingly, we have not provided for U.S. income taxes on such earnings. We
do provide for the U.S. and additional nonU.S. taxes on earnings anticipated to be repatriated
from our nonU.S. subsidiaries.
We operate in more than 90 countries under many legal forms. As a result, we are subject to
the jurisdiction of numerous domestic and foreign tax authorities, as well as to tax agreements and
treaties among these governments. Our operations in these different jurisdictions are taxed on
various bases: actual income before taxes, deemed profits (which are generally determined using a
percentage of revenues rather than profits) and withholding taxes based on revenue. Determination
of taxable income in any jurisdiction requires the interpretation of the related tax laws and
regulations and the use of estimates and assumptions regarding significant future events, such as
the amount, timing and character of deductions, permissible revenue recognition methods under the
tax law and the sources and character of income and tax credits. Changes in tax laws, regulations,
agreements and treaties, foreign currency exchange restrictions or our level of operations or
profitability in each taxing jurisdiction could have an impact upon the amount of income taxes that
we provide during any given year.
Our tax filings for various periods are subjected to audit by tax authorities in most jurisdictions
where we conduct business. These audits may result in assessments of additional taxes that are
resolved with the authorities or potentially through the courts. We believe that these assessments
may occasionally be based on erroneous and even arbitrary interpretations of local tax law. We
have received tax assessments from various taxing authorities and are currently at varying stages
of appeals and/or litigation regarding these matters.
49
Baker Hughes Incorporated
We have provided for the amounts we believe will ultimately result from these proceedings.
We believe we have substantial defenses to the questions being raised and will pursue all legal
remedies should an unfavorable outcome result. However, resolution of these matters involves
uncertainties and there are no assurances that the outcomes will be favorable.
Product Warranties
We sell certain products with a product warranty that provides that customers can return a
defective product during a specified warranty period following the purchase in exchange for a
replacement product, repair at no cost to the customer or the issuance of a credit to the customer.
We accrue amounts for estimated warranty claims based upon current and historical product sales
data, warranty costs incurred and any other related information known to us.
Environmental Matters
Remediation costs are accrued based on estimates of probable environmental exposure using
currently available facts, existing environmental permits, technology and presently enacted laws
and regulations. For sites where we are primarily responsible for the remediation, our cost
estimates are developed based on internal evaluations and are not discounted. Such accruals are
recorded when it is probable that we will be obligated to pay amounts for environmental site
evaluation, remediation or related activities, and such amounts can be reasonably estimated. If
the obligation can only be estimated within a range, we accrue the minimum amount in the range.
Such accruals are recorded even if significant uncertainties exist over the ultimate cost of the
remediation. As additional or more accurate information becomes available, we adjust such accruals
to reflect current cost estimates. Ongoing environmental compliance costs, such as obtaining
environmental permits, installation of pollution control equipment and waste disposal, are expensed
as incurred. Where we have been identified as a potentially responsible party in a United States
federal or state Superfund site, we accrue our share of the estimated remediation costs of the
site. This share is based on the ratio of the estimated volume of waste we contributed to the site
to the total volume of waste disposed at the site.
Foreign Currency
The majority of our significant foreign subsidiaries have designated the local currency as
their functional currency and, as such, gains and losses resulting from balance sheet translation
of foreign operations are included as a separate component of accumulated other comprehensive loss
within stockholders equity. Gains and losses from foreign currency transactions, such as those
resulting from the settlement of foreign receivables or payables, are included in selling, general
and administrative (SG&A) expense in the consolidated statements of operations as incurred. For
those foreign subsidiaries that have designated the U.S. Dollar as the functional currency, gains
and losses resulting from balance sheet translation of foreign operations are also included in SG&A
expense in the consolidated statements of operations as incurred. We recorded net foreign currency
transaction and translation gains (losses) of $4.0 million, $1.5 million and $(16.8) million in
2004, 2003 and 2002, respectively.
Derivative Financial Instruments
We monitor our exposure to various business risks including commodity price, foreign currency
exchange rate and interest rate risks and occasionally use derivative financial instruments to
manage the impact of certain of these risks. Our policies do not permit the use of derivative
financial instruments for speculative purposes. We use foreign currency forward contracts to hedge
certain firm commitments and transactions denominated in foreign currencies. We use interest rate
swaps to manage interest rate risk.
At the inception of any new derivative, we designate the derivative as a cash flow hedge or
fair value hedge. We document all relationships between the hedging instruments and the hedged
items, as well as our risk management objectives and strategy for undertaking various hedge
transactions. We assess whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in cash flows of the hedged item at both the inception of the hedge
and on an ongoing basis.
StockBased Compensation
As allowed under Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for
StockBased Compensation
, we have elected to account for our stockbased compensation using the
intrinsic value method of accounting in accordance with Accounting Principles Board Opinion No. 25
(APB No. 25),
Accounting for Stock Issued to Employees
. Under this method, compensation expense
is to be recognized for the difference between the quoted market price of the stock at the
measurement date less the amount, if any, the employee is required to pay for the stock. Our
reported net income does not include any compensation expense associated with stock option awards
because the exercise prices of our stock option awards equal the market prices of the underlying
stock when granted. Our reported net income does include compensation expense associated with
restricted stock awards.
50
Baker Hughes Incorporated
If we had recognized compensation expense as if the fair value based method had been applied
to all awards as provided for under SFAS No. 123, our pro forma net income, earnings per share
(EPS) and stockbased compensation cost would have been as follows for the years ended December
31:
These pro forma calculations may not be indicative of future amounts since additional awards
in future years are anticipated.
Under SFAS No. 123, the fair value of stockbased awards is calculated through the use of
option pricing models. These models require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated values. Our
calculations were made using the BlackScholes option pricing model with the following weighted
average assumptions for the years ended December 31:
The weighted average fair values of options granted in 2004, 2003 and 2002 were $11.16, $10.25
and $10.24 per share, respectively.
New Accounting Standards
In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 46 (FIN 46),
Consolidation of Variable Interest Entities
. An entity is subject to the
consolidation rules of FIN 46 and is referred to as a variable interest entity (VIE) if the
entitys equity investors lack the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its operations without additional
financial support. In December 2003, the FASB issued modifications to FIN 46 (FIN 46R),
resulting in multiple effective dates based on the nature as well as the creation date of a VIE.
The adoption of FIN 46 and FIN 46R in 2004 had no impact on our consolidated financial statements.
In
May 2004, the FASB issued FASB Staff Position No. 1062 (FSP 1062),
Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization
Act of 2003
, which provides guidance on the accounting for the effects of the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 for employers that sponsor postretirement health
care plans that provide prescription drug benefits. We adopted the provisions of FSP 1062 in the
third quarter of 2004, resulting in a reduction in our accumulated postretirement benefit
obligation of $18.8 million. We recognized a reduction in our net periodic postretirement benefit
costs of $2.0 million for 2004 as a result of the adoption of FSP 1062.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs an Amendment of ARB No. 43,
Chapter 4
, which amends the guidance in ARB No. 43 to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs and wasted material. SFAS No. 151 requires that
these items be recognized as current period charges. In addition, SFAS No. 151 requires
51
Baker Hughes Incorporated
the allocation of fixed production overheads to inventory based on the normal capacity of the
production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. We are currently evaluating the
provisions of SFAS No. 151 and will adopt SFAS No. 151 on January 1, 2006.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets an amendment
of APB Opinion No. 29
, to address the measurement of exchanges of nonmonetary assets. SFAS No. 153
eliminates the exception from fair value measurement for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of nonmonetary assets that
do not have commercial substance. A nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the exchange. SFAS
No. 153 is effective for nonmonetary exchanges occurring after June 30, 2005. We will adopt SFAS
No. 153 on July 1, 2005.
In December 2004, the FASB revised SFAS No. 123,
ShareBased Payment
(SFAS No. 123R). SFAS
No. 123R is a revision of SFAS No. 123 and supersedes APB No. 25. SFAS No. 123R requires a public
entity to measure the cost of employee services received in exchange for an award of equity
instruments based on the grantdate fair value of the award. That cost will be recognized over the
period in which an employee is required to provide service in exchange for the award. SFAS No.
123R also requires a public entity to initially measure the cost of employee services rendered in
exchange for an award of liability instruments at its current fair value. The fair value of that
award is to be remeasured subsequently at each reporting date through the settlement date. Changes
in the fair value during the required service period are to be recognized as compensation cost over
that period. We are currently in the process of evaluating different option pricing models and the
impact of SFAS No. 123R on our consolidated financial statements. We will adopt SFAS No. 123R on
July 1, 2005.
In December 2004, the FASB issued FASB Staff Position No. 1091 (FSP 1091),
Application of
FASB Statement No. 109, Accounting for Income Taxes (SFAS No. 109) to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of 2004
, which provides
guidance on the recently enacted American Jobs Creation Act of 2004 (the Act). The Act provides
a tax deduction for income from qualified domestic production activities. FSP 1091 provides for
the treatment of the deduction as a special deduction as described in SFAS No. 109. As such, the
deduction will have no effect on existing deferred tax assets and liabilities. The impact of the
deduction is to be reported in the period in which the deduction is claimed on our U.S. tax return.
We do not expect that this deduction will have a material impact on our effective tax rate in
future years. FSP 1091 is effective prospectively as of January 1, 2005.
In December 2004, the FASB issued FASB Staff Position No. 1092 (FSP 1092),
Accounting and
Disclosure Guidance for the Foreign Repatriation Provision within the American Jobs Creation Act of
2004,
which provides guidance under SFAS No. 109 with respect to recording the potential impact of
the repatriation provisions of the Act on a companys income tax expense and deferred tax
liability. FSP 1092 states that a company is allowed time beyond the financial reporting period
of enactment to evaluate the effect of the Act on its plan for reinvestment or repatriation of
foreign earnings for purposes of applying SFAS No. 109. We have not yet decided on whether, and to
what extent, we might elect to repatriate foreign earnings under the provisions in the Act. Any
such repatriation under the Act must occur by December 31, 2005. Accordingly, our consolidated
financial statements do not reflect a provision for taxes related to this election. The maximum
amount we could elect to repatriate is $500 million as prescribed in the Act. Our evaluation of
the effect if the election is made is expected to be completed by the end of the second quarter of
2005.
Reclassifications
Certain reclassifications, including reclassifications for deferred income taxes and other tax
liabilities, have been made to the prior years consolidated financial statements to conform with
the current year presentation.
NOTE 2. DISCONTINUED OPERATIONS
In September 2004, we completed the sale of Baker Hughes Mining Tools (BHMT), a product line
group within the Oilfield segment that manufactured rotary drill bits used in the mining industry,
for $31.5 million. We recorded a gain on the sale of $0.2 million, net of tax of $3.6 million,
which consisted of a gain on the disposal of $6.8 million offset by a loss of $6.6 million related to
the recognition of the cumulative foreign currency translation adjustments into earnings.
In October 2003, we signed a definitive agreement for the sale of BIRD Machine (BIRD), the
remaining division of the former Process segment, and recorded charges totaling $37.4 million, net
of tax of $10.9 million, which consisted of a loss of $13.5 million on the writedown of BIRD to
fair value, $6.2 million of severance and warranty accruals and a loss of $17.7 million related to
the
52
Baker Hughes Incorporated
recognition of cumulative foreign currency translation adjustments into earnings. In January 2004,
we completed the sale of BIRD and recorded an additional loss on the sale of $0.5 million with no
tax benefit. We received $5.6 million in proceeds, which were subject to postclosing adjustments
to the purchase price, and retained certain accounts receivable, inventories and other assets.
During the second quarter of 2004, we made a net payment of $6.8 million to the buyer in settlement
of the final purchase price adjustments. The adjustments were the result of changes in the value
of assets sold to and liabilities assumed by the buyer between the date the initial sales price was
negotiated and the closing of the sale.
In December 2002, we entered into exclusive negotiations for the sale of our interest in our
oil producing operations in West Africa for $32.0 million in proceeds. The transaction was
effective as of January 1, 2003, and resulted in a gain on the sale of $4.1 million, net of a tax
benefit of $0.2 million. We received $10.0 million as a deposit in 2002 and the remaining $22.0
million in April 2003.
In November 2002, we sold EIMCO Process Equipment (EIMCO), a division of the former Process
segment, and recorded a loss on the disposal of $22.3 million, net of tax of $1.2 million, which
consisted of a loss of $2.3 million on the writedown to fair value and a loss of $20.0 million
related to the recognition of cumulative foreign currency translation adjustments into earnings.
We received total proceeds of $48.9 million, of which $4.9 million was held in escrow pending
completion of final adjustments to the purchase price. In 2003, all purchase price adjustments
were completed, resulting in the release of the escrow balance, of which we received $2.0 million
and $2.9 million was returned to the buyer. In 2003, we also recorded an additional loss on the
sale due to purchase price adjustments of $2.5 million, net of tax of $1.3 million.
We have reclassified the consolidated financial statements for all prior periods presented to
reflect these operations as discontinued. Summarized financial information from discontinued
operations is as follows for the years ended December 31:
53
Baker Hughes Incorporated
Assets and liabilities of discontinued operations are as follows for the year ended December
31:
NOTE 3. ACQUISITIONS
In 2002, we entered into a venture, Luna Energy, L.L.C. (Luna), in which we had a 40%
interest and that we accounted for using the equity method of accounting. In December 2004, we
acquired the remaining 60% interest in Luna for $1.0 million in cash. We now are required to
consolidate Lunas accounts and have discontinued using the equity method of accounting for Luna.
As a result of the acquisition, we have recorded approximately $19.0 million of goodwill and $5.5
million of intangible assets. We also assigned $1.8 million to inprocess research and development
that was written off at the date of acquisition. This writeoff is included in research and
development expenses, which are included in cost of revenues in the consolidated statement of
operations. The purchase price was allocated based on the fair value of the assets acquired and
liabilities assumed of Luna. The fair values were determined using a discounted cash flows
approach. We were assisted in the valuation of Luna by a third party. Pro forma results of
operations have not been presented because the effect of this acquisition was not material to our
consolidated financial statements.
In 2003, we made two acquisitions having an aggregate purchase price of $16.9 million, of
which $9.5 million was paid in cash. As a result of these acquisitions, we recorded approximately
$3.9 million of goodwill and $9.6 million of intangible assets. The purchase price was allocated
based on the fair value of the assets acquired and liabilities assumed in each of these
acquisitions. Pro forma results of operations have not been presented because the effects of these
acquisitions were not material to our consolidated financial statements on either an individual or
aggregate basis.
In 2002, we made three acquisitions having an aggregate cash purchase price of $39.7 million,
net of cash acquired. As a result of these acquisitions, we recorded approximately $28.4 million
of goodwill. The purchase prices were allocated based on the fair values of the assets acquired
and liabilities assumed. Pro forma results of operations have not been presented because the
effects of these acquisitions were not material to our consolidated financial statements on either
an individual or aggregate basis.
NOTE 4. REVERSAL OF RESTRUCTURING CHARGE
In 2000, our Board of Directors approved a plan to substantially exit the oil and natural gas
exploration business and recorded a restructuring charge of $29.5 million. Included in the
restructuring charge was $1.1 million for a contractual obligation related to an oil and natural
gas property in Angola. The property was sold in 2003 and we reversed the liability related to
this contractual obligation.
54
Baker Hughes Incorporated
NOTE 5. INCOME TAXES
The provision for income taxes on income from continuing operations is comprised of the
following for the years ended December 31:
The geographic sources of income from continuing operations before income taxes are as follows
for the years ended December 31:
Tax benefits of $12.5 million, $1.5 million and $1.4 million associated with the exercise of
employee stock options were allocated to equity and recorded in capital in excess of par value in
the years ended December 31, 2004, 2003 and 2002, respectively.
The provision for income taxes differs from the amount computed by applying the U.S. statutory
income tax rate to income from continuing operations before income taxes for the reasons set forth
below for the years ended December 31:
During 2004, we recognized an incremental effect of $1.8 million of additional taxes
attributable to our portion of the operations of WesternGeco, primarily as a result of increased
income in the U.S. During 2003, we recognized an incremental effect of $36.3 million of additional
taxes related to our investment in WesternGeco. Of this amount, $15.9 million related to the
reduction in the carrying value of our equity investment in WesternGeco, for which there was no tax
benefit. The remaining $20.4 million arose from operations of the venture due to: (i) the venture
being taxed in certain foreign jurisdictions based on a deemed profit basis, which is a percentage
of revenues rather than profits, and (ii) unbenefitted foreign losses of the venture, which are
operating losses and impairment and restructuring charges in certain foreign jurisdictions where
there was no current tax benefit and where a deferred tax asset was not recorded due to the
uncertainty of realization. In 2002, the amount of additional taxes resulting from operations of
the venture was $40.2 million.
In 2003, we recognized a $3.3 million benefit as the result of refund claims filed in the U.S.
In 2002, a $14.4 million benefit was recognized as the result of the settlement of an Internal
Revenue Service examination related to our September 30, 1996 through September 30, 1998 tax years.
We have received tax assessments from various taxing authorities and are currently at varying
stages of appeals and /or litigation regarding these matters. We have provided for the amounts we
believe will ultimately result from these proceedings. We believe we have substantial defenses to
the questions being raised and will pursue all legal remedies should an unfavorable outcome result.
While
55
Baker Hughes Incorporated
we have provided for the taxes that we believe will ultimately be payable as a result of these
assessments, the aggregate assessments are approximately $34.0 million in excess of the taxes
provided for in our consolidated financial statements.
In addition to the aforementioned assessments that have been received from various taxing
authorities, we provide for taxes in certain situations where assessments have not been received.
In those situations, we consider it probable that the taxes ultimately payable will exceed those
amounts reflected in filed tax returns; accordingly, taxes are provided in those situations under
the guidance in SFAS No. 5,
Accounting for Contingencies
,
and are included in both income taxes in current liabilities and in deferred income taxes
and other tax liabilities in the consolidated balance sheets.
Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes, as well as operating loss and tax credit carryforwards. The tax effects
of our temporary differences and carryforwards are as follows at December 31:
We record a valuation allowance when it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets
depends on the ability to generate sufficient taxable income of the appropriate character in the
future and in the appropriate taxing jurisdictions. We have provided a valuation allowance for
operating loss carryforwards in certain nonU.S. jurisdictions where our operations have decreased,
currently ceased or we have withdrawn entirely.
Provision has been made for U.S. and additional foreign taxes for the anticipated repatriation
of certain earnings of our foreign subsidiaries. We consider the undistributed earnings of our
foreign subsidiaries above the amount already provided to be indefinitely reinvested, as we have no
intention to repatriate these earnings. These additional foreign earnings could become subject to
additional tax if remitted, or deemed remitted, as a dividend; however, it is not practicable to
estimate the additional amount of taxes payable.
At December 31, 2004, we had approximately $22.2 million of foreign tax credits and $35.1
million of general business credits available to offset future payments of federal income taxes,
expiring in varying amounts between 2010 and 2025. Our $19.6 million alternative minimum tax
credits may be carried forward indefinitely under current U.S. law. The operating loss
carryforwards without a valuation allowance will expire in varying amounts over the next twenty
years.
56
Baker Hughes Incorporated
NOTE 6. EARNINGS PER SHARE
A reconciliation of the number of shares used for the basic and diluted EPS computations is as
follows for the years ended December 31:
NOTE 7. INVENTORIES
Inventories are comprised of the following at December 31:
NOTE 8. INVESTMENTS IN AFFILIATES
We have investments in affiliates that are accounted for using the equity method of
accounting. The most significant of these affiliates is WesternGeco, a seismic venture in which we
own 30% and Schlumberger Limited (Schlumberger) owns 70%.
In conjunction with the formation of WesternGeco in November 2000, we entered into an
agreement with Schlumberger whereby a cash trueup payment will be made by either of the parties
based on a formula comparing the ratio of the net present value of sales revenue from each partys
contributed multiclient seismic data libraries during the fouryear period ending November 30, 2004
and the ratio of the net book value of those libraries as of November 30, 2000. The maximum
payment that either party will be required to make as a result of this adjustment is $100.0
million. We currently estimate that Schlumberger will make a payment to us in the range of $9.0
million to $11.5 million, pending final determination of the adjustment. When received, this
payment will be recorded as a reduction to the carrying value of our investment in WesternGeco.
This payment will be taxable when paid and the tax effect will be recorded as current income tax
expense. In November 2000, we also entered into an agreement with WesternGeco whereby WesternGeco
subleased a facility from us for a period of ten years at then current market rates. During 2004,
2003 and 2002, we received payments of $5.5 million, $5.0 million and $5.5 million, respectively,
from WesternGeco related to this lease.
On or after December 1, 2005, either party to the WesternGeco Master Formation Agreement may
offer to sell their entire interest in the venture to the other party at a cash purchase price per
percentage interest specified in an offer notice. If the offer to sell is not accepted, the
offering party will be obligated to purchase the entire interest of the other party at the same
price per percentage interest as the price specified in the offer notice.
Included in the caption Equity in income (loss) of affiliates in our consolidated statement
of operations for 2003 is $135.7 million for our share of $452.0 million of certain impairment and
restructuring charges taken by WesternGeco in 2003. The charges related to the impairment of
WesternGecos multiclient seismic library and rationalization of WesternGecos marine seismic
fleet. In addition, as a result of the continued weakness in the seismic industry, we evaluated
the value of our investment in WesternGeco and recorded an impairment loss of $45.3 million in 2003
to writedown the investment to its fair value. The fair value was determined using a combination
of a market capitalization and discounted cash flows approach. We were assisted in the
determination of the fair value by a third party. Included in the caption Equity in income (loss)
of affiliates for 2002 is $90.2 million for our share of a $300.7 million restructuring charge
related to WesternGecos impairment of assets, reductions in workforce, closing certain operations
and reducing its marine seismic fleet.
In February 2004, we completed the sale of our minority interest in Petreco International, a
venture we entered into in 2001, for $35.8 million, of which $7.4 million is held in escrow pending
the outcome of potential indemnification obligations pursuant to the
57
Baker Hughes Incorporated
sales agreement. A portion of the escrow will be released in May 2005, with the remainder released
in February 2006. We recognized a gain on the sale of $1.3 million, net of tax of $1.5 million.
During 2003, we invested $30.1 million for a 50% interest in the QuantX Wellbore
Instrumentation venture (QuantX) with Expro International (Expro). The venture is engaged in
the permanent inwell monitoring market and was formed by combining Expros permanent monitoring
business with one of our product lines. We account for our ownership in QuantX using the equity
method of accounting.
Summarized unaudited combined financial information for the affiliates, in which we account
for our interests using the equity method of accounting, is as follows as of December 31:
At December 31, 2004 and 2003, net accounts (payable) receivable from unconsolidated
affiliates totaled $(1.1) million and $0.7 million, respectively. As of December 31, 2004 and
2003, the excess of our investment over our equity in affiliates was $268.9 million and $298.2
million, respectively.
NOTE 9. PROPERTY
Property is comprised of the following at December 31:
NOTE 10. GOODWILL AND INTANGIBLE ASSETS
On January 1, 2002, we adopted SFAS No. 142,
Goodwill and Other Intangible Assets
. SFAS No.
142 required us to cease amortizing goodwill and to perform a transitional impairment test of
goodwill in each of our reporting units as of January 1, 2002. Our reporting units were based on
our organizational and reporting structure. Corporate and other assets and liabilities were
allocated to the reporting units to the extent that they related to the operations of those
reporting units. We were assisted in the determination of the fair value of the reporting units by
a third party. We used a combination of a market capitalization and discounted cash flows approach
to estimate the fair values of the reporting units and determined that the goodwill in both the
EIMCO and BIRD operating divisions of our former Process segment was impaired. Accordingly, we
recorded transitional impairment losses of $42.5 million, net of taxes of $20.4 million, in the
first quarter of 2002 as the cumulative effect of accounting change in our consolidated statement
of operations.
58
Baker Hughes Incorporated
SFAS No. 142 also requires us to perform an annual impairment test of goodwill. We perform
this test as of October 1. There were no impairments in 2004 or 2003 at our reporting units
related to the annual impairment test.
The adoption of SFAS No. 142 also required us to reevaluate the remaining useful lives of our
intangible assets to determine whether the remaining useful lives were appropriate. We also
reevaluated the amortization methods of our intangible assets to determine whether the
amortization reflects the pattern in which the economic benefits of the intangible assets are
consumed. In performing these evaluations, we reduced the remaining life of one of our marketing
related intangibles and changed the method of amortization of one of our technology based
intangibles.
The changes in the carrying amount of goodwill, all of which is in the Oilfield segment, are
as follows:
Intangible assets are comprised of the following at December 31:
Intangible assets are amortized either on a straightline basis with estimated useful lives
ranging from 1 to 20 years, or on a basis that reflects the pattern in which the economic benefits
of the intangible assets are consumed, which range from 15 to 30 years.
In 2003, a joint venture that we had been accounting for using the equity method of accounting
was dissolved by mutual agreement between the venture partner and us. Included in the carrying
value of our investment in this joint venture was $21.2 million of goodwill resulting from prior
purchase accounting. We reclassified this equity method goodwill to contract based, technology
based and marketing related intangibles as we received the rights to market certain products
previously held by the joint venture upon the dissolution of the joint venture.
Amortization expense included in net income for the years ended December 31, 2004, 2003 and
2002 was $14.9 million, $13.5 million and $10.9 million, respectively. Estimated amortization
expense for each of the subsequent five fiscal years is expected to be within the range of $12.5
million to $16.2 million.
59
Baker Hughes Incorporated
NOTE 11. INDEBTEDNESS
Total debt consisted of the following at December 31:
At December 31, 2004, we had $897.4 million of credit facilities with commercial banks, of
which $500.0 million is a committed revolving credit facility (the facility) that expires in July
2006. The facility contains certain covenants which, among other things, require the maintenance
of a funded indebtedness to total capitalization ratio (a defined formula per the facility) of less
than or equal to 0.50, limit the amount of subsidiary indebtedness and restrict the sale of
significant assets, defined as 10% or more of total consolidated assets. At December 31, 2004, we
were in compliance with all the facility covenants. There were no direct borrowings under the
facility during the year ended December 31, 2004; however, our ability to borrow under the facility
is reduced to the extent that we have outstanding commercial paper. At December 31, 2004, we had
no outstanding commercial paper or money market borrowings.
We realized gains as a result of terminating various interest rate swap agreements prior to
their scheduled maturities. The gains were deferred and are being amortized as a reduction of
interest expense over the remaining life of the underlying debt securities. The unamortized
deferred gains included in certain debt securities above and reported in longterm debt in the
consolidated balance sheets are as follows at December 31:
Maturities of debt at December 31, 2004 are as follows: 2005 $76.0 million; 2006 $0.1
million; 2007 $0.0 million; 2008 $0.0 million; 2009 $547.5 million and $538.7 million
thereafter.
60
Baker Hughes Incorporated
NOTE 12. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
Our financial instruments include cash and shortterm investments, receivables, payables, debt
and foreign currency forward contracts. Except as described below, the estimated fair value of
such financial instruments at December 31, 2004 and 2003 approximate their carrying value as
reflected in our consolidated balance sheets. The fair value of our debt and foreign currency
forward contracts has been estimated based on yearend quoted market prices.
The estimated fair value of our debt at December 31, 2004 and 2003 was $1,315.0 million and
$1,609.8 million, respectively, which differs from the carrying amounts of $1,162.3 million and
$1,484.4 million, respectively, included in our consolidated balance sheets.
Interest Rate Swap Agreements
In April 2004, we entered into an interest rate swap agreement for a notional amount of $325.0
million associated with our 6.25% Notes due January 2009. Under this agreement, we receive
interest at a fixed rate of 6.25% and pay interest at a floating rate of sixmonth LIBOR plus a
spread of 2.741%. The interest rate swap agreement has been designated and qualifies as a fair
value hedging instrument. The interest rate swap agreement is fully effective, resulting in no
gain or loss recorded in the consolidated statement of operations. We recorded the fair value of
the interest rate swap agreement, which was a $2.3 million liability at December 31, 2004, based on
quoted market prices for contracts with similar terms and maturity dates.
At different times during 2003, we entered into three separate interest rate swap agreements,
each for a notional amount of $325.0 million, associated with our 6.25% Notes due January 2009.
These agreements had been designated and had qualified as fair value hedging instruments. Due to
our outlook for interest rates, we terminated the three agreements and received payments totaling
$26.9 million. Each of the three agreements was terminated prior to entering into a new agreement.
The deferred gains are being amortized as a reduction of interest expense over the remaining life
of the underlying debt security, which matures in January 2009.
During 2002, we terminated two interest rate swap agreements that had been entered into in
prior years. These agreements had been designated and had qualified as fair value hedging
instruments. Upon termination, we received proceeds of $4.8 million and $11.0 million. The
deferred gain of $4.8 million was amortized as a reduction of interest expense over the remaining
life of the underlying debt security, which matured in June 2004. The deferred gain of $11.0
million is being amortized as a reduction of interest expense over the remaining life of the
underlying debt security, which matures in January 2009.
Foreign Currency Forward Contracts
At December 31, 2004, we had entered into several foreign currency forward contracts with
notional amounts aggregating $78.0 million to hedge exposure to currency fluctuations in various
foreign currencies, including the British Pound Sterling, the Norwegian Krone, the Euro and the
Brazilian Real. These contracts are designated and qualify as fair value hedging instruments.
Based on quoted market prices as of December 31, 2004 for contracts with similar terms and maturity
dates, we recorded a loss of $0.4 million to adjust these foreign currency forward contracts to
their fair market value. This loss offsets designated foreign exchange gains resulting from the
underlying exposures and is included in selling, general and administrative expense in our
consolidated statement of operations.
At December 31, 2004, we had also entered into several foreign currency forward contracts with
notional amounts aggregating $122.4 million to hedge exposure to currency fluctuations in various
foreign currencies, including the British Pound Sterling and the Canadian Dollar. These exposures
arise when local currency operating expenses are not in balance with local currency revenue
collections. The funding of such imbalances is supported by shortterm intercompany borrowing
commitments that have definitive amounts and funding dates. All commitments are scheduled to take
place on or before December 31, 2005. These foreign currency forward contracts are designated as
cash flow hedging instruments and are fully effective. Based on quoted market prices as of
December 31, 2004 for contracts with similar terms and maturity dates, we recorded a loss of $0.1
million to adjust these foreign currency forward contracts to their fair market value. This loss
is included in other comprehensive income in the consolidated balance sheet.
Additionally, during 2004 and 2003, we entered into and settled foreign currency forward
contracts to hedge exposure to currency fluctuations for specific transactions or balances. The
impact on our consolidated statements of operations was not significant for these contracts either
individually or in the aggregate.
61
Baker Hughes Incorporated
The counterparties to our foreign currency forward contracts are major financial institutions.
The credit ratings and concentration of risk of these financial institutions are monitored on a
continuing basis. In the unlikely event that the counterparties fail to meet the terms of a
foreign currency contract, our exposure is limited to the foreign currency exchange rate
differential.
Concentration of Credit Risk
We sell our products and services to numerous companies in the oil and natural gas industry.
Although this concentration could affect our overall exposure to credit risk, we believe that we
are exposed to minimal risk since the majority of our business is conducted with major companies
within the industry. We perform periodic credit evaluations of our customers financial condition
and generally do not require collateral for our accounts receivable. In some cases, we will
require payment in advance or security in the form of a letter of credit or bank guarantee.
We maintain cash deposits with major banks that may exceed federally insured limits. We
periodically assess the financial condition of the institutions and believe that the risk of any
loss is minimal.
NOTE 13. SEGMENT AND RELATED INFORMATION
We operate through seven divisions Baker Atlas, Baker Hughes Drilling Fluids, Baker Oil
Tools, Baker Petrolite, Centrilift, Hughes Christensen and INTEQ that we have aggregated into the
Oilfield segment because they have similar economic characteristics and because the longterm
financial performance of these divisions is affected by similar economic conditions. The
consolidated results are evaluated regularly by our chief operating decision maker in deciding how
to allocate resources and in assessing performance.
These operating divisions manufacture and sell products and provide services used in the oil
and natural gas exploration industry, including drilling, formation evaluation, completion and
production of oil and natural gas wells. They operate in the same markets, which includes all of
the major oil and natural gas producing regions of the world: North America, South America,
Europe, Africa, the Middle East and the Far East. They also have substantially the same customers,
which includes major multinational, independent and stateowned oil companies. The Oilfield
segment also includes our 30% interest in WesternGeco and other investments in affiliates.
The accounting policies of the Oilfield segment are the same as those described in Note 1 of
Notes to Consolidated Financial Statements. We evaluate the performance of the Oilfield segment
based on segment profit (loss), which is defined as income from continuing operations before income
taxes, accounting changes, restructuring charge reversals, impairment of assets and interest income
and expense.
62
Baker Hughes Incorporated
Summarized financial information is shown in the following table. The Corporate and Other
column includes corporaterelated items, results of insignificant operations and, as it relates to
segment profit (loss), income and expense not allocated to the Oilfield segment, including
restructuring charge reversals and impairment of assets. The Corporate and Other column at
December 31, 2003 and 2002 also includes assets of discontinued operations.
For the years ended December 31, 2004, 2003 and 2002, there were no revenues attributable to
one customer that accounted for more than 10% of total revenues.
The following table presents the details of Corporate and Other segment loss for the years
ended December 31:
The following table presents the details of Corporate and Other total assets at December 31:
63
Baker Hughes Incorporated
The following table presents consolidated revenues by country based on the location of the use
of the products or services for the years ended December 31:
The following table presents net property by country based on the location of the asset at
December 31:
NOTE 14. EMPLOYEE STOCK PLANS
We have stock option plans that provide for the issuance of incentive and nonqualified stock
options to directors, officers and other key employees at an exercise price equal to or greater
than the fair market value of the stock at the date of grant. These stock options generally vest
over three years. Vested options are exercisable in part or in full at any time prior to the
expiration date of ten years from the date of grant. As of December 31, 2004, 12.6 million shares
were available for future option grants. The following table summarizes the activity for our stock
option plans:
64
Baker Hughes Incorporated
The following table summarizes information for stock options outstanding at December 31, 2004:
We also have an employee stock purchase plan whereby eligible employees may purchase shares of
our common stock at a price equal to 85% of the lower of the closing price of our common stock on
the first or last trading day of the calendar year. A total of 4.1 million shares are remaining
for issuance under the plan. Employees purchased 0.8 million shares in each of the three years
ending December 31, 2004.
We have awarded restricted stock to directors and certain executive officers. The fair value
of the restricted stock on the date of grant is amortized ratably over the vesting period. The
following table summarizes the restricted stock awarded during the years ended December 31:
65
Baker Hughes Incorporated
NOTE 15. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans
We have noncontributory defined benefit pension plans (Pension Benefits) covering employees
primarily in the U.S., the U.K. and Germany. During 2004, we converted our plan in Norway from a
defined benefit plan to a defined contribution plan, resulting in a settlement and curtailment of
benefits on conversion. Generally, we make annual contributions to the plans in amounts necessary
to meet minimum governmental funding requirements; however, during the fourth quarter of 2004, we
contributed $68.6 million to our pension plans in order to improve the funded status of certain
pension plans and to provide us with increased flexibility on the future funding of these pension
plans. The measurements of plan assets and obligations are as of October 1 of each year presented.
The reconciliation of the beginning and ending balances of the projected benefit obligations
(PBO) and fair value of plan assets and the funded status of the plans are as follows for the
years ended December 31:
We report prepaid benefit cost in other assets and accrued benefit and minimum liabilities in
pensions and postretirement benefit obligations in the consolidated balance sheet. The amounts
recognized in the consolidated balance sheet are as follows at December 31:
66
Baker Hughes Incorporated
Weighted average assumptions used to determine benefit obligations for these plans are as
follows for the years ended December 31:
The accumulated benefit obligation (ABO) is the actuarial present value of pension benefits
attributed to employee service to date and present compensation levels. The ABO differs from the
PBO in that the ABO does not include any assumptions about future compensation levels. The ABO for
all U.S. plans was $201.8 million and $174.6 million at December 31, 2004 and 2003, respectively.
The ABO for all nonU.S. plans was $252.5 million and $245.0 million at December 31, 2004 and 2003,
respectively.
Information for the plans with ABOs in excess of plan assets is as follows at December 31:
The components of net periodic benefit cost are as follows for the years ended December 31:
Weighted average assumptions used to determine net costs for these plans are as follows for
the years ended December 31:
In selecting the expected rate of return on plan assets, we consider the average rate of
earnings expected on the funds invested or to be invested to provide for the benefits of these
plans. This includes considering the trusts asset allocation and the expected returns likely to
be earned over the life of the plans.
The weightedaverage asset allocations by asset category for the plans are as follows at
December 31:
67
Baker Hughes Incorporated
We have an investment committee that meets quarterly to review the portfolio returns and to
determine assetmix targets based on asset/liability studies. A nationally recognized thirdparty
investment consultant assisted us in developing an asset allocation strategy to determine our
expected rate of return and expected risk for various investment portfolios. The investment
committee considered these studies in the formal establishment of the current assetmix targets
based on the projected risk and return levels for each asset class.
In 2005, we expect to contribute between $2.0 million and $5.0 million to the U.S. pension
plans and between $10.0 million to $14.0 million to the nonU.S. pension plans.
The expected benefit payments related to our U.S. pension plans for each of the five years in
the period ending December 31, 2009 are $11.4 million, $12.3 million, $13.3 million, $14.7 million
and $17.2 million, respectively, and $126.4 million in the aggregate for the five years thereafter.
The expected benefit payments related to our nonU.S. pension plans for each of the five years in
the period ending December 31, 2009 are $7.9 million, $7.9 million, $12.0 million, $6.2 million and
$4.2 million, respectively, and $26.0 million in the aggregate for the five years thereafter.
These payments reflect benefits attributable to estimated future employee service and are primarily
funded from plan assets.
Postretirement Welfare Benefits
We provide certain postretirement health care and life insurance benefits (postretirement
welfare benefits) to substantially all U.S. employees who retire and have met certain age and
service requirements. The plan is unfunded. The measurement of plan obligations is as of October
1 of each year presented. The reconciliation of the beginning and ending balances of benefit
obligations and the funded status of the plan is as follows for the years ended December 31:
Weighted average discount rates of 6.00% and 6.25% were used to determine postretirement
welfare benefit obligations for the plan for the years ended December 31, 2004 and 2003,
respectively.
The components of net periodic benefit cost are as follows for the years ended December 31:
Weighted average discount rates of 6.25%, 6.75% and 7.00% were used to determine net
postretirement welfare benefit costs for the plan for the years ended December 31, 2004, 2003 and
2002, respectively.
68
Baker Hughes Incorporated
In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(the Medicare Act) was signed into law. The Medicare Act expanded Medicare to include, for the
first time, coverage for prescription drugs. In May 2004, the FASB issued FSP 1062 which
provided guidance on the accounting for the effects of the Medicare Act for employers that sponsor
postretirement health care plans that provide prescription drug benefits. We adopted the
provisions of FSP 1062 in the third quarter of 2004, resulting in a reduction in our accumulated
postretirement benefit obligation of $18.8 million, which is reflected in the actuarial (gain) loss
caption of the funded status reconciliation. We recognized a reduction in our net periodic
postretirement benefit costs of $2.0 million as a result of the adoption of FSP 1062.
Assumed health care cost trend rates have a significant effect on the amounts reported for the
postretirement welfare benefits plan. The assumed health care cost trend rate used in measuring
the accumulated benefit obligation for postretirement welfare benefits was increased in 2003. As
of December 31, 2004, the health care cost trend rate was 9.0% for employees under age 65 and 7.0%
for participants over age 65, with each declining gradually each successive year until it reaches
5.0% for both employees under age 65 and over age 65 in 2008. A one percentage point change in
assumed health care cost trend rates would have had the following effects on 2004:
The expected benefit payments related to postretirement welfare benefits are as follows for
the years ending December 31:
Defined Contribution Plans
During the periods reported, generally all of our U.S. employees were eligible to participate
in our sponsored Thrift Plan, which is a 401(k) plan under the Internal Revenue Code of 1986, as
amended. The Thrift Plan allows eligible employees to elect to contribute from 1% to 50% of their
salaries to an investment trust. Employee contributions are matched in cash by us at the rate of
$1.00 per $1.00 employee contribution for the first 3% and $0.50 per $1.00 employee contribution
for the next 2% of the employees salary. Such contributions vest immediately. In addition, we
make cash contributions for all eligible employees between 2% and 5% of their salary depending on
the employees age. Such contributions become fully vested to the employee after five years of
employment. The Thrift Plan provides for ten different investment options, for which the employee
has sole discretion in determining how both the employer and employee contributions are invested.
Our contributions to the Thrift Plan and several other nonU.S. defined contribution plans amounted
to $75.5 million, $67.7 million and $62.8 million in 2004, 2003 and 2002, respectively.
For certain nonU.S. employees who are not eligible to participate in the Thrift Plan, we
provide a nonqualified defined contribution plan that provides basically the same benefits as the
Thrift Plan. In addition, we provide a nonqualified supplemental retirement plan (SRP) for
certain officers and employees whose benefits under both the Thrift Plan and the Pension Plan are
limited by federal tax law. The SRP also allows the eligible employees to defer a portion of their
eligible compensation and provides for employer matching and base contributions pursuant to
limitations. Both nonqualified plans are fully funded and invested through trusts, and the assets
and corresponding liabilities are included in our consolidated balance sheet. Our contributions to
these nonqualified plans were $6.1 million, $5.5 million and $6.0 million for 2004, 2003 and 2002,
respectively.
Postemployment Benefits
We provide certain postemployment disability income, medical and other benefits to
substantially all qualifying former or inactive U.S. employees. Income benefits for longterm
disability are provided through a fullyinsured plan. The continuation of
medical and other benefits while on disability (Continuation Benefits) are provided through a
qualified selfinsured plan. The accrued postemployment liability for Continuation Benefits at
December 31, 2004 and 2003 was $20.2 million and $27.2 million, respectively, and is included in
other liabilities in our consolidated balance sheet.
69
Baker Hughes Incorporated
NOTE 16. COMMITMENTS AND CONTINGENCIES
Leases
At December 31, 2004, we had longterm noncancelable operating leases covering certain
facilities and equipment. The minimum annual rental commitments, net of amounts due under
subleases, for each of the five years in the period ending December 31, 2009 are $74.0 million,
$50.4 million, $34.8 million, $25.0 million and $17.2 million, respectively, and $126.3 million in
the aggregate thereafter. We have not entered into any significant capital leases.
Litigation
We are involved in litigation or proceedings that have arisen in our ordinary business
activities. We insure against these risks to the extent deemed prudent by our management and to
the extent insurance is available, but no assurance can be given that the nature and amount of such
insurance will be sufficient to fully indemnify us against liabilities arising out of pending and
future legal proceedings. Many of these insurance policies contain deductibles or selfinsured
retentions in amounts we deem prudent, and for which we are responsible for payment. In
determining the amount of selfinsurance, it is our policy to selfinsure those losses that are
predictable, measurable and recurring in nature, such as claims for automobile liability, general
liability and workers compensation. We record accruals for the uninsured portion of losses related
to these types of claims. The accruals for losses are calculated by estimating losses for claims
using historical claim data, specific loss development factors and other information as necessary.
On March 29, 2002, we announced that we had been advised that the Securities and Exchange
Commission (SEC) and the Department of Justice (DOJ) are conducting investigations into
allegations of violations of law relating to Nigeria and other related matters. The SEC has issued
a formal order of investigation into possible violations of provisions under the Foreign Corrupt
Practices Act (FCPA) regarding antibribery, books and records and internal controls. On August
6, 2003, the SEC issued a subpoena seeking information about our operations in Angola and
Kazakhstan as part of its ongoing investigation. We are providing documents to and cooperating
fully with the SEC and DOJ. The DOJ and the SEC have issued subpoenas to, or otherwise asked for
interviews with, current and former employees in connection with the investigations regarding
Nigeria, Angola and Kazakhstan. In addition, we have conducted internal investigations into these
matters.
Our internal investigations have identified issues regarding the propriety of certain payments
and apparent deficiencies in our books and records and internal controls with respect to certain
operations in Nigeria, Angola and Kazakhstan, as well as potential liabilities to governmental
authorities in Nigeria. The investigation in Nigeria was substantially completed during the first
quarter of 2003 and, based upon current information, we do not expect that any such potential
liabilities will have a material adverse effect on our consolidated financial statements. The
internal investigations in Angola and Kazakhstan were substantially completed in the third quarter
of 2004. Evidence obtained during the course of the investigations has been provided to the SEC
and DOJ.
The Department of Commerce, Department of the Navy and DOJ (the U.S. agencies) are
investigating compliance with certain export licenses issued to Western Geophysical from 1994
through 2000 for export of seismic equipment leased by the Peoples Republic of China. We acquired
Western Geophysical in August 1998 and subsequently transferred related assets to WesternGeco in
December 2000. Under the WesternGeco formation agreement, we owe indemnity to WesternGeco for
certain matters. We are cooperating fully with the U.S. agencies.
We have received a subpoena from a grand jury in the Southern District of New York regarding
goods and services we delivered to Iraq from 1995 through 2003 during the United Nations
Oil-for-Food Program (the U.N. Program). We have also received a request from the SEC to provide
a written statement and certain information regarding our participation in the U.N. Program. We
are responding to both the subpoena and the request. Other companies in the energy industry are
believed to have received similar subpoenas and requests.
The U.S. agencies, the SEC and other authorities have a broad range of civil and criminal
sanctions they may seek to impose against corporations and individuals in appropriate circumstances
including, but not limited to, injunctive relief, disgorgement, fines, penalties and modifications
to business practices and compliance programs. During 2004, such agencies and authorities entered
into agreements with, and obtained a range of sanctions against, several public corporations and
individuals arising from allegations of improper payments and deficiencies in books and records and
internal controls, whereby civil and criminal penalties were imposed, including in some cases
multimillion dollar fines and other sanctions. It is not possible to accurately predict at this
time when any of the investigations related to the Company will be completed. Based on current
information, we cannot predict the outcome of such investigations or what, if any, actions may be
taken by the U.S. agencies, the SEC or other authorities or the effect it may have on our
consolidated financial statements.
70
Baker Hughes Incorporated
On May 10, 2004, the District Court of Andrews County, Texas entered a judgment in favor of
LOTUS, LLC and against INTEQ in the amount of $14.8 million for lost profits resulting from a
breach of contract in drilling a well to create a salt cavern for disposing of naturally occurring
radioactive waste. We have filed an appeal and taken other actions. We believe that any liability
that we may incur as a result of this litigation would not have a material adverse financial effect
on our consolidated financial statements.
Environmental Matters
Our past and present operations include activities which are subject to extensive domestic
(including U.S. federal, state and local) and international environmental regulations with regard
to air and water quality and other environmental matters. Our environmental procedures, policies
and practices are designed to ensure compliance with existing laws and regulations and to minimize
the possibility of significant environmental damage.
We are involved in voluntary remediation projects at some of our present and former
manufacturing facilities, the majority of which relate to properties obtained in acquisitions or to
sites no longer actively used in operations. On rare occasions, remediation activities are
conducted as specified by a government agencyissued consent decree or agreed order. Remediation
costs are accrued based on estimates of probable exposure using currently available facts, existing
environmental permits, technology and presently enacted laws and regulations. Remediation cost
estimates include direct costs related to the environmental investigation, external consulting
activities, governmental oversight fees, treatment equipment and costs associated with longterm
operation, maintenance and monitoring of a remediation project.
We have also been identified as a potentially responsible party (PRP) in remedial activities
related to various Superfund sites. We participate in the process set out in the Joint
Participation and Defense Agreement to negotiate with government agencies, identify other PRPs,
determine each PRPs allocation and estimate remediation costs. We have accrued what we believe to
be our prorata share of the total estimated cost of remediation and associated management of these
Superfund sites. This share is based upon the ratio that the estimated volume of waste we
contributed to the site bears to the total estimated volume of waste disposed at the site.
Applicable United States federal law imposes joint and several liability on each PRP for the
cleanup of these sites leaving us with the uncertainty that we may be responsible for the
remediation cost attributable to other PRPs who are unable to pay their share. No accrual has been
made under the joint and several liability concept for those Superfund sites where our
participation is minor since we believe that the probability that we will have to pay material
costs above our volumetric share is remote. We believe there are other PRPs who have greater
involvement on a volumetric calculation basis, who have substantial assets and who may be
reasonably expected to pay their share of the cost of remediation. For those Superfund sites where
we are a major PRP, remediation costs are estimated to include recalcitrant parties. In some
cases, we have insurance coverage or contractual indemnities from third parties to cover the
ultimate liability.
Our total accrual for environmental remediation is $13.6 million and $15.6 million, which
includes accruals of $3.6 million and $4.3 million for the various Superfund sites, at December 31,
2004 and 2003, respectively. The determination of the required accruals for remediation costs is
subject to uncertainty, including the evolving nature of environmental regulations and the
difficulty in estimating the extent and type of remediation activity that will be utilized. We
believe that the likelihood of material losses in excess of the recorded accruals is remote.
Other
In the normal course of business with customers, vendors and others, we have entered into
offbalance sheet arrangements, such as letters of credit and other bank issued guarantees, which
totaled approximately $312.3 million at December 31, 2004. We also had commitments outstanding for
purchase obligations related to capital expenditures and inventory under purchase orders and
contracts of approximately $114.7 million at December 31, 2004. In addition, at December 31, 2004,
we have guaranteed debt and other obligations of third parties with a maximum exposure of $7.4
million. It is not practicable to estimate the fair value of these financial instruments. None of
the offbalance sheet arrangements either has, or is likely to have, a material effect on our
consolidated financial statements.
71
Baker Hughes Incorporated
NOTE 17. OTHER SUPPLEMENTAL INFORMATION
Supplemental consolidated statement of operations information is as follows for the years
ended December 31:
The changes in the aggregate product warranty liability are as follows:
On January 1, 2003, we adopted SFAS No. 143,
Accounting for Asset Retirement Obligations
.
SFAS No. 143 requires that the fair value of a liability associated with an asset retirement
obligation (ARO) be recognized in the period in which it is incurred if a reasonable estimate can
be made. The liability for the ARO is revised each subsequent period due to the passage of time
and changes in estimates. The associated retirement costs are capitalized as part of the carrying
amount of the longlived asset and subsequently depreciated over the estimated useful life of the
asset. The adoption of SFAS No. 143 in 2003 resulted in a charge of $5.6 million, net of tax of
$2.8 million, recorded as the cumulative effect of accounting change in the consolidated statement
of operations. In conjunction with the adoption, we recorded ARO liabilities of $11.4 million
primarily for anticipated costs of obligations associated with the future disposal of power source
units at certain of our divisions and refurbishment costs associated with certain leased facilities
in Europe and with a fleet of leased railcars and tanks.
The changes in the asset retirement obligation liability are as follows:
Accumulated other comprehensive loss, net of tax, is comprised of the following at December
31:
72
Baker Hughes Incorporated
NOTE 18. QUARTERLY DATA (UNAUDITED)
73
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management has established and maintains a system of disclosure controls and procedures to
provide reasonable assurances that information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the SECs rules and forms. As of December 31, 2004, our management,
including our principal executive officer and principal financial officer, conducted an evaluation
of our disclosure controls and procedures. Based on this evaluation, our principal executive
officer and our principal financial officer concluded that our disclosure controls and procedures
as of December 31, 2004 are effective in ensuring that the information required to be disclosed by
us in reports filed under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the SEC.
Design and Evaluation of Internal Control Over Financial Reporting
Pursuant to Section 404 of the SarbanesOxley Act of 2002, our management included a report of
their assessment of the design and effectiveness of our internal controls as part of this Annual
Report on Form 10K for the fiscal year ended December 31, 2004. Our managements assessment of the
effectiveness of our internal control over financial reporting as of December 31, 2004 has been
audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in
their report which is included herein. Managements report and the independent registered public
accounting firms attestation report are included in Item 8 under the captions entitled
Managements Report on Internal Control Over Financial Reporting and Report of Independent
Registered Public Accounting Firm and are incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter
ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning our directors is set forth in the sections entitled Proposal No. 1,
Election of Directors, Information Concerning Directors Not Standing for Election and Corporate
Governance Committees of the Board Audit/Ethics Committee in our Proxy Statement for the
Annual Meeting of Stockholders to be held April 28, 2005 (Proxy Statement), which sections are
incorporated herein by reference. For information regarding our executive officers, see Item 1.
Business Executive Officers in this annual report on Form 10K. Additional information
regarding compliance by directors and executive officers with Section 16(a) of the Exchange Act is
set forth under the section entitled Compliance with Section 16(a) of the Securities Exchange Act
of 1934 in our Proxy Statement, which section is incorporated herein by reference. For
information concerning our code of ethics, see Item 1. Business in this annual report on Form
10K.
ITEM 11. EXECUTIVE COMPENSATION
Information for this item is set forth in the sections entitled Executive Compensation
Summary Compensation Table, Corporate Governance Board of Directors, Stock Options Granted
During 2004, Aggregated Option Exercises During 2004 and Option Values at December 31, 2004,
LongTerm Incentive Plan Awards During 2004, Pension Plan Table, Employment, Change in
Control, Severance and Indemnification Agreements, Compensation Committee Report, Compensation
Committee
74
Interlocks and Insider Participation, and Corporate Performance Graph in our Proxy
Statement, which sections are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and our management is
set forth in the sections entitled Voting Securities and Security Ownership of Management in
our Proxy Statement, which sections are incorporated herein by reference.
Our Board of Directors has approved procedures for use under our Securities Trading and
Disclosure Policy to permit our employees, officers and directors to enter into written trading
plans complying with Rule 10b51 under the Exchange Act. Rule 10b51 provides criteria under which
such an individual may establish a prearranged plan to buy or sell a specified number of shares of
a companys stock over a set period of time. Any such plan must be entered into in good faith at a
time when the individual is not in possession of material, nonpublic information. If an individual
establishes a plan satisfying the requirements of Rule 10b51, such individuals subsequent receipt
of material, nonpublic information will not prevent transactions under the plan from being
executed.
Equity Compensation Plan Information
The information in the following table is presented as of December 31, 2004 with respect to
shares of our Common Stock that may be issued under our existing equity compensation plans,
including the Baker Hughes Incorporated 1993 Stock Option Plan, the Baker Hughes Incorporated
LongTerm Incentive Plan and the Baker Hughes Incorporated 2002 Directors & Officers LongTerm
Incentive Plan, all of which have been approved by our stockholders.
75
Our nonstockholderapproved plans are described below:
1998 Employee Stock Option Plan
The Baker Hughes Incorporated 1998 Employee Stock Option Plan (the 1998 ESOP) was adopted
effective as of October 1, 1998. The number of shares authorized for issuance under the 1998 ESOP
is 3.5 million shares. Nonqualified stock options may be granted under the 1998 ESOP to our
employees. The exercise price of the options will be equal to the fair market value per share of
our Common Stock on the date of grant, and option terms may be up to ten years. Under the terms
and conditions of the option award agreements for options issued under the 1998 ESOP, options
generally vest and become exercisable in installments over the optionees period of service, and
the options vest on an accelerated basis in the event of a change in control. As of December 31,
2004, options covering approximately 1.5 million shares of our Common Stock were outstanding under
the 1998 ESOP, options covering approximately 1.4 million shares were exercised during fiscal year
2004 and approximately 0.3 million shares remained available for future options.
1998 Special Employee Stock Option Plan
The Baker Hughes Incorporated 1998 Special Employee Stock Option Plan (the 1998 SESOP) was
adopted effective as of October 22, 1997. The number of shares authorized for issuance upon the
exercise of options granted under the 1998 SESOP is 2.5 million shares. Under the 1998 SESOP, the
Compensation Committee of our Board of Directors has the authority to grant nonqualified stock
options to purchase shares of our Common Stock to a broadbased group of employees. The exercise
price of the options will be equal to the fair market value per share of our Common Stock at the
time of the grant, and option terms may be up to ten years. Stock option grants of 100 shares,
with an exercise price of $47.813 per share, were issued to all of our U.S. employees in October
1997 and to our international employees in May 1998. As of December 31, 2004, options covering
approximately 1.2 million shares of our Common Stock were outstanding under the 1998 SESOP, no
options were exercised during fiscal year 2004 and approximately 1.2 million shares remained
available for future options.
2002 Employee LongTerm Incentive Plan
The Baker Hughes Incorporated 2002 Employee LongTerm Incentive Plan (the 2002 Employee
LTIP) was adopted effective as of March 6, 2002. The 2002 Employee LTIP permits the grant of
awards as nonqualified stock options, stock appreciation rights, restricted stock, restricted stock
units, performance shares, performance units, stock awards and cashbased awards to our corporate
officers and key employees. The number of shares authorized for issuance under the 2002 Employee
LTIP is 9.5 million, with no more than 3.0 million available for grant as awards other than options
(the number of shares is subject to adjustment for changes in our Common Stock).
The 2002 Employee LTIP is the companion plan to the Baker Hughes Incorporated 2002 Director &
Officer LongTerm Incentive Plan, which was approved by our stockholders in 2002. The rationale
for the two companion plans was to discontinue the use of the remaining older option plans and to
have only two plans from which we would issue compensation awards.
Options.
The exercise price of the options will not be less than the fair market value of the
shares of our Common Stock on the date of grant, and options terms may be up to ten years. The
maximum number of shares of our Common Stock that may be subject to options granted under the 2002
Employee LTIP to any one employee during any one fiscal year will not exceed 3.0 million, subject
to adjustment under the antidilution provisions of the 2002 Employee LTIP. Under the terms and
conditions of the stock option awards for options issued under the 2002 Employee LTIP, options
generally vest and become exercisable in installments over the optionees period of service, and
the options vest on an accelerated basis in the event of a change in control or certain
terminations of employment. As of December 31, 2004, options covering approximately 3.1 million
shares of our Common Stock were outstanding under the 2002 Employee LTIP, options covering 0.5
million shares were exercised during fiscal year 2004 and approximately 5.8 million shares remained
available for future options.
Performance Shares and Units; CashBased Awards.
Performance shares may be granted to
employees in the amounts and upon the terms determined by the Compensation Committee of our Board
of Directors, but must be limited to no more than 1.0 million shares to any one employee in any one
fiscal year. Performance shares will have an initial value equal to the fair market value of our
Common Stock at the date of the award. Performance units and cashbased awards may be granted to
employees in amounts and upon the terms determined by the Compensation Committee, but must be
limited to no more than $10.0 million for any one employee in any one fiscal year. The performance
measures that may be used to determine the extent of the actual performance payout or vesting
include, but are not limited to, net earnings; earnings per share; return measures; cash flow
return on investments (net cash
76
flows divided by owners equity); earnings before or after taxes, interest, depreciation and/or
amortization; share price (including growth measures and total shareholder return) and Baker Value
Added (our metric that measures operating profit after tax less the cost of capital employed).
Restricted Stock and Restricted Stock Units.
With respect to awards of restricted stock and
restricted stock units, the Compensation Committee will determine the conditions or restrictions on
the awards, including whether the holders of the restricted stock or restricted stock units will
exercise full voting rights or receive dividends and other distributions during the restriction
period. At the time the award is made, the Compensation Committee will determine the right to
receive unvested restricted stock or restricted units after termination of service. Awards of
restricted stock are limited to 1.0 million shares in any one year to any one individual.
Stock Appreciation Rights.
Stock appreciation rights may be granted under the 2002 Employee
LTIP on the terms and conditions determined by the Compensation Committee. The grant price of a
freestanding stock appreciation right will not be less than the fair market value of our Common
Stock on the date of grant. The maximum number of shares of our Common Stock that may be utilized
for purposes of determining an employees compensation under stock appreciation rights granted
under the 2002 Employee LTIP during any one fiscal year will not exceed 3.0 million shares, subject
to adjustment under the antidilution provisions of the 2002 Employee LTIP.
Administration; Amendment and Termination
. The Compensation Committee shall administer the
2002 Employee LTIP, and in the absence of the Compensation Committee, the Board will administer the
Plan. The Compensation Committee will have full and exclusive power to interpret the provisions of
the 2002 Employee LTIP as the Committee may deem necessary or proper, with the powers exercised in
the best interests of the Company and in keeping with the objectives of the Plan. The Board may
alter, amend, modify, suspend or terminate the 2002 Employee LTIP, except that no amendment,
modification, suspension or termination that would adversely affect in any material way the rights
of a participant under any award previously granted under the Plan may be made without the written
consent of the participant or to the extent stockholder approval is otherwise required by
applicable legal requirements.
Director Compensation Deferral Plan
The Baker Hughes Incorporated Director Compensation Deferral Plan, as amended and restated
effective July 24, 2002 (the Deferral Plan), is intended to provide a means for members of our
Board of Directors to defer compensation otherwise payable and provide flexibility with respect to
our compensation policies. Under the provisions of the Deferral Plan, directors may elect to defer
income with respect to each calendar year. The compensation deferrals may be stock optionrelated
deferrals or cashbased deferrals. The stock optionrelated deferrals may be either marketpriced
stock options or discounted stock options. The number of shares to be issued for the marketpriced
stock option deferral is calculated on a quarterly basis by multiplying the deferred compensation
by 4.4 and then dividing by the fair market value of our Common Stock on the last day of the
quarter. The number of shares to be issued for the discounted stock option deferral is calculated
on a quarterly basis by dividing the deferred compensation by the discounted price of our Common
Stock on the last day of the quarter. The discounted price is 50% of the fair market value of our
Common Stock on the valuation date. Stock options granted under the Deferral Plan vest on the
first anniversary of the date of grant and must be exercised within 10 years of the date of grant.
If a directors directorship terminates for any reason, any options outstanding will expire 3 years
after the termination of the directorship. The maximum aggregate number of shares of our Common
Stock that may be issued under the Deferral Plan is 0.5 million. As of December 31, 2004, options
covering 7,071 shares of our Common Stock were outstanding under the Deferral Plan, no options were
exercised during fiscal 2004 and approximately 0.5 million shares remained available for future
options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information concerning principal accounting fees and services is set forth in the section
entitled Fees Paid to Deloitte & Touche LLP in our Proxy Statement, which section is incorporated
herein by reference.
77
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) List of Documents filed as part of this Report
(1) Financial Statements
All financial statements of the Registrant as set forth under Item 8 of this Annual Report on
Form 10K.
(2) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
(3) Exhibits
Each exhibit identified below is filed as a part of this report. Exhibits designated with an
* are filed as an exhibit to this Annual Report on Form 10K. Exhibits designated with a
+ are identified as management contracts or compensatory plans or arrangements. Exhibits
previously filed as indicated below are incorporated by reference.
78
79
80
81
82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
83
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Chad. C. Deaton and G. Stephen Finley, each of whom may act without
joinder of the other, as their true and lawful attorneysinfact and agents, each with full power
of substitution and resubstitution, for such person and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Annual Report on Form 10K, and to file
the same, with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneysinfact and agents full power and
authority to do and perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneysinfact and agents, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report
has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
84
Baker Hughes Incorporated
Schedule II Valuation and Qualifying Accounts
EXHIBIT INDEX
Each exhibit identified below is filed as a part of this report. Exhibits designated with an
* are filed as an exhibit to this Annual Report on Form 10-K. Exhibits designated with a
+ are identified as management contracts or compensatory plans or arrangements. Exhibits
previously filed as indicated below are incorporated by reference.
3900 Essex Lane, Suite 1200
Houston, TX 77027
Attention: Investor Relations
Telephone: (713) 4398039
Table of Contents
data acquisition efficiency,
the sophistication and accuracy of measurements,
the ability to interpret the information gathered to quantify the hydrocarbons producible from the formation, and
the ability to differentiate services which can run exclusively or more efficiently on
wireline from services which can run on either wireline or drill pipe.
Table of Contents
improvements in drilling efficiency,
minimizing formation damage, and
the environmentally safe handling and disposal of drilling fluids and cuttings.
Liner hangers, which suspend a section of steel casing (also called a liner) inside the
bottom of the previous section of casing. Its expandable slips grip the inside of the
casing and support the weight of the liner below.
Packers, which seal the annular space between the steel production tubing and the casing.
These tools control the flow of fluids in the well and protect the casing above and below
from reservoir pressures and corrosive formation fluids.
Flow control equipment, which controls and adjusts the flow of downhole fluids. Typical
flow control devices include sliding sleeves, which can be opened or closed to allow or
limit production from a particular portion of a reservoir. Flow control can be accomplished
from the surface via wireline or downhole via hydraulic or electric motorbased automated
systems.
Subsurface safety valves, which shut off all flow of fluids to the surface in the event
of an emergency, thus saving the well and preventing pollution of the environment. These
valves are required in substantially all offshore wells.
Sand control equipment, which includes gravel pack tools, sand screens and fracturing
fluids. These tools and related services are used in loosely consolidated formations to
prevent the production of formation sand with the hydrocarbons.
Advanced completion technologies, which include multilateral systems, intelligent well
systems and expandable metal technologies. Multilateral completion systems enable two or
more zones to be produced from a single well, using multiple horizontal branches.
Intelligent Completions® use realtime, remotely operated downhole systems to control the
flow of hydrocarbons from one or more zones. Expandable metal technology involves the
permanent downhole expansion of a variety of tubular products used in drilling, completion
and well remediation applications.
Table of Contents
the engineering and manufacturing of superior quality products,
reduced well construction costs,
enhanced production and ultimate recovery,
minimized risks, and
reliable performance over the life of the well, particularly in harsh environments and critical wells.
Hydrate inhibitors Natural gas hydrates are solid icelike crystals that can form in
production flowlines and tubing, causing shutdowns and the need for system maintenance.
Subsea wells and flowlines, particularly in deepwater environments, are especially
susceptible to hydrates.
Paraffin inhibitors The liquid hydrocarbons produced from many oil and natural gas
reservoirs become unstable soon after leaving the formation. Changing conditions,
including decreases in temperature and pressure, can cause certain hydrocarbons in the
produced fluids to crystallize and deposit on the walls of the wells tubing, flow lines
and surface equipment. These deposits are commonly referred to as paraffin. Baker
Petrolite offers solvents that remove the deposits, as well as inhibitors that prevent new
deposits from forming.
Scale inhibitors Unlike paraffin deposits that originate from organic material in the
produced hydrocarbons, scale deposits come from mineralbased contaminants in water that
are produced from the formation as the water undergoes changes in temperature or pressure.
Similar to paraffin, scale deposits can clog the production system. Treatments prevent and
remove deposits in production systems.
Corrosion inhibitors Another problem caused by water mixed with downhole hydrocarbons
is corrosion of the wells tubulars and other production equipment. Corrosion can also be
caused by dissolved hydrogen sulfide (H
2
S) gas which reacts with the iron in
tubulars, valves and other equipment, potentially causing failures and leaks.
Additionally, the reaction creates iron sulfide which can impair treating systems and cause
blockages. Baker Petrolite offers a variety of corrosion inhibitors and H
2
S
scavengers.
Table of Contents
Emulsion breakers Water and oil typically do not mix, but water present in the
reservoir and coproduced with oil can often become emulsified, or mixed, causing problems
for oil and natural gas producers. Baker Petrolite offers emulsion breakers which allow
the water component of the emulsion to be separated from the oil.
improved levels of production or throughput,
reduced maintenance costs and frequency,
lower treatment costs,
lower treatment intervals, and
successful resolution of environmental issues.
Table of Contents
system reliability,
system runlife,
optimizing production,
operating efficiency, and
service delivery.
improving the rate of penetration,
extending bit life, and
selecting the optimal bit for each section to be drilled.
Table of Contents
the sophistication and accuracy of measurements,
the efficiency of the drilling process,
equipment reliability,
the optimal placement of the wellbore in the reservoir, and
the quality of the wellbore.
Table of Contents
Table of Contents
Name
Age
52
Chairman of the Board and Chief Executive
Officer of the Company since October 2004.
President and Chief Executive Officer of
Hanover Compressor Company from August 2002 to
October 2004. Senior Advisor to Schlumberger
Oilfield Services from 1999 to September 2001.
Served as an Executive Vice President of
Schlumberger from 1998 to 1999. Employed by
the Company in 2004.
54
President and Chief Operating Officer of the
Company since February 2004. Vice President,
Marketing and Technology of the Company from
August 2003 to February 2004. Vice President
of the Company and President of Baker
Petrolite Corporation from 2001 to 2003.
President and Chief Executive Officer of
Consolidated Equipment Companies, Inc. from
2000 to 2001 and President of SperrySun from
1996 to 1999. Employed by the Company in
2001.
Table of Contents
Name
Age
54
Senior Vice President Finance and
Administration and Chief Financial Officer of
the Company since 1999. Employed as Senior
Vice President and Chief Administrative
Officer of the Company from 1995 to 1999,
Controller from 1987 to 1993 and Vice
President from 1990 to 1995. Served as Chief
Financial Officer of Baker Hughes Oilfield
Operations from 1993 to 1995. Employed by the
Company in 1982.
53
Vice President and General Counsel of the
Company since October 2000. Executive Vice
President, General Counsel and Secretary of
Crown, Cork & Seal Company, Inc. from 1999 to
2000. Vice President and General Counsel,
1996 to 1999, and Assistant General Counsel,
1988 to 1996, of Union Texas Petroleum
Holding, Inc. Employed by the Company in
2000.
53
Vice President, Human Resources of the Company
since November 2000. Employed as President of
GN Resources from 1989 to 2000. Employed by
the Company in 2000.
55
Group President of Drilling and
Evaluation since 2005 and Vice President of the Company since 2000.
Served as President of
Baker Atlas from 2000 to 2005. Served as Vice
President, Supply Chain Management, of Cooper
Cameron from 1999 to 2000. Mr. Barr also held
the following positions with the Company: Vice President, Business Process Development,
from 1997 to 1998 and the following positions
with Hughes Tool Company/Hughes Christensen: Vice President, Production and Technology,
from 1994 to 1997; Vice President, Diamond
Products, from 1993 to 1994; Vice President,
Eastern Hemisphere Operations, from 1990 to
1993 and Vice President, North American
Operations, from 1988 to 1990. Employed by
the Company in 1972.
52
Group President of Completions and
Production since 2005 and Vice President of the Company since 1997.
Served as President of Baker Oil Tools from 2003 to 2005 and President of Hughes Christensen from 1997 to 2003. Served as President and Chief Executive
Officer of Western Rock Bit Company Limited, Hughes Christensens former distributor in
Canada, from 1991 to 1997. Previously employed as General Manager of Century Valve Company
from 1989 to 1991 and Vice President, Contracts and Marketing, of Adeco Drilling & Engineering
from 1980 to 1989. Employed by the Company in 1997.
55
Vice President of the Company since 1998 and
President, INTEQ since 1999. Employed as Vice
President, Marketing, Technology and Business
Development, of the Company from 1998 to 1999;
Vice President, Worldwide Marketing, of Baker
Oil Tools from 1992 to 1998 and Vice
President, International Operations, of Baker
Service Tools, from 1989 to 1992. Employed by
the Company in 1975.
47
Vice President of the Company and
President of Baker Oil Tools since 2005. Served as Vice President of
Finance for Baker Petrolite from 2002 to 2005; Director of Finance
and Controller at INTEQ from 1999 to 2002; Controller at Hughes
Christensen from 1994 to 1999. Employed in various accounting and
finance positions at Hughes Christensen in the Eastern Hemisphere
from 1985 to 1994. Employed by the Company in 1985.
48
Vice President of the Company and
President of Hughes Christensen since 2005. Employed as Vice
President, Marketing, of Hughes Christensen from 2001 to 2005 and as
Region Manager for various Hughes Christensen areas (both in the
United States and the Eastern Hemisphere) from 1989 to 2001. Employed
by the Company in 1981.
45
Vice President of the Company and
President of Baker Atlas since 2005. Served as Vice President of
Worldwide Operations for Baker Atlas from 2003 to 2005 and Vice
President, Marketing and Business Development for Baker Atlas from
2001 to 2003; Region Manager for Baker Atlas in Latin America and
Asia and Region Manager for E&P Solutions from 1995 to 2001. Employed
by BJ Services Company as a Region Engineer from 1982 to 1986.
Employed by the Company in 1986.
49
Vice President of the Company and President of
Centrilift since 2001. Employed as Vice
President, Marketing, of Hughes Christensen
from 1994 to 2001 and as Region Manager for
various Hughes Christensen areas (both
domestic and international) from 1986 to 1994.
Employed by the Company in 1977.
57
Vice President of the Company since 1995 and
President of Baker Petrolite Corporation since
2003. President of Baker Oil Tools from 1992
to 2003. Employed as President of Baker
Service Tools from 1989 to 1992 and Vice
President General Manager of Baker
Performance Chemicals (the predecessor of
Baker Petrolite) from 1984 to 1989. Employed
by the Company in 1975.
50
Vice President and Controller of the Company
since July 1999. Employed as Western
Hemisphere Controller of Baker Oil Tools from
1997 to 1999 and Director of Corporate Audit
for the Company from 1990 to 1996. Employed
by the Company in 1990.
53
Vice President, Chief Compliance Officer and
Senior Deputy General Counsel since July 2004.
Shareholder at Winstead Sechrest & Minick P.C.
from 2001 to July 2004. Partner, Phelps
Dunbar from 2000 to 2001 and Partner, Andrews
& Kurth from 1996 to 2000. Employed by the
Company in 2004.
Table of Contents
Name
Age
57
Vice President of the Company since 1998 and
President of Baker Hughes Drilling Fluids
since 2004. Employed as Vice President,
Business Process Development of the Company
from 1998 to 2002; Vice President, Manufacturing, of Baker Oil Tools from 1990 to 1998
and Plant Manager of Hughes Tool Company from 1988 to 1990. Employed by
the Company in 1975.
Table of Contents
(a)
Baker Petrolite, Hughes Christensen, an INTEQ predecessor entity, Baker Oil Tools and a
former subsidiary were named in April 1984 as PRPs at the Sheridan Superfund Site located in
Hempstead, Texas. The Texas Commission on Environmental Quality (TCEQ) is overseeing the
remedial work at this site. The Sheridan Site Trust was formed to manage the site
remediation and we participate as a member. Based on the use of new remedial technologies,
the 2004 cost projections for full remediation have been reduced from $30 million to $6
million, of which $1.0 million has been collected. Our contribution is approximately 1.8%
of the estimated $5 million in remaining costs.
(b)
In December 1987, one of our former subsidiaries was named a respondent in an EPA
Administrative Order for Remedial Design and Remedial Action associated with the
MiddlefieldEllisWhisman Study Area, an eight square mile soil and groundwater
contamination site located in Mountain View, California. As a result of the environmental
investigations and a resulting report delivered to the EPA in September 1991, the EPA has
informed us that no further work needs to be performed on the site. In fact, the EPA has
indicated that it does not believe there is a contaminant source on the property. We signed
a settlement agreement in March 2004, which transferred any future liability for
investigation and remediation at the site to the PRP group. The settlement amount was not
material.
(c)
In 1997, we entered into a settlement agreement with Prudential Insurance Company
(Prudential) regarding cost recovery for the San Fernando Valley Glendale Superfund.
One of our predecessors operated on the Prudential property in Glendale. Prudential was
identified as a PRP for the Glendale Superfund. Prudential instituted legal proceedings
against us for cost recovery under CERCLA. Without any admission of liability, we agreed to
pay 40% of Prudentials costs attributed to cleanup at the site, limited to a cap of $0.3
million. A pump and treat system was selected as the cleanup remedy at Glendale, and it is
expected to operate until 2012. We continue to contribute our portion of ongoing
assessments to fund this remediation strategy.
(d)
In June 1999, the EPA named a Hughes Christensen predecessor as a PRP at the Li Tungsten
Site in Glen Cove, New York. We contributed a
de minimis
amount of hazardous substances to
the site. In December 2004, the EPA issued us a special
de minimis
settlement offer based
on the fact that our contribution was limited to metals contamination, not radiological
contamination, at the site. The settlement offer has been signed and is not material.
(e)
In January 1999, Baker Oil Tools, Baker Petrolite and predecessor entities of Baker
Petrolite were named as PRPs by the State of Californias Department of Toxic Substances
Control for the Gibson site in Bakersfield, California. The cost estimate for remediation
of the site is approximately $14 million. The combined volume that we contributed to the
site is estimated to be less than 0.5% for liquids and 0.25% for solids.
(f)
In 2001, a Hughes Christensen predecessor, Baker Oil Tools, INTEQ and one of our former
subsidiaries were named as PRPs in the Force Road State Superfund Site located in Brazoria
County, Texas. The TCEQ is overseeing the investigation and remediation at the Force Road
State Site. We participate as a member of the technical committee to effectively manage the
project, since our contribution is estimated to be 71%. The initial investigation at the
site is complete and a detailed report has been submitted to the TCEQ along with a proposed
work plan. The most current cost projections for closure of the site
are in the range of $5 million to $7 million; however, this projection may change once the remedial options are fully
evaluated.
(g)
In 2002, Baker Petrolite predecessors, Hughes Christensen predecessors and two of our
former subsidiaries were identified as PRPs for the Malone site located on Campbell Bayou
Road in Texas City, Texas. The EPA oversees the investigation and remediation of the Malone
site. The EPA has engaged in some emergency removal actions at the site. The investigation
is underway and when complete, remedial options will be developed and submitted to the EPA
for evaluation. The initial estimate for cleanup at the Malone site is $82 million;
however, this is subject to change since the final remedial plan has not been selected. Our
total contribution is estimated at approximately 1.7%.
(h)
In January 2003, Western Atlas International, Inc., its predecessor companies and Baker
Hughes Oilfield Operations, Inc. were identified as PRPs in the Gulf Nuclear Superfund site
in Odessa, Texas. The EPA conducted an emergency removal at the site in 2000. Total
investigation and cleanup costs are estimated by the EPA to be approximately $24 million. A
preliminary settlement proposal has been issued for review, and our settlement cost is not
expected to be material.
(i)
In September 2003, we were identified as a
de minimis
PRP by the EPA for the Operating
Industries, Inc. Superfund site in Monterrey Park, California. A settlement offer to all
de
minimis
parties was delayed, but is expected in 2005. The EPA and Steering Committee
estimate cleanup costs in excess of $650 million. As of January 2005, there was
insufficient information to estimate our potential contribution to these cleanup costs.
Table of Contents
(j)
In October 2003, Baker Petrolite was notified by the EPA of their potential involvement
at the Cooper Drum Superfund site located in South Gate, California. At this time there is
no estimate available for cleanup costs and, accordingly, there is insufficient information
to estimate our potential contribution.
(k)
In April 2004, we were notified that Baker Petrolite was included in the Container
Recycling Superfund site in Kansas City, Kansas. We are a major PRP at the site, which was
a former drum recycler used by a predecessor company to Baker Petrolite. The EPA estimates
outstanding remedial costs of $1.7 million, with our contribution estimated to be 4% to 7%
of these costs.
Table of Contents
Number of
Principal
Geographic Area
Plants
27
5
7
1
40
Table of Contents
Table of Contents
Maximum Number
Total Number
(or Approximate
of Shares
Dollar Value) of
Total Number
Average
Purchased as
Shares that May
of Shares
Price Paid
Part of a Publicly
Yet Be Purchased
Period
Purchased
(1)
per Share
(1)
Announced Plan
(2, 3)
Under the Plan
(2, 3)
$
32,868
43.91
32,868
$
43.91
(1)
Represents shares purchased from employees to pay the option exercise price related
to stockforstock exchanges in option exercises under employee benefit plans.
(2)
On September 10, 2002, we announced a plan to repurchase from time to time up to
$275 million of our outstanding common stock. No shares were repurchased in 2004 under the
plan. The plan has no expiration date, but may be terminated by the Board of Directors at any
time. Under the plan, we have authorization remaining to repurchase up to $44.5 million in
common stock.
(3)
On September 3, 2004, we announced the commencement of a voluntary sale program
(also known as an oddlot program) for stockholders owning fewer than 100 shares of our common
stock. The shares were sold on the open market by the programs administrator, Mellon
Investor Services LLC. The program was not conditioned on receipt of a minimum number of
tenders and expired on November 5, 2004.
Table of Contents
Year Ended December 31,
(In millions, except per share amounts)
2004
2003
2002
2001
2000
$
6,103.8
$
5,252.4
$
4,860.2
$
5,000.1
$
4,791.1
4,367.4
3,820.9
3,490.1
3,532.2
3,692.3
915.4
827.0
807.7
751.5
689.1
45.3
(1.1
)
(4.2
)
7.0
(2.4
)
67.9
5,282.8
4,692.1
4,297.8
4,277.1
4,456.3
821.0
560.3
562.4
723.0
334.8
36.3
(137.8
)
(69.7
)
45.8
(4.6
)
(83.6
)
(103.1
)
(111.1
)
(126.3
)
(179.9
)
6.8
5.3
5.2
11.7
4.3
14.1
780.5
324.7
386.8
654.2
168.7
(252.3
)
(146.8
)
(159.0
)
(222.9
)
(99.1
)
528.2
177.9
227.8
431.3
69.6
0.4
(43.4
)
(16.4
)
7.4
32.7
528.6
134.5
211.4
438.7
102.3
(1.5
)
(5.6
)
(42.5
)
0.8
$
528.6
$
128.9
$
168.9
$
438.0
$
102.3
$
1.58
$
0.53
$
0.67
$
1.29
$
0.21
1.57
0.53
0.67
1.28
0.21
0.46
0.46
0.46
0.46
0.46
$
1,731.1
$
1,208.6
$
1,496.9
$
1,659.8
$
1,704.5
6,821.3
6,416.5
6,499.7
6,676.2
6,489.1
1,086.3
1,133.0
1,424.3
1,682.4
2,049.6
3,895.4
3,350.4
3,397.2
3,327.8
3,046.7
(1)
Discontinued operations.
The selected financial data has been reclassified to reflect Baker
Hughes Mining Tools, BIRD Machine, EIMCO Process Equipment and our oil producing operations in
West Africa as discontinued operations. See Note 2 of the Notes to Consolidated Financial
Statements in Item 8 herein for additional information regarding discontinued operations.
(2)
WesternGeco.
In November 2000, we formed the WesternGeco venture with Schlumberger by
transferring the seismic fleets, data processing assets, exclusive and nonexclusive
multiclient surveys and other assets of our Western Geophysical division. We own 30% of the
venture and Schlumberger owns 70%, and we account for this investment using the equity method
of accounting.
(3)
Restructuring charges (reversals).
See Note 4 of the Notes to Consolidated Financial
Statements in Item 8 herein for a description of the restructuring charge reversal in 2003.
During 2000, we recorded a restructuring charge of $29.5 million related to our plan to
substantially exit the oil and natural gas exploration business. The major actions included
in this restructuring were a reduction in workforce, costs to settle contractual obligations
and a loss on the writeoff of our undeveloped exploration properties in certain foreign
jurisdictions. In 2000, we also recorded a $6.0 million restructuring charge in connection
with the
Table of Contents
formation of WesternGeco and recorded a reversal of $28.5 million of restructuring charges
recorded in 1999. Included in the costs to settle contractual obligations was $4.5 million for
the minimum amount of our share of project costs relating to our interest in an oil and natural
gas property in Colombia. After unsuccessful attempts to negotiate a settlement with our joint
venture partner, we decided to abandon further involvement in the project. Subsequently, in
2001, a third party agreed to assume the remaining obligation in exchange for our interest in
the project. Accordingly, we reversed $4.2 million related to this obligation.
(4)
(Gain) loss on disposal of assets.
During 2000, we recorded a loss of $75.5 million on the
sale of our interests in certain oil and natural gas properties and recorded gains of $7.6
million on the sale of various product lines.
(5)
Cumulative effect of accounting change.
In 2003, we adopted Statement of Financial
Accounting Standards (SFAS) No. 143,
Accounting for Asset Retirement Obligations
. In 2002,
we adopted SFAS No. 142,
Goodwill and Other Intangible Assets
. In 2001, we adopted SFAS No.
133,
Accounting for Derivative Instruments and Hedging Activities
, as amended by SFAS No. 137
and 138.
Table of Contents
Table of Contents
2004
2003
2002
1,095
924
717
97
108
113
365
372
263
1,557
1,404
1,093
290
244
214
39
46
52
31
38
36
49
54
58
230
211
201
197
177
171
836
770
732
2,393
2,174
1,825
1,235
1,129
1,010
Table of Contents
2004
2003
2002
$
41.51
$
31.06
$
26.17
5.90
5.49
3.37
Table of Contents
North America Spending in North America, primarily towards developing natural gas
supplies, is expected to increase approximately 7% to 9% in 2005 compared with 2004.
Outside North America Customer spending, primarily directed at developing oil supplies,
is expected to increase 10% to 14% in 2005 compared with 2004.
Total spending is expected to increase 9% to 12% in 2005 compared with 2004.
The North American rig count is expected to increase approximately 4% to 6% in 2005 compared with 2004.
Drilling activity outside of North America is expected to increase approximately 9% to 11% in 2005 compared with 2004.
Excess productive capacity
the impact of supply and demand disruptions on oil prices and oil price volatility is
tempered by the size of the disruption relative to the excess productive capacity. Key measures include estimates of
worldwide productive capacity as compared with worldwide demand.
Supply disruptions
the loss of production, the inability to export and/or delay of activity from key oil exporting
countries, including but not limited to, Iraq, Saudi Arabia and other Middle Eastern countries, Nigeria, Norway, Russia
and Venezuela, due to political instability, civil unrest, labor issues or military activity. In addition, adverse
weather such as hurricanes could impact production facilities, causing supply disruptions.
Energy prices and price volatility
the impact of widely fluctuating commodity prices on the stability of the market
and subsequent impact on customer spending. While current energy prices are important contributors to positive cash
flow at E&P companies, expectations for future prices and price volatility are generally more important for determining
future E&P spending. While higher commodity prices generally lead to higher levels of E&P spending, sustained high
energy prices can be an impediment to economic growth.
Global economic growth
particularly the impact of the U.S. and Western European economies and the economic activity in
Japan, China, South Korea and the developing areas of Asia where the correlation between
economic growth and energy demand
Table of Contents
is strong. The strength of the U.S. economy and economic
growth in developing Asia, particularly China, will continue to be important in 2005. Key
measures include U.S. and international economic output, global energy demand and forecasts of
future demand by governments and private organizations.
Oil and natural gas storage inventory levels
an indicator of the
balance between supply and demand. A key measure of U.S. natural
gas inventories is the storage level reported weekly by the U.S.
Department of Energy compared with historic levels. Key measures
for oil inventories include U.S. inventory levels reported by the
U.S. Department of Energy and the American Petroleum Institute and
worldwide estimates reported by the International Energy Agency.
Production control
the degree to which individual OPEC nations
and other large oil and natural gas producing countries,
including, but not limited to, Mexico, Norway and Russia, are
willing and able to control production and exports of oil, to
decrease or increase supply and to support their targeted oil
price while meeting their market share objectives. Key measures
of production control include actual production levels compared
with target or quota production levels, oil prices compared with
targeted oil prices and changes in each countrys market share.
Ability to produce natural gas
the amount of natural gas that
can be produced is a function of the number and productivity of
new wells drilled, completed and connected to pipelines as well as
the rate of production and resulting depletion of existing wells.
Advanced technologies, such as horizontal drilling, improve total
recovery but also result in a more rapid production decline. Key
measures include government and private surveys of natural gas
production, company reported production, estimates of reservoir
depletion rates and drilling and completion activity.
Impact of energy prices and price volatility on demand for
hydrocarbons
shortterm price changes can result in companies
switching to the most economic sources of fuel, prompting a
temporary curtailment of demand, while longterm price changes can
lead to permanent changes in demand. These changes in demand
result in the oilfield services industry being cyclical in nature.
Key indicators include hydrocarbon prices on a Btu equivalent
basis and indicators of hydrocarbon demand, such as electricity
generation or industrial production.
Access to prospects
the ability of oil and natural gas companies
to develop economically attractive projects based on their
expectations of future energy prices, required investments and
resulting returns. Access to prospects may be limited because
host governments do not allow access to the reserves or because
another oil and natural gas company owns the rights to develop the
prospect.
Weather
the impact of variations in temperatures as compared
with normal weather patterns and the related effect on demand for
oil and natural gas. A key measure of the impact of weather on
energy demand is populationweighted heating and cooling degree
days as reported by the U.S. Department of Energy and forecasts of
warmer than normal or cooler than normal temperatures. Weather
can also impact production, for example, in the North Sea, the
Gulf of Mexico and Canada.
Access to capital
the ability of oil and natural gas companies
to access the funds necessary to carry out their E&P plans.
Access to capital is particularly important for smaller
independent oil and natural gas companies. Key measures of access
to capital include cash flow, interest rates, analysis of oil and
natural gas company leverage and equity offering activity.
Technological progress
the design and application of new
products that allow oil and natural gas companies to drill fewer
wells and to drill, complete and produce wells faster, recover
more hydrocarbons and/or lower costs. Key measures also include
the overall level of research and engineering spending by oilfield
services companies and the pace at which new technology is both
introduced commercially and accepted by customers.
Pace of new investment
the investment by oil and natural gas
companies in emerging markets and any impact it has on their
spending in areas where they already have an established presence.
Maturity of the resource base
the growing necessity for
increased levels of investment and activity to support production
from an area the longer it is developed. Key measures include
changes in undeveloped hydrocarbon reserves in mature areas like
the North Sea, the U.S., Canada and Latin America.
Government regulations
the costs incurred by oil and natural gas
companies to conform to and comply with government regulations,
including environmental regulations, may limit the quantity of oil
and natural gas that may be economically produced.
Table of Contents
Table of Contents
Oil and gas market conditions
the level of petroleum industry
E&P expenditures; drilling rig and oil and natural gas industry
manpower and equipment availability; the price of, and the demand
for, crude oil and natural gas; drilling activity; risks from
operating hazards; seasonal and other weather conditions that
affect the demand for energy; severe weather conditions, such as
hurricanes, that affect exploration and production activities;
OPEC policy and the adherence by OPEC nations to their OPEC
production quotas; war, military action, terrorist activities or
extended period of international conflict, particularly involving
the U.S., Middle East or other major petroleumproducing or
consuming regions; civil unrest or security conditions where we
operate; expropriation of assets by governmental action.
Pricing, market share and contract terms
our ability to
implement and affect price increases for our products and
services; receipt of license fees; the effect of the level and
sources of our profitability on our tax rate; the ability of our
competitors to capture market share; our ability to retain or
increase our market share; changes in our strategic direction; our
ability to negotiate acceptable terms and conditions with our
customers, especially NOCs; our ability to manage warranty claims
and improve performance and quality; our ability to effectively
manage our commercial agents.
Costs and availability of resources
our ability to manage the
rising costs and availability of sufficient raw materials and
components (especially steel alloys, copper and chemicals); our
ability to recruit, train and retain the skilled and diverse
workforce necessary to meet our business needs; manufacturing
capacity and subcontracting capacity at forecasted costs to meet
our revenue goals; the availability of essential electronic
components used in our products; the effect of competition,
particularly our ability to introduce new technology on a
forecasted schedule and at forecasted costs; potential impairment
of longlived assets; the accuracy of our estimates regarding our
capital spending requirements; unanticipated changes in the levels
of our capital expenditures; the need to replace any unanticipated
losses in capital assets; the development of technology by us or
our competitors that lowers overall finding and development costs;
laborrelated actions, including strikes, slowdowns and facility
occupations.
Litigation and changes in laws or regulatory conditions
the
potential for unexpected litigation or proceedings; the
legislative, regulatory and business environment in the U.S. and
other countries in which we operate; outcome of government and
internal investigations and legal proceedings; new laws,
regulations and policies that could have a significant impact on
the future operations and conduct of all businesses; changes in
export control laws or exchange control laws; additional
restrictions on doing business in countries subject to sanctions:
changes in laws in Russia or other countries identified by
management for immediate focus; changes in accounting standards;
changes in tax laws or tax rates in the jurisdictions in which we
operate; resolution of audits by various tax authorities; ability
to fully utilize our tax loss carryforwards and tax credits.
Economic conditions
worldwide economic growth; foreign currency
exchange fluctuations and changes in the capital markets in
international locations where we operate; the condition of the
capital and equity markets in general; our ability to estimate the
size of and changes in the worldwide oil and natural gas industry.
Table of Contents
Environmental matters
unexpected, adverse outcomes or material increases in liability with
respect to environmental remediation sites where we have been named as a potentially responsible
party; the discovery of new environmental remediation sites; changes in environmental
regulations; the discharge of hazardous materials or hydrocarbons into the environment. See
also the Environmental Matters section in Item 1 contained
herein for further information.
Table of Contents
Table of Contents
Table of Contents
2004
2003
2002
$
%
$
%
$
%
$
6,103.8
100.0
%
$
5 ,252.4
100.0
%
$
4,860.2
100.0
%
4,367.4
71.6
3,820.9
72.7
3,490.1
71.8
915.4
15.0
827.0
15.7
807.7
16.6
Table of Contents
Table of Contents
2004
2003
2002
$
783.6
$
651.6
$
620.1
(196.4
)
(361.1
)
(280.4
)
(352.2
)
(335.8
)
(312.3
)
Table of Contents
An increase in accounts receivable used $175.3 million in cash in 2004 compared with
using $13.9 million in cash in 2003. This was due to the increase in revenues and an
increase in days sales outstanding (defined as the average number of days our accounts
receivable are outstanding) of approximately two days.
A build up in inventory in anticipation of increased activity used $4.5 million in cash
in 2004 compared with providing $20.9 million in cash in 2003. The build up in inventory
was partially offset by our continued focus on improving the utilization of inventory on
hand.
An increase in accounts payable and other current liabilities
provided $190.6 million in cash in 2004 compared with providing $16.5 million in cash in
2003. This was due to increased activity, increased employee compensation accruals, better
management of our accounts payable and $45.3 million less in net income tax payments in 2004
compared with 2003.
An increase in accounts receivable in 2003 used $13.9 million in cash compared with
providing $86.4 million in cash in 2002. This was primarily due to the increase in revenues
offset by a reduction in days sales outstanding of approximately two days.
A decrease in inventory in 2003 provided $20.9 million in cash compared with providing
$15.4 million in cash in 2002 as we increased our focus on improving the utilization of
inventory on hand.
An increase in accounts payable and other current liabilities in
2003 provided $16.5 million in cash compared with using $106.2 million in cash in 2002.
This was due to increased activity, increased employee compensation accruals, better
management of our accounts payable and increased accruals for our self insurance programs.
Theses changes were partially offset by an increase in income tax payments of $59.8 million
in 2003 compared with 2002.
Table of Contents
Table of Contents
Table of Contents
Payments Due by Period (in millions)
Less Than
1 3
4 5
After
Total
1 year
Years
Years
5 Years
$
1,151.1
$
76.0
$
0.1
$
525.0
$
550.0
1,069.1
72.6
145.2
129.1
722.2
327.7
74.0
85.2
42.2
126.3
114.7
99.4
13.9
1.4
20.5
4.4
8.9
4.6
2.6
$
2,683.1
$
326.4
$
253.3
$
702.3
$
1,401.1
Table of Contents
Table of Contents
Table of Contents
2004
2005
2006
2007
2008
2009
Thereafter
Total
$
$
0.1
$
0.1
$
$
$
525.0
$
550.0
$
1,075.2
12.30
%
6.50
%
4.96
%
(3)(4)
7.55
%
6.24
%
(3)(4)
$
325.0
$
325.0
4.60
%
(5)
4.60
%
(5)
6.25
%
6.25
%
$
350.4
$
$
0.2
$
$
$
$
1,075.0
$
1,425.6
7.21
%
(3)
6.12
%
6.16
%
(3)
6.41
%
(3)
(1)
Amounts do not include any unamortized discounts, deferred issuance costs or
deferred gains on terminated interest rate swap agreements.
(2)
Fair market value of fixed rate longterm debt was $1,239.0 million at
December 31, 2004 and $1,570.8 million at December 31, 2003.
(3)
Includes the effect of the amortization of deferred gains on terminated interest
rate swap agreements.
(4)
Includes the fair market value of the interest rate swap agreement entered into in April 2004. The fair market value of the interest rate swap agreement was a $2.3 million
liability at December 31, 2004.
(5)
Sixmonth LIBOR for the U.S. Dollar, reset semiannually in January and
July, plus 2.741%.
Table of Contents
Table of Contents
/s/ G. STEPHEN FINLEY
/s/ ALAN J. KEIFER
G. Stephen Finley
Alan J. Keifer
Senior Vice President
Vice President and
Finance and Administration,
Controller
and Chief Financial Officer
Table of Contents
Baker Hughes Incorporated
Houston, Texas
February 24, 2005
Table of Contents
Baker Hughes Incorporated
Houston, Texas
February 24, 2005
Table of Contents
Consolidated Statements of Operations
(In millions, except per share amounts)
Year Ended December 31,
2004
2003
2002
$
6,103.8
$
5,252.4
$
4,860.2
4,367.4
3,820.9
3,490.1
915.4
827.0
807.7
45.3
(1.1
)
5,282.8
4,692.1
4,297.8
821.0
560.3
562.4
36.3
(137.8
)
(69.7
)
(83.6
)
(103.1
)
(111.1
)
6.8
5.3
5.2
780.5
324.7
386.8
(252.3
)
(146.8
)
(159.0
)
528.2
177.9
227.8
0.4
(43.4
)
(16.4
)
528.6
134.5
211.4
(5.6
)
(42.5
)
$
528.6
$
128.9
$
168.9
$
1.58
$
0.53
$
0.67
(0.13
)
(0.05
)
(0.02
)
(0.12
)
$
1.58
$
0.38
$
0.50
$
1.57
$
0.53
$
0.67
0.01
(0.13
)
(0.05
)
(0.02
)
(0.12
)
$
1.58
$
0.38
$
0.50
Table of Contents
Consolidated Balance Sheets
(In millions, except par value)
Table of Contents
Consolidated Statements of Stockholders Equity
(In millions, except per share amounts)
Capital
Accumulated
in Excess
Other
Common
of
Retained
Comprehensive
Unearned
Stock
Par Value
Earnings
Loss
Compensation
Total
$
336.0
$
3,119.3
$
182.3
$
(309.8
)
$
$
3,327.8
168.9
20.0
74.5
(31.2
)
232.2
(154.9
)
(154.9
)
1.6
39.6
41.2
(1.8
)
(47.3
)
(49.1
)
335.8
3,111.6
196.3
(246.5
)
3,397.2
128.9
17.7
95.6
(17.9
)
224.3
(154.3
)
(154.3
)
2.5
62.1
64.6
(6.3
)
(175.1
)
(181.4
)
332.0
2,998.6
170.9
(151.1
)
3,350.4
528.6
6.6
30.8
4.0
(0.1
)
569.9
(153.6
)
(153.6
)
0.2
6.7
(6.9
)
1.8
1.8
4.4
122.5
126.9
$
336.6
$
3,127.8
$
545.9
$
(109.8
)
$
(5.1
)
$
3,895.4
Table of Contents
Consolidated Statements of Cash Flows
(In millions)
Year Ended December 31,
2004
2003
2002
$
528.2
$
177.9
$
227.8
371.8
347.5
319.6
(7.9
)
(6.7
)
(1.3
)
1.8
1.8
48.4
(20.1
)
(20.4
)
(37.8
)
(30.2
)
(45.8
)
45.3
(36.3
)
137.8
69.7
(175.3
)
(13.9
)
86.4
(4.5
)
20.9
15.4
49.2
16.0
(56.8
)
141.4
0.5
(49.4
)
(30.4
)
(23.0
)
18.0
(66.8
)
(0.4
)
56.9
783.6
651.6
620.1
0.1
4.5
86.3
783.7
656.1
706.4
(348.3
)
(404.3
)
(355.9
)
(6.6
)
(9.5
)
(39.7
)
(7.1
)
(38.1
)
(16.5
)
58.7
24.0
54.0
106.9
66.8
77.7
(196.4
)
(361.1
)
(280.4
)
(0.4
)
(1.1
)
(2.7
)
(196.8
)
(362.2
)
(283.1
)
35.5
11.2
(162.4
)
(350.0
)
(100.0
)
26.9
15.8
115.9
61.8
38.3
(181.4
)
(49.1
)
(153.6
)
(154.3
)
(154.9
)
(352.2
)
(335.8
)
(312.3
)
(14.1
)
(3.6
)
(5.8
)
220.6
(45.5
)
105.2
98.4
143.9
38.7
$
319.0
$
98.4
$
143.9
$
143.2
$
188.5
$
128.7
$
97.5
$
116.2
$
111.8
Table of Contents
Table of Contents
Notes to Consolidated Financial Statements (continued)
Table of Contents
Notes to Consolidated Financial Statements (continued)
Table of Contents
Notes to Consolidated Financial Statements (continued)
2004
2003
2002
$
528.6
$
128.9
$
168.9
1.6
1.9
2.1
(23.1
)
(23.1
)
(23.3
)
$
507.1
$
107.7
$
147.7
$
1.58
$
0.38
$
0.50
1.52
0.32
0.44
$
1.58
$
0.38
$
0.50
1.51
0.32
0.44
Assumptions
RiskFree
Expected
Dividend
Expected
Interest
Life
Yield
Volatility
Rate
(in years)
1.3
%
39.9
%
2.8
%
3.5
1.6
%
45.0
%
2.5
%
3.8
1.4
%
45.0
%
3.5
%
3.8
Table of Contents
Notes to Consolidated Financial Statements (continued)
Table of Contents
Notes to Consolidated Financial Statements (continued)
2004
2003
2002
$
29.4
$
40.4
$
41.5
1.6
94.2
118.7
4.2
49.1
138.0
$
31.0
$
138.8
$
347.3
$
1.1
$
3.5
$
2.8
(0.2
)
(16.9
)
(9.1
)
1.8
19.7
(1.5
)
0.9
(11.6
)
11.9
(0.3
)
(1.3
)
(1.0
)
0.1
6.0
3.2
(0.7
)
(8.7
)
0.5
(0.2
)
4.0
(6.0
)
0.8
2.2
1.8
(0.1
)
(10.9
)
(5.9
)
1.1
11.0
(1.0
)
0.7
(7.6
)
5.9
0.2
(0.5
)
(37.4
)
4.1
(2.5
)
(22.3
)
(0.3
)
(35.8
)
(22.3
)
$
0.4
$
(43.4
)
$
(16.4
)
Table of Contents
Notes to Consolidated Financial Statements (continued)
2003
$
13.4
21.4
0.9
13.0
$
48.7
$
13.2
6.6
8.0
1.7
$
29.5
Table of Contents
Notes to Consolidated Financial Statements (continued)
2004
2003
2002
$
53.4
$
2.8
$
7.3
150.5
164.1
172.1
203.9
166.9
179.4
45.4
(38.1
)
19.5
3.0
18.0
(39.9
)
48.4
(20.1
)
(20.4
)
$
252.3
$
146.8
$
159.0
2004
2003
2002
$
218.5
$
(134.1
)
$
53.3
562.0
458.8
333.5
$
780.5
$
324.7
$
386.8
2004
2003
2002
$
273.2
$
113.6
$
135.4
1.8
36.3
40.2
(28.3
)
(5.8
)
(14.4
)
4.0
4.9
10.0
3.4
4.0
2.7
(3.3
)
(14.4
)
(1.8
)
(2.9
)
(0.5
)
$
252.3
$
146.8
$
159.0
Table of Contents
Notes to Consolidated Financial Statements (continued)
2004
2003
$
9.7
$
15.4
110.6
122.8
25.0
27.3
26.5
45.1
49.1
77.3
76.9
79.8
74.1
87.8
47.1
17.9
419.0
473.4
(36.7
)
(54.1
)
382.3
419.3
40.1
105.4
89.9
34.7
19.6
20.1
18.6
160.2
168.2
$
222.1
$
251.1
Table of Contents
Notes to Consolidated Financial Statements (continued)
2004
2003
2002
333.8
334.9
336.8
1.8
1.0
1.1
335.6
335.9
337.9
4.6
6.8
5.0
2004
2003
$
869.5
$
858.3
107.6
98.1
58.1
57.0
$
1,035.2
$
1,013.4
Table of Contents
Notes to Consolidated Financial Statements (continued)
2004
2003
$
1,313.8
$
1,349.3
131.9
(457.9
)
124.9
(478.1
)
$
755.2
$
695.9
1,162.8
1,345.2
$
1,918.0
$
2,041.1
$
423.6
$
556.6
101.2
179.5
1,393.2
1,305.0
$
1,918.0
$
2,041.1
Depreciation
Period
2004
2003
$
40.8
$
39.7
5 40 years
618.1
604.4
2 15 years
1,960.6
1,915.0
1 10 years
1,097.5
1,051.0
3,717.0
3,610.1
(2,382.9
)
(2,215.0
)
$
1,334.1
$
1,395.1
Table of Contents
Notes to Consolidated Financial Statements (continued)
$
1,226.6
3.9
8.9
1,239.4
24.6
3.0
$
1,267.0
2004
2003
Gross
Gross
Carrying
Accumulated
Carrying
Accumulated
Amount
Amortization
Net
Amount
Amortization
Net
$
190.2
$
(58.8
)
$
131.4
$
183.5
$
(46.8
)
$
136.7
11.0
(4.8
)
6.2
11.2
(2.9
)
8.3
6.1
(5.6
)
0.5
5.7
(5.0
)
0.7
0.6
(0.2
)
0.4
0.6
(0.1
)
0.5
1.2
(0.8
)
0.4
2.0
(1.0
)
1.0
209.1
(70.2
)
138.9
203.0
(55.8
)
147.2
16.2
16.2
16.2
16.2
$
225.3
$
(70.2
)
$
155.1
$
219.2
$
(55.8
)
$
163.4
Table of Contents
Notes to Consolidated Financial Statements (continued)
2004
2003
$
$
99.9
251.1
348.2
356.9
199.3
199.1
147.4
147.4
391.3
391.0
76.1
39.0
1,162.3
1,484.4
76.0
351.4
$
1,086.3
$
1,133.0
2004
2003
$
$
1.3
26.8
33.5
Table of Contents
Notes to Consolidated Financial Statements (continued)
Table of Contents
Notes to Consolidated Financial Statements (continued)
Table of Contents
Notes to Consolidated Financial Statements (continued)
Corporate
Oilfield
and Other
Total
$
6,100.4
$
3.4
$
6,103.8
36.8
(0.5
)
36.3
1,063.9
(283.4
)
780.5
6,179.1
642.2
6,821.3
678.1
678.1
346.9
1.4
348.3
343.6
28.2
371.8
$
5,252.3
$
0.1
$
5,252.4
(8.6
)
(129.2
)
(137.8
)
749.1
(424.4
)
324.7
5,891.5
525.0
6,416.5
662.9
28.4
691.3
401.0
3.3
404.3
320.2
27.3
347.5
$
4,860.0
$
0.2
$
4,860.2
18.5
(88.2
)
(69.7
)
727.8
(341.0
)
386.8
5,830.1
669.6
6,499.7
843.5
28.5
872.0
351.1
4.8
355.9
292.6
27.0
319.6
2004
2003
2002
$
(206.6
)
$
(146.7
)
$
(144.9
)
(76.8
)
(97.8
)
(105.9
)
(45.3
)
1.1
(135.7
)
(90.2
)
$
(283.4
)
$
(424.4
)
$
(341.0
)
2004
2003
2002
$
61.7
$
35.7
$
25.6
107.6
134.7
157.7
26.5
50.0
65.5
115.6
107.5
88.8
28.4
28.5
48.7
146.8
330.8
120.0
156.7
$
642.2
$
525.0
$
669.6
Table of Contents
Notes to Consolidated Financial Statements (continued)
2004
2003
2002
$
2,145.0
$
1,883.0
$
1,700.2
395.6
337.1
246.6
329.8
296.3
347.2
310.9
329.1
302.3
213.4
122.4
117.9
192.9
117.6
102.6
163.6
130.4
143.4
2,352.6
2,036.5
1,900.0
$
6,103.8
$
5,252.4
$
4,860.2
2004
2003
2002
$
726.4
$
791.1
$
774.8
146.0
143.4
130.1
56.4
54.4
39.1
46.8
47.4
52.7
44.4
43.3
34.0
26.4
35.1
23.8
19.8
23.1
26.6
267.9
257.3
254.3
$
1,334.1
$
1,395.1
$
1,335.4
Weighted
Number
Average
of Shares
Exercise Price
(in thousands)
Per Share
9,867
$
32.61
2,064
28.80
(876
)
21.35
(187
)
39.50
10,868
32.68
2,481
30.92
(1,005
)
21.44
(515
)
38.97
11,829
32.99
2,495
37.68
(3,764
)
25.62
(255
)
39.07
10,305
$
36.67
6,417
$
38.02
7,611
$
33.80
6,802
$
33.29
Table of Contents
Notes to Consolidated Financial Statements (continued)
Outstanding
Exercisable
Weighted
Average
Remaining
Weighted
Weighted
Contractual
Average
Average
Range of Exercise
Shares
Life
Exercise
Shares
Exercise
Prices
(in thousands)
(in years)
Price
(in thousands)
Price
45
1.5
$
11.24
43
$
11.14
319
3.3
20.61
317
20.57
808
5.9
24.40
558
24.17
5,727
7.2
34.71
2,168
34.38
3,406
3.5
44.70
3,331
44.72
10,305
5.8
$
36.67
6,417
$
38.02
2004
2003
2002
163
10
97
$
6.9
$
0.3
$
2.8
Table of Contents
Notes to Consolidated Financial Statements (continued)
U.S. Pension Benefits
NonU.S. Pension Benefits
2004
2003
2004
2003
$
175.6
$
138.9
$
269.2
$
205.1
20.6
16.6
2.1
5.4
10.6
9.1
12.7
12.1
0.2
6.7
19.6
7.9
22.9
(9.7
)
(8.8
)
(5.8
)
(3.2
)
(42.2
)
17.1
26.9
203.8
175.6
261.0
269.2
237.9
179.7
135.2
107.9
33.4
44.6
18.3
10.9
23.3
22.4
18.4
6.3
(9.7
)
(8.8
)
(5.8
)
(3.2
)
(17.6
)
9.8
13.3
284.9
237.9
158.3
135.2
81.1
62.3
(102.7
)
(134.0
)
59.5
69.4
77.0
98.5
0.3
0.4
0.2
0.8
140.9
132.1
(25.5
)
(34.7
)
32.5
0.6
36.1
2.0
$
173.4
$
132.7
$
10.6
$
(32.7
)
U.S. Pension Benefits
NonU.S. Pension Benefits
2004
2003
2004
2003
$
185.0
$
154.8
$
33.8
$
1.3
(11.6
)
(22.1
)
(23.2
)
(34.0
)
(14.9
)
(13.9
)
(68.3
)
(75.7
)
0.1
0.2
0.5
14.8
13.7
68.3
75.2
$
173.4
$
132.7
$
10.6
$
(32.7
)
Table of Contents
Notes to Consolidated Financial Statements (continued)
U.S. Pension Benefits
NonU.S. Pension Benefits
2004
2003
2004
2003
6.00
%
6.25
%
5.67
%
5.48
%
3.50
%
3.50
%
3.53
%
3.36
%
U.S. Pension Benefits
NonU.S. Pension Benefits
2004
2003
2004
2003
$
78.6
$
56.3
$
256.3
$
264.1
76.6
55.2
248.2
240.8
40.3
19.0
153.3
129.7
U.S. Pension Benefits
NonU.S. Pension Benefits
2004
2003
2002
2004
2003
2002
$
20.6
$
16.6
$
13.8
$
2.1
$
5.4
$
4.0
10.6
9.1
8.4
12.7
12.1
10.5
(20.7
)
(15.0
)
(18.3
)
(9.2
)
(8.1
)
(9.4
)
0.1
0.5
(0.1
)
4.0
6.5
2.1
4.6
2.9
1.5
(2.1
)
(1.1
)
$
14.6
$
17.2
$
6.5
$
7.0
$
12.2
$
6.6
U.S. Pension Benefits
NonU.S Pension Benefits
2004
2003
2002
2004
2003
2002
6.25
%
6.75
%
7.00
%
5.37
%
5.82
%
5.83
%
8.50
%
8.50
%
9.00
%
7.28
%
7.41
%
7.38
%
3.50
%
4.00
%
4.50
%
2.50
%
3.40
%
3.41
%
Percentage of Plan Assets
U.S. Pension Benefits
NonU.S Pension Benefits
Asset Category
Target
2004
2003
Target
2004
2003
68
%
68
%
59
%
68
%
65
%
65
%
25
%
23
%
27
%
26
%
21
%
18
%
7
%
8
%
11
%
9
%
10
%
1
%
3
%
6
%
5
%
7
%
100
%
100
%
100
%
100
%
100
%
100
%
Table of Contents
Notes to Consolidated Financial Statements (continued)
2004
2003
$
174.8
$
158.7
5.5
4.8
9.6
10.3
(7.1
)
12.3
(13.3
)
(11.3
)
169.5
174.8
(169.5
)
(174.8
)
34.9
42.9
7.8
8.5
(126.8
)
(123.4
)
3.6
4.2
(123.2
)
(119.2
)
(16.3
)
(18.6
)
$
(106.9
)
$
(100.6
)
2004
2003
2002
$
5.5
$
4.8
$
4.4
9.6
10.3
9.5
0.6
0.6
0.6
1.0
1.1
0.2
$
16.7
$
16.8
$
14.7
Table of Contents
Notes to Consolidated Financial Statements (continued)
One Percentage
One Percentage
Point Increase
Point Decrease
$
0.6
$
(0.5
)
9.5
(8.5
)
2010
2005
2006
2007
2008
2009
2014
$
16.3
$
16.8
$
17.4
$
18.1
$
18.5
$
102.4
(1.8
)
(1.9
)
(2.1
)
(2.1
)
(11.5
)
$
16.3
$
15.0
$
15.5
$
16.0
$
16.4
$
90.9
Table of Contents
Notes to Consolidated Financial Statements (continued)
Table of Contents
Notes to Consolidated Financial Statements (continued)
Table of Contents
Notes to Consolidated Financial Statements (continued)
2004
2003
2002
$
123.6
$
111.6
$
98.2
176.7
173.3
164.4
$
7.4
(5.8
)
11.5
1.0
14.1
(4.9
)
7.6
(0.2
)
$
16.6
$
11.4
0.5
(0.3
)
0.2
(0.4
)
0.1
11.5
1.5
(0.4
)
0.2
(0.1
)
0.2
$
12.9
2004
2003
$
(52.4
)
$
(89.8
)
(57.3
)
(61.3
)
(0.1
)
$
(109.8
)
$
(151.1
)
Table of Contents
Notes to Consolidated Financial Statements (continued)
First
Second
Third
Fourth
Total
Quarter
Quarter
Quarter
Quarter
Year
$
1,387.6
$
1,499.0
$
1,538.1
$
1,679.1
$
6,103.8
372.4
427.9
434.3
501.8
1,736.4
94.4
116.7
137.3
179.8
528.2
94.6
116.9
137.5
179.6
528.6
0.28
0.35
0.41
0.54
1.58
0.28
0.35
0.41
0.54
1.58
0.28
0.35
0.41
0.53
1.57
0.28
0.35
0.41
0.53
1.58
0.11
0.12
0.11
0.12
0.46
38.42
38.27
44.57
44.89
32.00
33.71
37.80
40.28
$
1,189.9
$
1,305.7
$
1,328.8
$
1,428.0
$
5,252.4
298.7
366.1
361.0
405.7
1,431.5
49.4
82.4
(59.9
)
106.0
177.9
44.5
81.6
(98.8
)
101.6
128.9
0.15
0.24
(0.18
)
0.32
0.53
0.13
0.24
(0.30
)
0.31
0.38
0.15
0.24
(0.18
)
0.32
0.53
0.13
0.24
(0.29
)
0.30
0.38
0.11
0.12
0.11
0.12
0.46
33.38
35.94
34.16
32.56
28.50
27.21
29.61
27.10
(1)
Represents revenues less cost of revenues.
(2)
See Note 4 for reversal of restructuring charge and Note 8 for impairment
of investment in affiliate.
Table of Contents
Table of Contents
(
In millions of shares)
Number of Securities
Remaining Available for
Number of Securities
WeightedAverage
Future Issuance Under
to be Issued Upon
Exercise Price of
Equity Compensation
Exercise of
Outstanding
Plans (excluding
Outstanding Options,
Options, Warrants
securities reflected in the
Equity Compensation Plan Category
Warrants and Rights
and Rights
first column)
4.4
(2)
$
36.95
4.8
5.8
36.63
7.8
10.2
36.76
12.6
(3)
4.1
10.2
(4)
16.7
(1)
The table includes the nonstockholderapproved plans: the 1998 Employee Stock
Option Plan, the 1998 Special Employee Stock Option Plan, the 2002 Employee LongTerm
Incentive Plan and the Director Compensation Deferral Plan. A description of each of these
plans is set forth below.
(2)
The table includes approximately 0.9 million shares of our Common Stock
that would be issuable upon the exercise of the outstanding options under our 1993 Stock
Option Plan, which expired in 2003. No additional options may be granted under the 1993 Stock
Option Plan.
(3)
In the Baker Hughes Incorporated Employee Stock Purchase Plan, the purchase
price is determined in accordance with Section 423 of the Code, as amended, as 85% of the
lower of the fair market value on the date of grant or the date of purchase.
(4)
The table does not include shares subject to outstanding options we assumed
in connection with certain mergers and acquisitions of entities which originally granted those
options. When we acquired the stock of Western Atlas Inc. in a transaction completed in
August 1998, we assumed the options granted under the Western Atlas Director Stock Option Plan
and the Western Atlas 1993 Stock Incentive Plan. As of December 31, 2004, 68,171 shares and
3,836 shares of our Common Stock would be issuable upon the exercise of outstanding options
previously granted under the Western Atlas Director Stock Option Plan and the Western Atlas
1993 Stock Incentive Plan, with a weighted average exercise price per share of $22.54 and
$26.07, respectively.
Table of Contents
Table of Contents
Table of Contents
3.1
Restated Certificate of Incorporation (filed as Exhibit 3.1 to Quarterly Report
of Baker Hughes Incorporated on Form 10Q for the quarter ended June 30, 2002).
3.2
Bylaws of Baker Hughes Incorporated restated as of October 22, 2003 (filed as
Exhibit 3.1 to Quarterly Report of Baker Hughes Incorporated on Form 10Q for the
quarter ended September 30, 2003).
4.1
Rights of Holders of the Companys LongTerm Debt. The Company has no longterm
debt instrument with regard to which the securities authorized thereunder equal or
exceed 10% of the total assets of the Company and its subsidiaries on a consolidated
basis. The Company agrees to furnish a copy of its longterm debt instruments to the
SEC upon request.
4.2
Restated Certificate of Incorporation (filed as Exhibit 3.1 to Quarterly Report
of Baker Hughes Incorporated on Form 10Q for the quarter ended June 30, 2002).
4.3
Bylaws of Baker Hughes Incorporated restated as of October 31, 2003 (filed as
Exhibit 3.1 to Quarterly Report of Baker Hughes Incorporated on Form 10Q for the
quarter ended September 30, 2003).
4.4*
Indenture dated as of May 15, 1994 between Western Atlas Inc. and The Bank of New
York, Trustee, providing for the issuance of securities in series.
10.1+
Employment Agreement by and between Baker Hughes Incorporated and Chad C. Deaton
dated as of October 25, 2004 (filed as Exhibit 10.3 to Current Report of Baker Hughes
Incorporated on Form 8K filed October 7, 2004).
10.2+
Change in Control Agreement between Baker Hughes Incorporated and Chad C. Deaton
dated as of October 25, 2004 (filed as Exhibit 10.2 to Current Report of Baker Hughes
Incorporated on Form 8K filed October 7, 2004).
10.3+
Indemnification Agreement dated as of October 25, 2004 between Baker Hughes
Incorporated and Chad C. Deaton (filed as Exhibit 10.1 to Current Report of Baker Hughes
Incorporated on Form 8K filed on October 7, 2004).
10.4+
Stock Option Agreement issued to Chad C. Deaton on October 25, 2004 in the
amount of 75,000 shares of Company Common Stock (filed as Exhibit 10.4 to Quarterly
Report of Baker Hughes Incorporated on Form 10Q for the quarter ended September 30,
2004).
10.5+
Agreement regarding restricted stock award issued to Chad C. Deaton on October
25, 2004 in the amount of 80,000 shares of Company Common Stock (filed as Exhibit 10.5
to Quarterly Report of Baker Hughes Incorporated on Form 10Q for the quarter ended
September 30, 2004).
Table of Contents
10.6+
Agreement regarding restricted stock award issued to James R. Clark on October
27, 2004 in the amount of 40,000 shares of Baker Hughes Incorporated Common Stock (filed
as Exhibit 10.7 to Quarterly Report of Baker Hughes Incorporated on Form 10Q for the
quarter ended September 30, 2004).
10.7+
Second Amended and Restated Stock Matching Agreement by and between Baker Hughes
Incorporated and James R. Clark dated as of October 25, 2004 (filed as Exhibit 10.6 to
Quarterly Report of Baker Hughes Incorporated on Form 10Q for the quarter ended
September 30, 2004).
10.8+
Form of Severance Agreement, dated as of March 1, 2001, by and between Baker
Hughes Incorporated and certain executives, executed by James R. Clark (dated March 1,
2001) and William P. Faubel (dated May 29, 2001) (filed as Exhibit 10.42 to Annual
Report of Baker Hughes Incorporated on Form 10K for the year ended December 31, 2001).
10.9+
Severance Agreement between Baker Hughes Incorporated and G. Stephen Finley
dated as of July 23, 1997 (filed as Exhibit 10.3 to Annual Report of Baker Hughes
Incorporated on Form 10K for the year ended December 31, 2002).
10.10+
Form of Amendment 1 to Severance Agreement between Baker Hughes Incorporated and G.
Stephen Finley effective November 11, 1998 (filed as Exhibit 10.2 to Quarterly Report of
Baker Hughes Incorporated on Form 10Q for the quarter ended June 30, 2003).
10.11+
Severance Agreement between Baker Hughes Incorporated and Alan R. Crain, Jr. dated as
of October 25, 2000 (filed as Exhibit 10.6 to Annual Report of Baker Hughes Incorporated
on Form 10K for the year ended December 31, 2000).
10.12+
Severance Agreement between Baker Hughes Incorporated and Greg Nakanishi dated as of
November 1, 2000 (filed as Exhibit 10.7 to Annual Report of Baker Hughes Incorporated on
Form 10K for the year ended December 31, 2000).
10.13+
Severance Agreement, dated as of July 23, 1997, by and between Baker Hughes
Incorporated and Edwin C. Howell, as amended by Amendment 1 to Severance Agreement,
effective November 11, 1998 (filed as Exhibit 10.39 to Annual Report of Baker Hughes
Incorporated on Form 10K for the year ended December 31, 2001).
10.14+
Severance Agreement, dated as of December 3, 1997, by and between Baker Hughes
Incorporated and Douglas J. Wall, as amended by Amendment 1 to Severance Agreement,
effective November 11, 1998 (filed as Exhibit 10.40 to Annual Report of Baker Hughes
Incorporated on Form 10K for the year ended December 31, 2001).
10.15+
Form of Change in Control Severance Plan (filed as Exhibit 10.8 to Annual Report of
Baker Hughes Incorporated on Form 10K for the year ended December 31, 2003).
10.16+
Form of Change in Control Severance Agreement between Baker Hughes Incorporated and
Ray A. Ballantyne, David H. Barr and John A. ODonnell effective as
of July 28, 2004, and with James R. Clark, Alan R. Crain, Jr., William P. Faubel, G.
Stephen Finley, Edwin C. Howell, Greg Nakanishi and Douglas J. Wall to be effective as
of January 1, 2006 and with Chris P. Beaver, Paul S. Butero and
Martin S. Craighead effective as of February 28, 2005 (filed as Exhibit 10.8 to Quarterly Report of Baker Hughes
Incorporated on Form 10Q for the quarter ended September 30, 2004).
10.17+
Form of Indemnification Agreement between Baker Hughes Incorporated and each of the
directors and executive officers (filed as Exhibit 10.4 to Annual Report of Baker Hughes
Incorporated on Form 10K for the year ended December 31, 2003).
10.18+
Baker Hughes Incorporated Director Retirement Policy for Certain Members of the Board
of Directors (filed as Exhibit 10.10 to Annual Report of Baker Hughes Incorporated on
Form 10K for the year ended December 31, 2003).
10.19+
Baker Hughes Incorporated Director Compensation Deferral Plan, as amended and restated
effective as of July 24, 2002 (filed as Exhibit 10.16 to Annual Report of Baker Hughes
Incorporated on Form 10K for the year ended December 31, 2002).
Table of Contents
10.20+
Baker Hughes Incorporated Executive Severance Plan (effective November 1, 2002) (filed
as Exhibit 10.13 to Annual Report of Baker Hughes Incorporated on Form 10K for the year
ended December 31, 2002).
10.21
1995 Employee Annual Incentive Compensation Plan, as amended by Amendment No.
19971 to the 1995 Employee Annual Incentive Compensation Plan and as amended by
Amendment No. 19991 to the 1995 Employee Annual Incentive Compensation Plan (filed as
Exhibit 10.17 to Annual Report of Baker Hughes Incorporated on Form 10K for the year
ended December 31, 2002).
10.22+
Baker Hughes Incorporated Supplemental Retirement Plan, as amended and restated
effective as of January 1, 2003 (filed as Exhibit 10.12 to Annual Report of Baker Hughes
Incorporated on Form 10K for the year ended December 31, 2002).
10.23+
First Amendment to Baker Hughes Incorporated Supplemental Retirement Plan, effective
July 23, 2003 (filed as Exhibit 10.1 to Quarterly Report of Baker Hughes Incorporated on
Form 10Q filed for the quarter ended September 30, 2003).
10.24
Long Term Incentive Plan, as amended by Amendment No. 19991 to Long Term
Incentive Plan (filed as Exhibit 10.18 to Annual Report of Baker Hughes Incorporated on
Form 10K for the year ended December 31, 2002).
10.25
Baker Hughes Incorporated 1998 Employee Stock Option Plan, as amended by
Amendment No. 19991 to 1998 Employee Stock Option Plan (filed as Exhibit 10.3 to
Quarterly Report of Baker Hughes Incorporated on Form 10Q for the quarter ended June 30, 2003).
10.26
Baker Hughes Incorporated 2002 Employee LongTerm Incentive Plan (filed as
Exhibit 4.4 to Registration Statement No. 33387372 on Form S8 filed May 1, 2002).
10.27+
Baker Hughes Incorporated 2002 Director & Officer LongTerm Incentive Plan (filed as
Exhibit 10.2 to Quarterly Report of Baker Hughes Incorporated on Form 10Q for the
quarter ended September 30, 2003).
10.28
Baker Hughes Incorporated Employee Stock Purchase Plan, as amended and restated,
effective as of March 3, 2003 (filed as Exhibit 10.1 to Quarterly Report of Baker Hughes
Incorporated on Form 10Q for the quarter ended March 31, 2003).
10.29
Baker Hughes Incorporated Pension Plan effective as of January 1, 2002, as
amended by First Amendment, effective January 1, 2002 (filed as Exhibit 10.51 to Annual
Report of Baker Hughes Incorporated on Form 10K for the year ended December 31, 2002).
10.30
Form of Nonqualified Stock Option Agreement for employees effective October 25,
1995 (filed as Exhibit 10.27 to Annual Report of Baker Hughes Incorporated on Form 10K
for the year ended December 31, 2001).
10.31
Form of Incentive Stock Option Agreement for employees effective October 25,
1995 (filed as Exhibit 10.28 to Annual Report of Baker Hughes Incorporated on Form 10K
for the year ended December 31, 2001).
10.32+
Form of Nonqualified Stock Option Agreement for directors effective October 25, 1995
(filed as Exhibit 10.26 to Annual Report of Baker Hughes Incorporated on Form 10K for
the year ended December 31, 2001).
10.33+
Form of Stock Option Agreement for executive officers effective October 1, 1998 (filed
as Exhibit 10.37 to Annual Report of Baker Hughes Incorporated on Form 10K for the year
ended December 31, 2000).
10.34
Form of Nonqualified Stock Option Agreement for employees effective October 1,
1998 (filed as Exhibit 10.4 to Quarterly Report of Baker Hughes Incorporated on Form
10Q for the quarter ended June 30, 2003).
10.35+
Form of Nonqualified Stock Option Agreement for directors effective October 25, 1998
(filed as Exhibit 10.39 to Annual Report of Baker Hughes Incorporated on Form 10K for
the year ended December 31, 2000).
10.36+
Form of Stock Option Agreement for executives effective January 26, 2000 (filed as
Exhibit 10.36 to Annual Report of Baker Hughes Incorporated on Form 10K for the year
ended December 31, 2000).
Table of Contents
10.37+
Form of Baker Hughes Incorporated Nonqualified Stock Option Agreement for executive
officers, dated January 24, 2001 (filed as Exhibit 10.41 to Annual Report of Baker
Hughes Incorporated on Form 10K for the year ended December 31, 2001).
10.38
Form of Baker Hughes Incorporated Nonqualified Stock Option Agreement for
employees, dated January 30, 2002 (filed as Exhibit 10.43 to Annual Report of Baker
Hughes Incorporated on Form 10K for the year ended December 31, 2001).
10.39
Form of Baker Hughes Incorporated Incentive Stock Option Agreement for
employees, dated January 30, 2002 (filed as Exhibit 10.44 to Annual Report of Baker
Hughes Incorporated on Form 10K for the year ended December 31, 2001).
10.40+
Form of Baker Hughes Incorporated Stock Option Award Agreements, dated July 24, 2002,
with Terms and Conditions for employees and for directors and officers (filed as Exhibit
10.46 to Annual Report of Baker Hughes Incorporated on Form 10K for the year ended
December 31, 2002).
10.41+
Form of Baker Hughes Incorporated Stock Option Award Agreements, dated January 29,
2003, with Terms and Conditions for employees and for directors and officers (filed as
Exhibit 10.47 to Annual Report of Baker Hughes Incorporated on Form 10K for the year
ended December 31, 2002).
10.42+
Form of Baker Hughes Incorporated Stock Option Award Agreement, dated July 22, 2003,
for employees and for directors and officers (filed as Exhibit 10.1 to Quarterly Report
on Form 10Q for the quarter ended June 30, 2003).
10.43+
Form of Baker Hughes Incorporated Stock Option Award Agreements, dated January 28,
2004, with Terms and Conditions for employees and for directors and officers.
10.44+*
Form of Baker Hughes Incorporated Stock Option Award Agreements, dated July 28, 2004,
with Terms and Conditions for employees and for directors and officers.
10.45+
Form of Baker Hughes Incorporated Performance Award Agreement, including Terms and
Conditions for certain executive officers, dated as of January 1, 2004 (filed as Exhibit
10.4 to Quarterly Report of Baker Hughes Incorporated on Form 10Q for the quarter ended
March 31, 2004).
10.46+
Form of Restricted Stock Award Resolution, including Terms and Conditions dated March
2, 2004 (filed as Exhibit 10.3 to Quarterly Report of Baker Hughes Incorporated on Form
10Q for the quarter ended March 31, 2004).
10.47+
Form of Restricted Stock Award Resolution, including Terms and Conditions, dated April
28, 2004 (filed as Exhibit 10.5 to Quarterly Report of Baker Hughes Incorporated on Form
10Q for the quarter ended March 31, 2004).
10.48+*
Form of Baker Hughes Incorporated Stock Option Award Agreements, dated January 26,
2005, with Terms and Conditions for employees and for directors and officers.
10.49+*
Form of Baker Hughes Incorporated Restricted Stock Award Agreement.
10.50+*
Form of Baker Hughes Incorporated Restricted Stock Award Terms and Conditions.
10.51*
Form of Baker Hughes Incorporated Restricted Stock Unit Agreement.
10.52*
Form of Baker Hughes Incorporated Restricted Stock Unit Terms and Conditions.
10.53+*
Compensation Table for Named Executive Officers and Directors.
10.54
Form of Credit Agreement, dated as of July 7, 2003, among Baker Hughes
Incorporated and thirteen banks for $500,000,000, in the aggregate for all banks (filed
as Exhibit 10.5 to Quarterly Report of Baker Hughes Incorporated on Form 10Q for the
quarter ended September 30, 2003).
10.55*
Interest Rate Swap Confirmation, dated as of April 7, 2004, and Schedule to the Master
Agreement (MulticurrencyCross Border), dated March 6, 2000.
Table of Contents
10.56
Agreement and Plan of Merger among Baker Hughes Incorporated, Baker Hughes
Delaware I, Inc. and Western Atlas Inc. dated as of May 10, 1998 (filed as Exhibit 10.30
to Annual Report of Baker Hughes Incorporated on Form 10K for the year ended December
31, 2003).
10.57
Tax Sharing Agreement dated October 31, 1997, between Western Atlas Inc. and
UNOVA Inc. (filed as Exhibit 10.31 to Annual Report of Baker Hughes Incorporated on Form
10K for the year ended December 31, 2003).
10.58
Employee Benefits Agreement dated October 31, 1997, between Western Atlas Inc.
and UNOVA Inc. (filed as Exhibit 10.32 to Annual Report of Baker Hughes Incorporated on
Form 10K for the year ended December 31, 2003).
10.59
Master Formation Agreement by and among the Company, Schlumberger Limited and
certain wholly owned subsidiaries of Schlumberger Limited dated as of September 6, 2000
(filed as Exhibit 2.1 to Current Report of Baker Hughes Incorporated on Form 8K dated
September 7, 2000).
10.60
Shareholders Agreement by and among Schlumberger Limited, Baker Hughes
Incorporated and other parties listed on the signature pages thereto dated November 30,
2000 (filed as Exhibit 10.1 to Current Report of Baker Hughes Incorporated on Form 8K
dated November 30, 2000).
21.1*
Subsidiaries of Registrant.
23.1*
Consent of Deloitte & Touche LLP.
31.1*
Certification of Chad C. Deaton, Chief Executive Officer, dated February 25,
2005, pursuant to Rule 13a14(a) of the Securities Exchange Act of 1934, as amended.
31.2*
Certification of G. Stephen Finley, Chief Financial Officer, dated February 25,
2005, pursuant to Rule 13a14(a) of the Securities Exchange Act of 1934, as amended.
32*
Statement of Chad C. Deaton, Chief Executive Officer, and G. Stephen Finley,
Chief Financial Officer, dated February 25, 2005, furnished pursuant to Rule 13a14(b)
of the Securities Exchange Act of 1934, as amended.
99.1
Administrative Proceeding, File No. 310572, dated September 12, 2001, as issued
by the Securities and Exchange Commission (filed as Exhibit 99.1 to Current Report on
Form 8K filed on September 19, 2001).
Table of Contents
BAKER HUGHES INCORPORATED
Date: February 28, 2005
/s/CHAD C. DEATON
Chad C. Deaton
Chairman of the Board and Chief Executive Officer
Table of Contents
Signature
Title
Date
/s/CHAD C. DEATON
(Chad C. Deaton)
Chairman of the Board and Chief Executive Officer
(principal executive officer)
February 28, 2005
/s/G. STEPHEN FINLEY
(G. Stephen Finley)
Senior Vice President Finance and Administration
and Chief Financial Officer (principal financial
officer)
February 28, 2005
/s/ALAN J. KEIFER
(Alan J. Keifer)
Vice President and Controller
(principal accounting officer)
February 28, 2005
/s/LARRY D. BRADY
(Larry D. Brady)
Director
February 28, 2005
/s/CLARENCE P. CAZALOT, JR.
(Clarence P. Cazalot, Jr.)
Director
February 28, 2005
/s/EDWARD P. DJEREJIAN
(Edward P. Djerejian)
Director
February 28, 2005
/s/ANTHONY G. FERNANDES
(Anthony G. Fernandes)
Director
February 28, 2005
/s/CLAIRE W. GARGALLI
(Claire W. Gargalli)
Director
February 28, 2005
/s/JAMES A. LASH
(James A. Lash)
Director
February 28, 2005
/s/JAMES F. MCCALL
(James F. McCall)
Director
February 28, 2005
/s/J. LARRY NICHOLS
(J. Larry Nichols)
Director
February 28, 2005
/s/H. JOHN RILEY, JR.
(H. John Riley, Jr.)
Director
February 28, 2005
/s/CHARLES L. WATSON
(Charles L. Watson)
Director
February 28, 2005
Table of Contents
Deductions
Additions
Balance at
Charged to
Reversal of
Charged to
Balance at
Beginning
Cost and
Prior
Other
End of
(In millions)
of Period
Expenses
Deductions
(1)
Writeoffs
(2)
Accounts
(3)
Period
$
61.8
$
21.2
$
(19.3
)
$
(14.4
)
$
1.2
$
50.5
232.5
39.0
(59.4
)
9.0
221.1
66.4
18.2
(9.8
)
(13.5
)
0.5
61.8
234.5
23.2
(36.2
)
11.0
232.5
65.8
22.9
(3.4
)
(19.5
)
0.6
66.4
220.1
39.4
(27.5
)
2.5
234.5
(1)
Represents the reversals of prior accruals as receivables collected.
(2)
Represents the elimination of accounts receivable and inventory deemed
uncollectible or worthless.
(3)
Represents reclasses, currency translation adjustments and divestitures.
Table of Contents
Restated Certificate of Incorporation (filed as Exhibit 3.1 to Quarterly Report
of Baker Hughes Incorporated on Form 10-Q for the quarter ended June 30, 2002).
Bylaws of Baker Hughes Incorporated restated as of October 22, 2003 (filed as
Exhibit 3.1 to Quarterly Report of Baker Hughes Incorporated on Form 10-Q for the
quarter ended September 30, 2003).
Rights of Holders of the Companys Long-Term Debt. The Company has no long-term
debt instrument with regard to which the securities authorized thereunder equal or
exceed 10% of the total assets of the Company and its subsidiaries on a consolidated
basis. The Company agrees to furnish a copy of its long-term debt instruments to the
SEC upon request.
Restated Certificate of Incorporation (filed as Exhibit 3.1 to Quarterly Report
of Baker Hughes Incorporated on Form 10-Q for the quarter ended June 30, 2002).
Bylaws of Baker Hughes Incorporated restated as of October 31, 2003 (filed as
Exhibit 3.1 to Quarterly Report of Baker Hughes Incorporated on Form 10-Q for the
quarter ended September 30, 2003).
Indenture dated as of May 15, 1994 between Western Atlas Inc. and The Bank of New
York, Trustee, providing for the issuance of securities in series.
Employment Agreement by and between Baker Hughes Incorporated and Chad C. Deaton
dated as of October 25, 2004 (filed as Exhibit 10.3 to Current Report of Baker Hughes
Incorporated on Form 8-K filed October 7, 2004).
Change in Control Agreement between Baker Hughes Incorporated and Chad C. Deaton
dated as of October 25, 2004 (filed as Exhibit 10.2 to Current Report of Baker Hughes
Incorporated on Form 8-K filed October 7, 2004).
Indemnification Agreement dated as of October 25, 2004 between Baker Hughes
Incorporated and Chad C. Deaton (filed as Exhibit 10.1 to Current Report of Baker Hughes
Incorporated on Form 8-K filed on October 7, 2004).
Stock Option Agreement issued to Chad C. Deaton on October 25, 2004 in the
amount of 75,000 shares of Company Common Stock (filed as Exhibit 10.4 to Quarterly
Report of Baker Hughes Incorporated on Form 10-Q for the quarter ended September 30,
2004).
Agreement regarding restricted stock award issued to Chad C. Deaton on October
25, 2004 in the amount of 80,000 shares of Company Common Stock (filed as Exhibit 10.5
to Quarterly Report of Baker Hughes Incorporated on Form 10-Q for the quarter ended
September 30, 2004).
Table of Contents
Agreement regarding restricted stock award issued to James R. Clark on October
27, 2004 in the amount of 40,000 shares of Baker Hughes Incorporated Common Stock (filed
as Exhibit 10.7 to Quarterly Report of Baker Hughes Incorporated on Form 10-Q for the
quarter ended September 30, 2004).
Second Amended and Restated Stock Matching Agreement by and between Baker Hughes
Incorporated and James R. Clark dated as of October 25, 2004 (filed as Exhibit 10.6 to
Quarterly Report of Baker Hughes Incorporated on Form 10-Q for the quarter ended
September 30, 2004).
Form of Severance Agreement, dated as of March 1, 2001, by and between Baker
Hughes Incorporated and certain executives, executed by James R. Clark (dated March 1,
2001) and William P. Faubel (dated May 29, 2001) (filed as Exhibit 10.42 to Annual
Report of Baker Hughes Incorporated on Form 10-K for the year ended December 31, 2001).
Severance Agreement between Baker Hughes Incorporated and G. Stephen Finley
dated as of July 23, 1997 (filed as Exhibit 10.3 to Annual Report of Baker Hughes
Incorporated on Form 10-K for the year ended December 31, 2002).
Form of Amendment 1 to Severance Agreement between Baker Hughes Incorporated and G.
Stephen Finley effective November 11, 1998 (filed as Exhibit 10.2 to Quarterly Report of
Baker Hughes Incorporated on Form 10-Q for the quarter ended June 30, 2003).
Severance Agreement between Baker Hughes Incorporated and Alan R. Crain, Jr. dated as
of October 25, 2000 (filed as Exhibit 10.6 to Annual Report of Baker Hughes Incorporated
on Form 10-K for the year ended December 31, 2000).
Severance Agreement between Baker Hughes Incorporated and Greg Nakanishi dated as of
November 1, 2000 (filed as Exhibit 10.7 to Annual Report of Baker Hughes Incorporated on
Form 10-K for the year ended December 31, 2000).
Severance Agreement, dated as of July 23, 1997, by and between Baker Hughes
Incorporated and Edwin C. Howell, as amended by Amendment 1 to Severance Agreement,
effective November 11, 1998 (filed as Exhibit 10.39 to Annual Report of Baker Hughes
Incorporated on Form 10-K for the year ended December 31, 2001).
Severance Agreement, dated as of December 3, 1997, by and between Baker Hughes
Incorporated and Douglas J. Wall, as amended by Amendment 1 to Severance Agreement,
effective November 11, 1998 (filed as Exhibit 10.40 to Annual Report of Baker Hughes
Incorporated on Form 10-K for the year ended December 31, 2001).
Form of Change in Control Severance Plan (filed as Exhibit 10.8 to Annual Report of
Baker Hughes Incorporated on Form 10-K for the year ended December 31, 2003).
Form of Change in Control Severance Agreement between Baker Hughes Incorporated and
Ray A. Ballantyne, David H. Barr and John A. ODonnell effective as
of July 28, 2004, and with James R. Clark, Alan R. Crain, Jr., William P. Faubel, G.
Stephen Finley, Edwin C. Howell, Greg Nakanishi and Douglas J. Wall to be effective as
of January 1, 2006 and with Chris P. Beaver, Paul S. Butero and
Martin S. Craighead effective as of February 28, 2005 (filed as Exhibit 10.8 to Quarterly Report of Baker Hughes
Incorporated on Form 10-Q for the quarter ended September 30, 2004).
Form of Indemnification Agreement between Baker Hughes Incorporated and each of the
directors and executive officers (filed as Exhibit 10.4 to Annual Report of Baker Hughes
Incorporated on Form 10-K for the year ended December 31, 2003).
Baker Hughes Incorporated Director Retirement Policy for Certain Members of the Board
of Directors (filed as Exhibit 10.10 to Annual Report of Baker Hughes Incorporated on
Form 10-K for the year ended December 31, 2003).
Baker Hughes Incorporated Director Compensation Deferral Plan, as amended and restated
effective as of July 24, 2002 (filed as Exhibit 10.16 to Annual Report of Baker Hughes
Incorporated on Form 10-K for the year ended December 31, 2002).
Table of Contents
Baker Hughes Incorporated Executive Severance Plan (effective November 1, 2002) (filed
as Exhibit 10.13 to Annual Report of Baker Hughes Incorporated on Form 10-K for the year
ended December 31, 2002).
1995 Employee Annual Incentive Compensation Plan, as amended by Amendment No.
1997-1 to the 1995 Employee Annual Incentive Compensation Plan and as amended by
Amendment No. 1999-1 to the 1995 Employee Annual Incentive Compensation Plan (filed as
Exhibit 10.17 to Annual Report of Baker Hughes Incorporated on Form 10-K for the year
ended December 31, 2002).
Baker Hughes Incorporated Supplemental Retirement Plan, as amended and restated
effective as of January 1, 2003 (filed as Exhibit 10.12 to Annual Report of Baker Hughes
Incorporated on Form 10-K for the year ended December 31, 2002).
First Amendment to Baker Hughes Incorporated Supplemental Retirement Plan, effective
July 23, 2003 (filed as Exhibit 10.1 to Quarterly Report of Baker Hughes Incorporated on
Form 10-Q filed for the quarter ended September 30, 2003).
Long Term Incentive Plan, as amended by Amendment No. 1999-1 to Long Term
Incentive Plan (filed as Exhibit 10.18 to Annual Report of Baker Hughes Incorporated on
Form 10-K for the year ended December 31, 2002).
Baker Hughes Incorporated 1998 Employee Stock Option Plan, as amended by
Amendment No. 1999-1 to 1998 Employee Stock Option Plan (filed as Exhibit 10.3 to
Quarterly Report of Baker Hughes Incorporated on Form 10-Q for the quarter ended June 30, 2003).
Baker Hughes Incorporated 2002 Employee Long-Term Incentive Plan (filed as
Exhibit 4.4 to Registration Statement No. 333-87372 on Form S-8 filed May 1, 2002).
Baker Hughes Incorporated 2002 Director & Officer Long-Term Incentive Plan (filed as
Exhibit 10.2 to Quarterly Report of Baker Hughes Incorporated on Form 10-Q for the
quarter ended September 30, 2003).
Baker Hughes Incorporated Employee Stock Purchase Plan, as amended and restated,
effective as of March 3, 2003 (filed as Exhibit 10.1 to Quarterly Report of Baker Hughes
Incorporated on Form 10-Q for the quarter ended March 31, 2003).
Baker Hughes Incorporated Pension Plan effective as of January 1, 2002, as
amended by First Amendment, effective January 1, 2002 (filed as Exhibit 10.51 to Annual
Report of Baker Hughes Incorporated on Form 10-K for the year ended December 31, 2002).
Form of Nonqualified Stock Option Agreement for employees effective October 25,
1995 (filed as Exhibit 10.27 to Annual Report of Baker Hughes Incorporated on Form 10-K
for the year ended December 31, 2001).
Form of Incentive Stock Option Agreement for employees effective October 25,
1995 (filed as Exhibit 10.28 to Annual Report of Baker Hughes Incorporated on Form 10-K
for the year ended December 31, 2001).
Form of Nonqualified Stock Option Agreement for directors effective October 25, 1995
(filed as Exhibit 10.26 to Annual Report of Baker Hughes Incorporated on Form 10-K for
the year ended December 31, 2001).
Form of Stock Option Agreement for executive officers effective October 1, 1998 (filed
as Exhibit 10.37 to Annual Report of Baker Hughes Incorporated on Form 10-K for the year
ended December 31, 2000).
Form of Nonqualified Stock Option Agreement for employees effective October 1,
1998 (filed as Exhibit 10.4 to Quarterly Report of Baker Hughes Incorporated on Form
10-Q for the quarter ended June 30, 2003).
Form of Nonqualified Stock Option Agreement for directors effective October 25, 1998
(filed as Exhibit 10.39 to Annual Report of Baker Hughes Incorporated on Form 10-K for
the year ended December 31, 2000).
Form of Stock Option Agreement for executives effective January 26, 2000 (filed as
Exhibit 10.36 to Annual Report of Baker Hughes Incorporated on Form 10-K for the year
ended December 31, 2000).
Table of Contents
Form of Baker Hughes Incorporated Nonqualified Stock Option Agreement for executive
officers, dated January 24, 2001 (filed as Exhibit 10.41 to Annual Report of Baker
Hughes Incorporated on Form 10-K for the year ended December 31, 2001).
Form of Baker Hughes Incorporated Nonqualified Stock Option Agreement for
employees, dated January 30, 2002 (filed as Exhibit 10.43 to Annual Report of Baker
Hughes Incorporated on Form 10-K for the year ended December 31, 2001).
Form of Baker Hughes Incorporated Incentive Stock Option Agreement for
employees, dated January 30, 2002 (filed as Exhibit 10.44 to Annual Report of Baker
Hughes Incorporated on Form 10-K for the year ended December 31, 2001).
Form of Baker Hughes Incorporated Stock Option Award Agreements, dated July 24, 2002,
with Terms and Conditions for employees and for directors and officers (filed as Exhibit
10.46 to Annual Report of Baker Hughes Incorporated on Form 10-K for the year ended
December 31, 2002).
Form of Baker Hughes Incorporated Stock Option Award Agreements, dated January 29,
2003, with Terms and Conditions for employees and for directors and officers (filed as
Exhibit 10.47 to Annual Report of Baker Hughes Incorporated on Form 10-K for the year
ended December 31, 2002).
Form of Baker Hughes Incorporated Stock Option Award Agreement, dated July 22, 2003,
for employees and for directors and officers (filed as Exhibit 10.1 to Quarterly Report
on Form 10-Q for the quarter ended June 30, 2003).
Form of Baker Hughes Incorporated Stock Option Award Agreements, dated January 28,
2004, with Terms and Conditions for employees and for directors and officers.
Form of Baker Hughes Incorporated Stock Option Award Agreements, dated July 28, 2004,
with Terms and Conditions for employees and for directors and officers.
Form of Baker Hughes Incorporated Performance Award Agreement, including Terms and
Conditions for certain executive officers, dated as of January 1, 2004 (filed as Exhibit
10.4 to Quarterly Report of Baker Hughes Incorporated on Form 10-Q for the quarter ended
March 31, 2004).
Form of Restricted Stock Award Resolution, including Terms and Conditions dated March
2, 2004 (filed as Exhibit 10.3 to Quarterly Report of Baker Hughes Incorporated on Form
10-Q for the quarter ended March 31, 2004).
Form of Restricted Stock Award Resolution, including Terms and Conditions, dated April
28, 2004 (filed as Exhibit 10.5 to Quarterly Report of Baker Hughes Incorporated on Form
10-Q for the quarter ended March 31, 2004).
Form of Baker Hughes Incorporated Stock Option Award Agreements, dated January 26,
2005, with Terms and Conditions for employees and for directors and officers.
Form of Baker Hughes Incorporated Restricted Stock Award Agreement.
Form of Baker Hughes Incorporated Restricted Stock Award Terms and Conditions.
Form of Baker Hughes Incorporated Restricted Stock Unit Agreement.
Form of Baker Hughes Incorporated Restricted Stock Unit Terms and Conditions.
Compensation Table for Named Executive Officers and Directors.
Form of Credit Agreement, dated as of July 7, 2003, among Baker Hughes
Incorporated and thirteen banks for $500,000,000, in the aggregate for all banks (filed
as Exhibit 10.5 to Quarterly Report of Baker Hughes Incorporated on Form 10-Q for the
quarter ended September 30, 2003).
Interest Rate Swap Confirmation, dated as of April 7, 2004, and Schedule to the Master
Agreement (Multicurrency-Cross Border), dated March 6, 2000.
Table of Contents
Agreement and Plan of Merger among Baker Hughes Incorporated, Baker Hughes
Delaware I, Inc. and Western Atlas Inc. dated as of May 10, 1998 (filed as Exhibit 10.30
to Annual Report of Baker Hughes Incorporated on Form 10-K for the year ended December
31, 2003).
Tax Sharing Agreement dated October 31, 1997, between Western Atlas Inc. and
UNOVA Inc. (filed as Exhibit 10.31 to Annual Report of Baker Hughes Incorporated on Form
10-K for the year ended December 31, 2003).
Employee Benefits Agreement dated October 31, 1997, between Western Atlas Inc.
and UNOVA Inc. (filed as Exhibit 10.32 to Annual Report of Baker Hughes Incorporated on
Form 10-K for the year ended December 31, 2003).
Master Formation Agreement by and among the Company, Schlumberger Limited and
certain wholly owned subsidiaries of Schlumberger Limited dated as of September 6, 2000
(filed as Exhibit 2.1 to Current Report of Baker Hughes Incorporated on Form 8-K dated
September 7, 2000).
Shareholders Agreement by and among Schlumberger Limited, Baker Hughes
Incorporated and other parties listed on the signature pages thereto dated November 30,
2000 (filed as Exhibit 10.1 to Current Report of Baker Hughes Incorporated on Form 8-K
dated November 30, 2000).
Subsidiaries of Registrant.
Consent of Deloitte & Touche LLP.
Certification of Chad C. Deaton, Chief Executive Officer, dated February 25,
2005, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
Certification of G. Stephen Finley, Chief Financial Officer, dated February 25,
2005, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
Statement of Chad C. Deaton, Chief Executive Officer, and G. Stephen Finley,
Chief Financial Officer, dated February 25, 2005, furnished pursuant to Rule 13a-14(b)
of the Securities Exchange Act of 1934, as amended.
Administrative Proceeding, File No. 3-10572, dated September 12, 2001, as issued
by the Securities and Exchange Commission (filed as Exhibit 99.1 to Current Report on
Form 8-K filed on September 19, 2001).
EXHIBIT 4.4
Western Atlas Inc.
and
The Bank of New York
Trustee
INDENTURE
Dated as of May 15, 1994
Providing for Issuance of Securities in Series
Page ---- Recitals of the Company.................................................... 1 Agreements of the Parties.................................................. 1 ARTICLE ONE Definitions and Other Provisions of General Application Section 101. Definitions ................................................ 1 Act ........................................................ 2 Affiliate .................................................. 2 Authenticating Agent ....................................... 2 Board of Directors ......................................... 2 Board Resolution ........................................... 2 Business Day ............................................... 3 Capital Stock .............................................. 3 Commission ................................................. 3 Company .................................................... 3 Company Request, Company Order and Company Consent ......... 3 Consolidated Net Assets .................................... 3 Corporate Trust Office ..................................... 3 Debt ....................................................... 4 Defaulted Interest ......................................... 4 Depositary ................................................. 4 Event of Default ........................................... 4 Funded Debt ................................................ 4 Global Security ............................................ 4 Holder ..................................................... 5 Indenture or this Indenture ................................ 5 Independent ................................................ 5 Interest ................................................... 5 Interest Payment Date ...................................... 5 Lien ....................................................... 5 Maturity ................................................... 5 Officers' Certificate ...................................... 6 Opinion of Counsel ......................................... 6 Original Issue Discount Security............................ 6 Outstanding ................................................ 6 Paying Agent ............................................... 7 Person ..................................................... 7 Place of Payment ........................................... 7 Predecessor Securities ..................................... 7 Preferred Stock ............................................ 8 Redemption Date ............................................ 8 Redemption Price ........................................... 8 |
Page ---- Regular Record Date ........................................ 8 Repayment Date ............................................. 8 Repayment Price ............................................ 8 Responsible Officer ........................................ 8 Restricted Subsidiary ...................................... 8 Sale and Leaseback Transaction.............................. 9 Security or Securities ..................................... 9 Security Register .......................................... 9 Security Registrar ......................................... 9 Securityholder ............................................. 9 Special Record Date ........................................ 9 Stated Maturity ............................................ 9 Subsidiary ................................................. 10 Trust Indenture Act or TIA ................................. 10 Trustee .................................................... 10 Value ...................................................... 10 Vice President ............................................. 10 Section 102. Compliance Certificates and Opinions ....................... 10 Section 103. Form of Documents Delivered to Trustee ..................... 11 Section 104. Acts of Securityholders .................................... 12 Section 105. Notices, etc., to Trustee and Company ...................... 13 Section 106. Notices to Securityholders; Waiver ......................... 14 Section 107. Conflict with Trust Indenture Act .......................... 15 Section 108. Effect of Heading and Table of Contents .................... 15 Section 109. Successors and Assigns ..................................... 15 Section 110. Separability Clause ........................................ 15 Section 111. Benefits of Indenture ...................................... 15 Section 112. Governing Law .............................................. 15 Section 113. Counterparts ............................................... 15 Section 114. Legal Holidays ............................................. 15 ARTICLE TWO Security Forms Section 201. Forms Generally ............................................ 16 Section 202. Forms of Securities ........................................ 16 |
Page ---- Section 203. Form of Trustee's Certificate of Authentication ............ 16 Section 204. Securities Issuable in the Form of a Global Security ....... 17 ARTICLE THREE The Securities Section 301. General Title; General Limitations; Issuable in Series; Terms of Particular Series ..................... 19 Section 302. Denominations .............................................. 22 Section 303. Execution, Authentication and Delivery and Dating .......... 22 Section 304. Temporary Securities ....................................... 24 Section 305. Registration, Transfer and Exchange ........................ 25 Section 306. Mutilated, Destroyed, Lost and Stolen Securities ........... 26 Section 307. Payment of Interest; Interest Rights Preserved ............. 27 Section 308. Persons Deemed Owners ...................................... 29 Section 309. Cancellation ............................................... 29 Section 310. Computation of Interest .................................... 29 Section 311. Medium-Term Securities ..................................... 29 Section 312. CUSIP Numbers .............................................. 30 ARTICLE FOUR Satisfaction and Discharge Section 401. Satisfaction and Discharge of Indenture .................... 30 Section 402. Application of Trust Money ................................. 32 Section 403. Defeasance Upon Deposit of Funds or Government Obligations ............................................ 32 ARTICLE FIVE Remedies Section 501. Events of Default .......................................... 34 Section 502. Acceleration of Maturity; Rescission and Annulment ......... 35 |
Page ---- Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee ................................................ 37 Section 504. Trustee May File Proofs of Claim ........................... 38 Section 505. Trustee May Enforce Claims Without Possession of Securities ............................................. 39 Section 506. Application of Money Collected ............................. 39 Section 507. Limitation on Suits ........................................ 40 Section 508. Unconditional Right of Securityholders To Receive Principal, Premium and Interest ........................ 41 Section 509. Restoration of Rights and Remedies ......................... 41 Section 510. Rights and Remedies Cumulative ............................. 41 Section 511. Delay or Omission Not Waiver................................ 41 Section 512. Control by Securityholders ................................. 42 Section 513. Waiver of Past Defaults .................................... 42 Section 514. Undertaking for Costs ...................................... 43 Section 515. Waiver of Stay or Extension Laws ........................... 43 ARTICLE SIX The Trustee Section 601. Certain Duties and Responsibilities ........................ 43 Section 602. Notice of Defaults ......................................... 45 Section 603. Certain Rights of Trustee .................................. 45 Section 604. Not Responsible for Recitals or Issuance of Securities ..... 47 Section 605. May Hold Securities ........................................ 47 Section 606. Money Held in Trust ........................................ 47 Section 607. Compensation and Reimbursement ............................. 47 Section 608. Disqualification; Conflicting Interests .................... 48 Section 609. Corporate Trustee Recruited; Eligibility ................... 48 Section 610. Resignation and Removal; Appointment of Successor .......... 49 Section 611. Acceptance of Appointment by Successor ..................... 51 Section 612. Merger, Conversion, Consolidation or Succession to Business ............................................ 52 Section 613. Preferential Collection of Claims Against Company .......... 52 Section 614. Appointment of Authenticating Agent ........................ 57 |
Page ---- ARTICLE SEVEN Securityholders' Lists and Reports by Trustee and Company Section 701. Company To Furnish Trustee Names and Addresses of Securityholders ....................................... 59 Section 702. Preservation of Information; Communications to Securityholders ....................................... 59 Section 703. Reports by Trustee ......................................... 61 Section 704. Reports by Company ......................................... 63 Section 705. Delivery of Certain Information ............................ 63 Section 706. Calculation of Original Issue Discount ..................... 64 ARTICLE EIGHT Consolidation, Merger, Conveyance or Transfer Section 801. When Company May Merge or Transfer Assets .................. 64 ARTICLE NINE Supplemental Indentures Section 901. Supplemental Indentures Without Consent of Securityholders ....................................... 65 Section 902. Supplemental Indentures with Consent of Securityholders ....................................... 67 Section 903. Execution of Supplemental Indentures ....................... 68 Section 904. Effect of Supplemental Indentures .......................... 68 Section 905. Conformity with Trust Indenture Act ........................ 69 Section 906. Reference in Securities to Supplemental Indentures ......... 69 ARTICLE TEN Covenants Section 1001. Payment of Principal, Premium and Interest ................ 69 Section 1002. Maintenance of Office or Agency ........................... 69 Section 1003. Money for Security Payments to be Held in Trust ........... 69 |
Page ---- Section 1004. Statement as to Compliance ................................ 71 Section 1005. Legal Existence ........................................... 72 Section 1006. Limitation on Liens ....................................... 72 Section 1007. Limitation on Sale and Leasebacks ......................... 73 Section 1008. Limitation on Funded Debt of Restricted Subsidiaries ...... 74 Section 1009. Repurchase of Securities at Option of the Holder .......... 75 Section 1010. Waiver of Certain Covenants ............................... 84 ARTICLE ELEVEN Redemption of Securities Section 1101. Applicability of Article .................................. 84 Section 1102. Election To Redeem; Notice to Trustee ..................... 84 Section 1103. Selection by Trustee of Securities To Be Redeemed ......... 85 Section 1104. Notice of Redemption ...................................... 85 Section 1105. Deposit of Redemption Price ............................... 86 Section 1106. Securities Payable on Redemption Date ..................... 86 Section 1107. Securities Redeemed in Part .............................. 87 Section 1108. Provisions with Respect to any Sinking Funds .............. 87 |
Table Showing Reflection in Indenture of Certain Provisions of Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990
Reflected in Indenture ---------------------- TIA Section Section 310(a)(1) ............................................................ 609 (a)(2) ............................................................ 609 (a)(3) ............................................................ Not Applicable (a)(4) ............................................................ Not Applicable (a)(5) ............................................................ 609 (b) ............................................................ 608 Section 311(a) ............................................................ 613(a) (b) ............................................................ 613(b) (b)(2) ............................................................ 703(a)(2) ............................................................ 703(b) Section 312(a) ............................................................... 701 ............................................................... 702(a) (b) ............................................................... 702(b) (c) ............................................................... 702(c) Section 313(a) ............................................................... 703(a) (b) ............................................................... 703(b) (c) ............................................................... 703(a) ............................................................... 703(b) Section 314(a)(1) ............................................................ 704 (a)(2) ............................................................ 704 (a)(3) ............................................................ 704 (a)(4) ............................................................ 1004 (b) ............................................................ Not Applicable (c)(1) ............................................................ 102 (c)(2) ............................................................ 102 (c)(3) ............................................................ Not Applicable (d) ............................................................ Not Applicable (e) ............................................................ 102 Section 315(a) ............................................................... 601(a) ............................................................... 601(c) (b) ............................................................... 602 ............................................................... 703(a)(6) (c) ............................................................... 601(b) (d) ............................................................... 601 |
(d)(1) ............................................................ 601(a) (d)(2) ............................................................ 601(c)(2) (d)(3) ............................................................ 601(c)(3) (e) ............................................................ 514 Section 316(a) ............................................................ 101 (a)(1)(A).......................................................... 502 .......................................................... 512 (a)(1)(B).......................................................... 513 (a)(2) ............................................................ Not Applicable (b) ............................................................... 508 (c) ............................................................... 104(d) Section 317(a)(1)............................................................. 503 (a)(2)............................................................. 504 (b) ............................................................... 1003 Section 318(a) ............................................................... 107 |
THIS INDENTURE between WESTERN ATLAS INC., a Delaware corporation (hereinafter called the "Company") having its principal office at 360 North Crescent Drive, Beverly Hills, California 90210, and THE BANK OF NEW YORK, a New York banking corporation, as trustee (hereinafter called the "Trustee") is made and entered into as of the 15th day of May, 1994.
Recitals of the Company
The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of its unsecured and unsubordinated debentures, notes, bonds or other evidences of indebtedness, to be issued in one or more fully registered series.
All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done.
Agreements of the Parties
To set forth or to provide for the establishment of the terms and conditions upon which the Securities are and are to be authenticated, issued and delivered, and in consideration of the premises and the purchase of Securities by the Holders thereof, it is mutually covenanted and agreed as follows, for the equal and proportionate benefit of all Holders of the Securities or of a series thereof, as the case may be:
ARTICLE ONE
Definitions and Other Provisions
of General Application
Section 101. Definitions. For all purposes of this Indenture and of any indenture supplemental hereto, except as otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust Indenture Act or by Commission rule under the
Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" or "GAAP" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States of America on May 15, 1994; and
(4) all references in this instrument to designated "Articles", "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this instrument as originally executed. The words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.
Certain terms, used principally in Article Six and Section 1009, are defined in that Article and Section, respectively.
"Act", when used with respect to any Securityholder, has the meaning specified in Section 104.
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Authenticating Agent" means any Person authorized by the Trustee to authenticate Securities under Section 614.
"Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.
"Business Day" means, with respect to any series of Securities, each day which is neither a Saturday, Sunday or other day on which banking institutions in the pertinent Place or Places of Payment are authorized or required by law or executive order to be closed.
"Capital Stock" means, with respect to any corporation, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests (however designated) in stock issued by that corporation.
"Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.
"Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor.
"Company Request", "Company Order" and "Company Consent" mean a written request, order or consent, respectively, signed in the name of the Company by its Chairman of the Board, a Vice Chairman, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee.
"Consolidated Net Assets" means the total amount of assets (less applicable reserves and other properly deductible items) after deducting all current liabilities (excluding the amount of those which are by their terms extendable or renewable at the option of the obligor to a date more than 12 months after the date as of which the amount is being determined), all as set forth on the most recent balance sheet of the Company and its consolidated subsidiaries and determined in accordance with generally accepted accounting principles.
"Corporate Trust Office" means the office of the Trustee in New York, New York at which at any particular time its corporate trust business shall be principally administered, which office at the date hereof is located at 101 Barclay Street-21W, New York, New York 10286.
"Debt" of any Person means at any date, without duplication,
(1) all obligations of such Person for borrowed money, (2) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(3) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable and deferred employee
compensation obligations arising in the ordinary course of business, (4) all
obligations of such Person as lessee which are capitalized in accordance with
GAAP, (5) all unpaid reimbursement obligations of such Person in respect of
letters of credit or similar instruments but only to the extent that either (x)
the issuer has honored a drawing thereunder or (y) payment of such obligation
is otherwise due under the terms thereof, (6) all obligations secured by a Lien
on any asset or property of such Person, whether or not such obligations are
otherwise obligations of such Person, and (7) all Debt of others guaranteed by
such Person.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means, unless otherwise specified by the Company pursuant to either Section 204 or 301, with respect to Securities of any series issuable or issued as a Global Security, The Depository Trust Company, New York, New York, or any successor thereto registered as a clearing agency under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation.
"Event of Default" has the meaning specified in Article Five.
"Funded Debt" of any Person means Debt of such Person that
(i) matures by its terms more than one year after its creation or (ii) is
classified as long-term debt under generally accepted accounting principles
and, in the case of Debt of the Company described in either clause (i) or
clause (ii), ranking at least pari passu with the Securities.
"Global Security", when used with respect to any series of Securities issued hereunder, means a Security which is executed by the Company and authenticated and delivered by the Trustee to the Depositary or pursuant to the Depositary's instruction, all in accordance with this Indenture and an indenture supplemental hereto, if any, or Board Resolution and pursuant to a Company Request, which shall be registered in the name of the Depositary or its nominee and which shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, all of the Outstanding Securities of
such series or any portion thereof, in either case having the same terms, including, without limitation, the same original issue date, date or dates on which principal is due, and interest rate or method of determining interest.
"Holder", when used with respect to any Security, means a Securityholder.
"Indenture" or "this Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of particular series of Securities established as contemplated by Section 301.
"Independent", when used with respect to any specified Person, means such a Person who (1) is in fact independent, (2) does not have any direct financial interest or any material indirect financial interest in the Company or in any other obligor upon the Securities or in any Affiliate of the Company or of such other obligor, and (3) is not connected with the Company or such other obligor or any Affiliate of the Company or of such other obligor, as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions. Whenever it is herein provided that any Independent Person's opinion or certificate shall be furnished to the Trustee, such Person shall be appointed by a Company Order and approved by the Trustee in the exercise of reasonable care, and such opinion or certificate shall state that the signer has read this definition and that the signer is independent within the meaning hereof.
"Interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity.
"Interest Payment Date", when used with respect to any series of Securities, means the Stated Maturity of any installment of interest on those Securities.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or security interest.
"Maturity", when used with respect to any Securities, means the date on which the principal of any such Security becomes due and payable as therein or herein provided, whether on a Repayment Date, at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.
"Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. Wherever this Indenture requires that an Officers' Certificate be signed also by an engineer or an accountant or other expert, such engineer, accountant or other expert (except as otherwise expressly provided in this Indenture) may be in the employ of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may (except as otherwise expressly provided in this Indenture) be an employee of or of counsel to the Company. Such counsel shall be acceptable to the Trustee, whose acceptance shall not be unreasonably withheld.
"Original Issue Discount Security" means (i) any Security
which provides for an amount less than the principal amount thereof to be due
and payable upon a declaration of acceleration of the Maturity thereof, and
(ii) any other Security deemed an Original Issue Discount Security for United
States Federal income tax purposes.
"Outstanding", when used with respect to Securities or Securities of any series, means, as of the date of determination, all such Securities theretofore authenticated and delivered under this Indenture, except:
(i) such Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation;
(ii) such Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent in trust for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and
(iii) such Securities in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, or which shall have been paid pursuant to the terms of Section 306 (except with respect to any such Security as to which proof satisfactory to the Trustee is presented that such Security is held by a person in whose hands such Security is a legal, valid and binding obligation of the Company).
In determining whether the Holders of the requisite principal amount of such Securities Outstanding have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, (i) the principal amount of any Original Issue Discount Security that shall be deemed to be Outstanding shall be the amount of the principal thereof that would be due and payable as of the date of the taking of such action upon a declaration of acceleration of the Maturity thereof and (ii) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding. In determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer assigned to the corporate trust department of the Trustee actually knows to be owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right to act as owner with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. The Company initially authorizes the Trustee to act as Paying Agent for the Securities on its behalf. The Company may at any time and from time to time authorize one or more Persons, including the Company, to act as Paying Agent in addition to or in place of the Trustee with respect to any series of Securities issued under this Indenture.
"Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
"Place of Payment" means with respect to any series of Securities issued hereunder the city or political subdivision so designated with respect to the series of Securities in question in accordance with the provisions of Section 301.
"Predecessor Securities" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Security.
"Preferred Stock" means, as to any Person, capital stock of such Person that has a preference as to dividends or upon liquidation over the common stock of such Person.
"Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed, means the price specified in the Security at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any security on any Interest Payment Date means the date specified in such Security as the Regular Record Date.
"Repayment Date", when used with respect to any Security to be repaid, means the date fixed for such repayment pursuant to such Security.
"Repayment Price", when used with respect to any Security to be repaid, means the price at which it is to be repaid pursuant to such Security.
"Responsible Officer", when used with respect to the Trustee, means the chairman or vice-chairman of the board of directors, the chairman or vice-chairman of the executive committee of the board of directors, the president, any Vice President, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any senior trust officer or trust officer, the controller and any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.
"Restricted Subsidiary" means (i) each of Intermec Corporation, a Washington corporation, and Western Atlas International, Inc., a Delaware corporation, so long as it remains a Subsidiary, or any Subsidiary that is a successor of such Restricted Subsidiary, or (ii) any Subsidiary that owns, directly or indirectly, any single service or manufacturing facility, or portion thereof, the book value of which (after deducting accumulated depreciation) as of the date the determination is being made is greater than 1% of Consolidated Net Assets. As used in this definition, "service or manufacturing facility" means property, plant and equipment (including ships)
used for actual performance of services, such as acquisition or processing of geophysical data, or manufacturing, such as quality assurance, engineering, maintenance, staging areas for work in process materials and manufacturing administration, and it excludes sales offices and facilities used only for general administration.
"Sale and Leaseback Transaction" means any arrangement with
any Person pursuant to which the Company or any Subsidiary leases any asset or
property that has been or is to be sold or transferred by the Company or the
Subsidiary to such Person, other than (1) temporary leases for a term,
including renewals at the option of the lessee, of not more than three years,
(2) leases between the Company and a Subsidiary or between Subsidiaries, (3)
leases of assets or property executed by the time of, or within 12 months after
the latest of, the acquisition the completion of construction or improvement,
or the commencement of commercial operation of such assets or property, and (4)
arrangements pursuant to any provision of law with an effect similar to the
former Section 168(f)(8) of the Internal Revenue Code of 1954.
"Security" or "Securities" means any note or notes, bond or bonds, debenture or debentures, or any other evidences of indebtedness, as the case may be, of any series authenticated and delivered from time to time under this Indenture.
"Security Register" shall have the meaning specified in
Section 305.
"Security Registrar" means the Person who keeps the Security Register specified in Section 305. The Company initially appoints the Trustee to act as Security Registrar for the Securities on its behalf. The Company may at any time and from time to time authorize any Person, including the Company, to act as Security Registrar in place of the Trustee with respect to any series of Securities issued under this Indenture.
"Securityholder" means a Person in whose name a Security is registered in the Security Register.
"Special Record Date" for the payment of any Defaulted Interest (as defined in Section 307) means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" when used with respect to any Security or any installment of principal thereof or interest thereon means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable.
"Subsidiary" of any specified corporation means (i) a corporation, a majority of whose Capital Stock with voting power, under ordinary circumstances, to elect directors is, at the date of determination, directly or indirectly owned by the Company, by one or more Subsidiaries of the Company or by the Company and one or more Subsidiaries of the Company or (ii) a partnership in which the Company or a Subsidiary of the Company is at the date of determination, a general partner of such partnership, or (iii) any other Person (other than a corporation or a partnership) in which the Company, a Subsidiary of the Company or the Company and one or more Subsidiaries of the Company, directly or indirectly, at the date of determination, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority of the directors or other governing body of such Person.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act
of 1939, as amended by the Trust Indenture Reform Act of 1990, and as in force
at the date as of which this instrument was executed except as provided in
Section 905.
"Trustee" means the Person named as the Trustee in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean and include each Person who is then a Trustee hereunder. If at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series.
"Value" means, with respect to a Sale and Leaseback Transaction, an amount equal to the present value of the lease payments with respect to the term of the lease remaining on the date as of which the amount is being determined, without regard to any renewal or extension options contained in the lease, discounted at the weighted average interest rate on the Securities of all series (including the effective interest rate on any Original Issue Discount Securities) which are outstanding on the effective date of such Sale and Leaseback Transaction and which have the benefit of Section 1007.
"Vice President" when used with respect to the Company or the Trustee means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president", including, without limitation, an assistant vice president.
Section 102. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any (including any covenants compliance with which constitutes a condition precedent), provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such Counsel all such conditions precedent, if any (including any covenants compliance with which constitutes a condition precedent), have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than annual statements of compliance provided pursuant to Section 1004) shall include
(1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
Section 103. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons may certify or give an opinion as to the other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
Section 104. Acts of Securityholders. (a) Any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be given or taken by Securityholders or
Securityholders of any series may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Securityholders in
person or by an agent duly appointed in writing; and, except as herein
otherwise expressly provided, such action shall become effective when such
instrument or instruments are delivered to the Trustee, and, where it is hereby
expressly required, to the Company. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Securityholders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and (subject to
Section 601) conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness to such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by an officer of a corporation or a member of a partnership, on behalf of such corporation or partnership, such certificate or affidavit shall also
constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the person executing the same, may also be proved in any other manner which the Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the Security Register.
(d) If the Company shall solicit from the Holders any
request, demand, authorization, direction, notice, consent, waiver or other
action, the Company may, at its option, by Board Resolution, fix in advance a
record date for the determination of Holders entitled to give such request,
demand, authorization, direction, notice, consent, waiver or other action, but
the Company shall have no obligation to do so. Such record date shall be the
later of 10 days prior to the first solicitation of such action or the date of
the most recent list of Holders furnished to the Trustee pursuant to Section
701. If such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other action may be given before or after
the record date, but only the Holders of record at the close of business on the
record date shall be deemed to be Holders for the purposes of determining
whether Holders of the requisite proportion of Securities Outstanding have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other action, and for that purpose the
Securities Outstanding shall be computed as of the record date; provided that
no such authorization, agreement or consent by the Holders on the record date
shall be deemed effective unless it shall become effective pursuant to the
provisions of this Indenture not later than six months after the record date,
and that no such authorization, agreement or consent may be amended, withdrawn
or revoked once given by a Holder, unless the Company shall provide for such
amendment, withdrawal or revocation in conjunction with such solicitation of
authorizations, agreements or consents or unless and to the extent required by
applicable law.
(e) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Security shall bind the Holder of every Security issued upon the transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Company in reliance thereon whether or not notation of such action is made upon such Security.
Section 105. Notices. etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Securityholders or other document provided or
permitted by this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Securityholder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Trustee Administration, or
(2) the Company by the Trustee or by any Securityholder shall be sufficient for every purpose hereunder (except as provided in Section 501(4) or, in the case of a request for repayment, as specified in the Security carrying the right to repayment) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument, Attention: Treasurer, or at any other address previously furnished in writing to the Trustee by the Company.
Section 106. Notices to Securityholders; Waiver. Where this Indenture or any Security provides for notice to Securityholders of any event, such notice shall be sufficiently given (unless otherwise herein or in such Security expressly provided) if in writing and mailed, first-class postage prepaid, to each Securityholder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Securityholders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Securityholder shall affect the sufficiency of such notice with respect to other Securityholders. Where this Indenture or any Security provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Securityholders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a result of a strike, work stoppage or otherwise, it shall be impractical to mail notice of any event to any Securityholder when such notice is required to be given pursuant to any provision of this Indenture, then any method of notification as shall be satisfactory to the Trustee and the Company shall be deemed to be a sufficient giving of such notice.
Section 107. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with the duties imposed by any of Sections 310 to 317, inclusive, of the Trust Indenture Act through operation of Section 318(c) thereof, such imposed duties shall control.
Section 108. Effect of Heading and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
Section 109. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.
Section 110. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Section 111. Benefits of Indenture. Nothing in this Indenture or in any Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any Authenticating Agent or Paying Agent, the Security Registrar and the Holders of Securities (or such of them as may be affected thereby), any benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 112. Governing Law. This Indenture shall be construed in accordance with and governed by the laws of the State of New York, without regard to conflicts of laws principles thereof.
Section 113. Counterparts. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
Section 114. Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect (including with respect to the accrual of interest) as if made on the Interest Payment Date, Redemption Date or at the Stated Maturity.
ARTICLE TWO
Security Forms
Section 201. Forms Generally. The Securities shall have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon, as may be required to comply with the rules of any securities exchange, or as may, consistently herewith, be determined by the officer executing such Securities, as evidenced by such officer's execution of the Securities. Any portion of the text of any Security may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner, all as determined by the officer executing such Securities, as evidenced by such officer's execution of such Securities, subject, with respect to the Securities of any series, to the rules of any securities exchange on which such Securities are listed.
Section 202. Forms of Securities. Each Security shall be in one of the forms approved from time to time by or pursuant to a Board Resolution, or established in one or more indentures supplemental hereto. Prior to the delivery of a Security to the Trustee for authentication in any form approved by or pursuant to a Board Resolution, the Company shall deliver to the Trustee the Board Resolution by or pursuant to which such form of Security has been approved, which Board Resolution shall have attached thereto a true and correct copy of the form of Security which has been approved thereby or, if a Board Resolution authorizes a specific officer or officers to approve a form of Security, a certificate of such officer or officers approving the form of Security attached thereto. Any form of Security approved by or pursuant to a Board Resolution must be acceptable as to form to the Trustee, such acceptance to be evidenced by the Trustee's authentication of Securities in that form or a certificate signed by a Responsible Officer of the Trustee and delivered to the Company.
Section 203. Form of Trustee's Certificate of Authentication. The form of Trustee's Certificate of Authentication for any Security issued pursuant to this Indenture shall be substantially as follows:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned Indenture.
The Bank of New York, as Trustee,
Section 204. Securities Issuable in the Form of a Global Security. (a) If the Company shall establish pursuant to Sections 202 and 301 that the Securities of a particular series are to be issued in whole or in part in the form of one or more Global Securities, then the Company shall execute and the Trustee or its agent shall, in accordance with Section 303 and the Company Order delivered to the Trustee or its agent thereunder, authenticate and make available for delivery, such Global Security or Securities, which (i) shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, the Outstanding Securities of such series to be represented by such Global Security or Securities, or such portion thereof as the Company shall specify in a Company Order, (ii) shall be registered in the name of the Depositary for such Global Security or Securities or its nominee, (iii) shall be delivered by the Trustee or its agent to the Depositary or pursuant to the Depositary's instruction and (iv) shall bear a legend substantially to the following effect: "Unless this certificate is presented by an authorized representative of the Depositary to Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of the nominee of the Depositary or in such other name as is requested by an authorized representative of the Depositary (and any payment is made to the nominee of the Depositary or to such other entity as is requested by an authorized representative of the Depositary), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, the nominee of the Depositary, has an interest herein."
(b) Notwithstanding any other provision of this Section 204 or of Section 305, and subject to the provisions of paragraph (c) below, unless the terms of a Global Security expressly permit such Global Security to be exchanged in whole or in part for individual Securities, a Global Security may be
transferred, in whole but not in part and in the manner provided in Section 305, only to a nominee of the Depositary for such Global Security, or to the Depositary, or a successor Depositary for such Global Security selected or approved by the Company, or to a nominee of such successor Depositary.
(c) (i) If at any time the Depositary for a Global Security notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security or if at any time the Depositary for the Securities for such series shall no longer be eligible or in good standing under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation, the Company shall appoint a successor Depositary with respect to such Global Security. If a successor Depositary for such Global Security is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Company will execute, and the Trustee or its agent, upon receipt of a Company Request for the authentication and delivery of individual Securities of such series in exchange for such Global Security, will authenticate and make available for delivery individual Securities of such series of like tenor and terms in an aggregate principal amount equal to the principal amount of the Global Security in exchange for such Global Security.
(ii) The Company may at any time and in its sole discretion determine that the Securities of any series or portion thereof issued or issuable in the form of one or more Global Securities shall no longer be represented by such Global Security or Securities. In such event the Company will execute, and the Trustee, upon receipt of a Company Request for the authentication and delivery of individual Securities of such series in exchange in whole or in part for such Global Security, will authenticate and make available for delivery individual Securities of such series of like tenor and terms in definitive form in an aggregate principal amount equal to the principal amount of such Global Security or Securities representing such series or portion thereof in exchange for such Global Security or Securities.
(iii) If specified by the Company pursuant to Sections 202 and 301 with respect to Securities issued or issuable in the form of a Global Security, the Depositary for such Global Security may surrender such Global Security in exchange in whole or in part for individual Securities of such series of like tenor and terms in definitive form on such terms as are acceptable to the Company and such Depositary. Thereupon the Company shall execute, and the Trustee or its agent shall authenticate and make available for delivery, without service charge, (1) to each Person specified by such Depositary a new
Security or Securities of the same series of like tenor and terms and of any authorized denomination as requested by such Person in aggregate principal amount equal to and in exchange for such Person's beneficial interest as specified by such Depositary in the Global Security; and (2) to such Depositary a new Global Security of like tenor and terms and in an authorized denomination equal to the difference, if any, between the principal amount of the surrendered Global Security and the aggregate principal amount of Securities delivered to Holders thereof.
(iv) In any exchange provided for in any of the preceding three paragraphs, the Company will execute and the Trustee or its agent will authenticate and make available for delivery individual Securities in definitive registered form in authorized denominations. Upon the exchange of the entire principal amount of a Global Security for individual Securities, such Global Security shall be cancelled by the Trustee or its agent. Except as provided in the preceding paragraph, Securities issued in exchange for a Global Security pursuant to this Section shall be registered in such names and in such authorized denominations as the Depositary for such Global Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee or the Security Registrar. The Trustee shall deliver at its Corporate Trust Office such Securities to the Persons in whose names such Securities are so registered.
ARTICLE THREE
The Securities
Section 301. General Title; General Limitations; Issuable in Series; Terms of Particular Series. The aggregate principal amount of Securities which may be authenticated and delivered and Outstanding under this Indenture is not limited.
The Securities may be issued in one or more series up to an aggregate principal amount of Securities as from time to time may be authorized by the Board of Directors. All Securities of each series under this Indenture shall in all respects be equally and ratably entitled to the benefits hereof with respect to such series without preference, priority or distinction on account of the actual time of the authentication and delivery or Stated Maturity of the Securities of such series.
Each series of Securities shall be created either by or pursuant to a Board Resolution or by an indenture supplemental hereto. The Securities of each such series may bear such
date or dates, be payable at such place or places, have such Stated Maturity or Maturities, be issuable at such premium over or discount from their principal amount, bear interest at such rate or rates, from such date or dates, payable in such installments and on such dates and at such place or places to the Holders of Securities registered as such on such Regular Record Dates, or may bear no interest, and may be redeemable or repayable at such Redemption Price or Prices or Repayment Price or Prices, as the case may be, whether at the option of the Holder or otherwise, and upon such terms, all as shall be provided for in or pursuant to the Board Resolution or in the supplemental indenture creating that series. There may also be established in or pursuant to a Board Resolution or in a supplemental indenture prior to the issuance of Securities of each such series, provision for:
(1) the exchange or conversion of the Securities of that series, at the option of the Holders thereof, for or into new Securities of a different series or other securities except shares of capital stock of the Company or any subsidiary of the Company or securities directly or indirectly convertible into or exchangeable for any such shares;
(2) a sinking or purchase fund or other analogous obligation;
(3) a limitation on the aggregate principal amount of the Securities of that series;
(4) the appointment by the Trustee of an Authenticating Agent in one or more places other than the location of the office of the Trustee with power to act on behalf of the Trustee and subject to its direction in the authentication and delivery of the Securities of any one or more series in connection with such transactions as shall be specified in the provisions of this Indenture or in or pursuant to the Board Resolution or the supplemental indenture creating such series;
(5) the portion of the principal amount of Securities of the series, if other than the principal amount thereof, which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502 or provable in bankruptcy pursuant to Section 504;
(6) any Event of Default with respect to the Securities of such series, if not set forth herein, and any additions, deletions or other changes to the Events of Default set forth herein that shall be applicable to the Securities of such series;
(7) any covenant solely for the benefit of the Securities of such series and any additions, deletions or other changes to the provisions of Sections 1006, 1007, 1008 and 1009 that shall be applicable to the Securities of that series;
(8) the inapplicability of section 403 of this Indenture to the Securities of such series and any covenant with respect to Section 403(b) established in or pursuant to a Board Resolution or in a supplemental indenture as described above that has not already been established herein;
(9) if the Securities of the series shall be issued in whole or in part in the form of a Global Security or Securities, the terms and conditions, if any, upon which such Global Security or Securities may be exchanged in whole or in part for other individual Securities; and the Depositary for such Global Security or Securities; and
(10) any other terms of the series,
all upon such terms as may be determined in or pursuant to a Board Resolution or in a supplemental indenture with respect to such series. All Securities of the same series shall be substantially identical in tenor and effect except as to denomination and except if issued pursuant to Section 311.
The form of the Securities of each series shall be established pursuant to the provisions of this Indenture in or pursuant to the Board Resolution or in the supplemental indenture creating such series. The Securities of each series shall be distinguished from the Securities of each other series in such manner, reasonably satisfactory to the Trustee, as the Board of Directors may determine.
Unless otherwise provided with respect to Securities of a particular series, the Securities of any series may only be issuable in registered form, without coupons.
Any terms or provisions in respect of the Securities of any series issued under this Indenture may be determined pursuant to this Section by providing for the method by which such terms or provisions shall be determined.
Section 302. Denominations. The Securities of each series shall be issuable in such denominations as shall be provided in the provisions of this Indenture or in or pursuant to the Board Resolution or the supplemental indenture creating such series. In the absence of any such provisions with respect to the Securities of any series, the Securities of that series shall be issuable only in fully registered form in denominations of $1,000 and any integral multiple thereof.
Section 303. Execution, Authentication and Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman, its President or one of its Vice Presidents. The signature of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication; and the Trustee shall, upon Company Order, authenticate and make available for delivery such Securities as in this Indenture provided and not otherwise.
Prior to any such authentication and delivery, the Trustee shall be entitled to receive, in addition to any Officers' Certificate and Opinion of Counsel required to be furnished to the Trustee pursuant to Section 102, and the Board Resolution and any certificate relating to the issuance of the series of Securities required to be furnished pursuant to Section 202, an Opinion of Counsel stating that:
(1) all instruments furnished to the Trustee conform to the requirements of the Indenture and constitute sufficient authority hereunder for the Trustee to authenticate and deliver such Securities;
(2) the form and terms of such Securities have been established in conformity with the provisions of this Indenture;
(3) all laws and requirements with respect to the execution and delivery by the Company of such Securities have been complied with, the Company has the corporate power to issue such Securities and such Securities have
been duly authorized and delivered by the Company and, assuming due authentication and delivery by the Trustee, constitute legal, valid and binding obligations of the Company enforceable in accordance with their terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws and legal principles affecting creditors' rights generally from time to time in effect and to general equitable principles, whether applied in an action at law or in equity) and entitled to the benefits of this Indenture, equally and ratably with all other Securities, if any, of such series Outstanding;
(4) the Indenture is qualified under the Trust Indenture Act; and
(5) such other matters as the Trustee may reasonably request;
and, if the authentication and delivery relates to a new series of Securities created by an indenture supplemental hereto, also stating that all laws and requirements with respect to the form and execution by the Company of the supplemental indenture with respect to that series of Securities have been complied with, the Company has corporate power to execute and deliver any such supplemental indenture and has taken all necessary corporate action for those purposes and any such supplemental indenture has been executed and delivered and constitutes the legal, valid and binding obligation of the Company enforceable in accordance with its terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws and legal principles affecting creditors' rights generally from time to time in effect and to general equitable principles, whether applied in an action at law or in equity) and, if the authentication and delivery relates to Securities of a series issued pursuant to Section 311, paragraphs (2) and (3) of the foregoing opinion shall read as follows:
"(2) the form of such Securities and the procedures for determining the terms of such Securities as set forth in the procedures relating thereto referred to in Section 311 have been established in conformity with the provisions of this Indenture; and
(3) all laws and requirements with respect to the execution and delivery by the Company of such Securities have been complied with, the Company has the corporate power to issue such Securities and such Securities have been duly authorized by the Company and when duly executed
by the Company and completed and authenticated in accordance with the Indenture and issued, delivered and paid for in accordance with the applicable selling agency or distribution agreement, will have been duly issued under the Indenture and will constitute the legal, valid and binding obligations of the Company enforceable in accordance with their terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws and legal principles affecting creditors' rights generally from time to time in effect and to general equitable principles, whether applied in an action at law or in equity) and entitled to the benefits of this Indenture, equally and ratably with all other Securities, if any, of such series Outstanding."
The Trustee shall not be required to authenticate such Securities if the issue thereof will adversely affect the Trustee's own rights, duties or immunities under the Securities and this Indenture.
Unless otherwise provided in the form of Security for any series, all Securities shall be dated the date of their authentication.
No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder.
Section 304. Temporary Securities. Pending the preparation of definitive Securities of any series, the Company may execute, and, upon receipt of the documents required by Section 303, together with a Company Order, the Trustee shall authenticate and make available for delivery, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Company will cause definitive Securities of such series to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities of such series
shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment, without charge to the Holder; and upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor a like principal amount of definitive Securities of such series of authorized denominations and of like tenor and terms. Until so exchanged the temporary Securities of such series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series.
Section 305. Registration, Transfer and Exchange. The Company shall keep or cause to be kept a register or registers (herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities, or of Securities of a particular series, and for transfers of Securities or of Securities of such series. Any such register shall be in written form or in any other form capable of being converted into written form within a reasonable time. At all reasonable times the information contained in such register or registers shall be available for inspection by the Trustee at the office or agency to be maintained by the Company as provided in Section 1002. There shall be only one Security Register per series of Securities.
Subject to Section 204, upon surrender for transfer of any Security of any series at the office or agency of the Company in a Place of Payment, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of such series of any authorized denominations, of a like aggregate principal amount and Stated Maturity and of like tenor and terms.
Subject to Section 204, at the option of the Holder, Securities of any series may be exchanged for other Securities of such series of any authorized denominations, of a like aggregate principal amount and Stated Maturity and of like tenor and terms, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Securities which the Securityholder making the exchange is entitled to receive.
All Securities issued upon any transfer or exchange of Securities shall be the valid obligations of the Company,
evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such transfer or exchange.
Every Security presented or surrendered for transfer or exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing.
Unless otherwise provided in the Security to be transferred or exchanged, no service charge shall be made on any Securityholder for any transfer or exchange of Securities, but the Company may (unless otherwise provided in such Security) require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Securities, other than exchanges pursuant to Section 304 or 906 not involving any transfer.
The Company shall not be required (i) to issue, transfer or exchange any Security of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of such series selected for redemption under Section 1103 and ending at the close of business on the date of such mailing, or (ii) to transfer or exchange any Security so selected for redemption in whole or in part.
None of the Company, the Trustee, any agent of the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
Section 306. Mutilated, Destroyed, Lost and Stolen Securities. If (i) any mutilated Security is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and (ii) there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Security, a new Security of
like tenor, series, stated maturity and principal amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of the same series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 307. Payment of Interest; Interest Rights Preserved. Unless otherwise provided with respect to such Security pursuant to Section 301, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record Date by virtue of his having
been such Holder; and, except as hereinafter provided, such Defaulted Interest
may be paid by the Company, at its election in each case, as provided in Clause
(1) or Clause (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names any such Securities (or their respective Predecessor Securities) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each such Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to the Holder of each such Security at such Holder's address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names such Securities (or their respective Predecessor Securities) are registered on such Special Record Date and shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee.
If any installment of interest the Stated Maturity of which is on or prior to the Redemption Date for any Security called for redemption pursuant to Article Eleven is not paid or duly provided for on or prior to the Redemption Date in accordance with the foregoing provisions of this Section, such interest shall be payable as part of the Redemption Price of such Securities.
Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.
Section 308. Persons Deemed Owners. The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any), and (subject to Section 307) interest on, such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.
Section 309. Cancellation. All Securities surrendered for payment, redemption, transfer, or exchange or credit against a sinking fund shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and, if not already cancelled, shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. No Security shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. The Trustee shall deliver all cancelled Securities to the Company.
Section 310. Computation of Interest. Unless otherwise provided as contemplated in Section 301, interest on the Securities shall be calculated on the basis of a 360-day year of twelve 30-day months.
Section 311. Medium-Term Securities. Notwithstanding any contrary provision herein, if all Securities of a series are not to be originally issued at one time, it shall not be necessary for the Company to deliver to the Trustee an Officers' Certificate, Board Resolution, supplemental indenture, Opinion of Counsel or Company Order otherwise required pursuant to Sections 102, 202, 301 and 303 at or prior to the time of authentication of each Security of such series if such documents are delivered to the Trustee or its agent at or prior to the authentication upon original issuance of the first Security of such series to be issued; provided that any subsequent request by the Company to the Trustee to authenticate Securities of such series upon original issuance shall constitute a representation and warranty by the Company that as of the date of such request, the statements made in the Officers' Certificate
or other certificates delivered pursuant to Sections 102 and 202 shall be true and correct as if made on such date.
A Company Order, Officers' Certificate or Board Resolution or supplemental indenture delivered by the Company to the Trustee in the circumstances set forth in the preceding paragraph may provide that Securities which are the subject thereof will be authenticated and delivered by the Trustee or its agent on original issue from time to time in the aggregate principal amount established for such series pursuant to such procedures acceptable to the Trustee as may be specified from time to time by Company Order upon the telephonic, electronic or written order of persons designated in such Company Order, Officers' Certificate, supplemental indenture or Board Resolution (any such telephonic or electronic instructions to be promptly confirmed in writing by such persons) and that such persons are authorized to determine, consistent with such Company Order, Officers' Certificate, supplemental indenture or Board Resolution, such terms and conditions of said Securities as are specified in such Company Order, Officers' Certificate, supplemental indenture or Board Resolution.
Section 312. CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers.
ARTICLE FOUR
Satisfaction and Discharge
Section 401. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect with respect to any series of Securities (except as to any surviving rights of conversion or transfer or exchange of Securities of such series expressly provided for herein or in the form of Security for such series), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such series, when
(1) either
(A) all Securities of that series theretofore authenticated
and delivered (other than (i) Securities of such series which have been
destroyed, lost or stolen and which have been replaced or paid as provided in
Section 306, and (ii) Securities of such series for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such trust, as
provided in Section 1003) have been delivered to the Trustee cancelled or for
cancellation; or
(B) all such Securities of that series not theretofore delivered to the Trustee cancelled or for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within one year, or
(iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount, which shall be immediately due and payable, sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee cancelled or for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable), or to the Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable hereunder by the Company with respect to the Securities of such series; and
(3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture with respect to the Securities of such series have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture with respect to any series of Securities, the obligations of the Company to the Trustee with respect to that series under Section 607 shall survive and the obligations of the Trustee under Sections 402 and 1003 shall survive.
Section 402. Application of Trust Money. All money deposited with the Trustee pursuant to Section 401 or Section 403 shall be held in trust and applied by it, in accordance with the provisions of the series of Securities in respect of which it was deposited and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law.
Section 403. Defeasance Upon Deposit of Funds or Government
Obligations. Unless pursuant to Section 301 provision is made that this Section
shall not be applicable to the Securities of any series, at the Company's
option, either (a) the Company shall be deemed to have been Discharged (as
defined below) from its obligations with respect to any series of Securities
after the applicable conditions set forth below have been satisfied or (b) the
Company shall cease to be under any obligation to comply with any term,
provision or condition set forth in Sections 1006, 1007, 1008 and 1009 (and any
other provisions applicable to such Securities that are determined pursuant to
Section 301 to be subject to this provision) with respect to any series of
Securities at any time after the applicable conditions set forth below have been
satisfied:
(1) the Company shall have deposited or caused to be deposited
irrevocably with the Trustee as trust funds in trust, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of the Securities of such series (i) money in an amount, or
(ii) the equivalent in direct obligations of, or obligations the
principal of and interest on which are fully guaranteed by, the United
States of America which through the payment of interest and principal
in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any payment, money in an
amount, or (iii) a combination of (i) and (ii), sufficient, in the
opinion (with respect to (ii) and (iii)) of a nationally recognized
firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge
each installment of principal (including manda-
tory sinking fund payments) and any premium of, interest on and any repurchase obligations with respect to the outstanding Securities of such series on the dates such installments of interest or principal or repurchase obligations are due;
(2) no Event of Default or event (including such deposit) which with notice or lapse of time would become an Event of Default with respect to the Securities of such series shall have occurred and be continuing on the date of such deposit; and
(3) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that Holders of the Securities of such series
will not recognize income, gain or loss for Federal income tax purposes
as a result of the Company's exercise of its option under this Section
403 and will be subject to Federal income tax on the same amount and in
the same manner and at the same times as would have been the case if
such option had not been exercised, and, in the case of Securities
being Discharged, such opinion shall be based upon at least one of the
following authorities (issued, enacted or promulgated after the date of
this Indenture), substantially on point and to the foregoing effect:
(i) a public ruling of the Internal Revenue Service, (ii) a private
ruling of the Internal Revenue Service issued to the Company with
respect to the Securities, (iii) a provision of the Internal Revenue
Code, or (iv) a final regulation promulgated by the Department of the
Treasury.
"Discharged" means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by, and obligations under, the Securities of such series and to have satisfied all the obligations under this Indenture relating to the Securities of such series (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except (A) the rights of Holders of Securities to receive, from the trust fund described in clause (1) above, payment of the principal and any premium of and any interest on such Securities when such payments are due; (B) the Company's obligations with respect to such Securities under Sections 305, 306, 402, 1002 and 1003; and (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder.
The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the direct obligations of, or obligations the principal
of and interest on which are fully guaranteed by, the United States of America, deposited pursuant to Section 403 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of outstanding Securities.
ARTICLE FIVE
Remedies
Section 501. Events of Default. "Event of Default", wherever used herein, means with respect to any series of Securities any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), unless such event is either inapplicable to a particular series or it is specifically deleted or modified in or pursuant to the supplemental indenture or Board Resolution creating such series of securities or in the form of Security for such series:
(1) default in the payment of any interest upon any Security of that series when it becomes due and payable, and continuance of such default for a period of 30 days; or
(2) default in the payment of the principal of (or premium, if any, on) any Security of that series at its Maturity; or
(3) default in the payment of any sinking or purchase fund or analogous obligation when the same becomes due by the terms of the Securities of such series; or
(4) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture in respect of the Securities of such series (other than a covenant or warranty in respect of the Securities of such series a default in the performance of which or the breach of which is elsewhere in this Section specifically dealt with), all of such covenants and warranties in the Indenture which are not expressly stated to be for the benefit of a particular series of Securities being deemed in respect of the Securities of all series for this purpose, and continuance of such default or breach for a period of 90 days after receipt by the Company from the Trustee or by the Company and the Trustee from the Holders of at
least 25% in principal amount of the Outstanding Securities of such series, a written notice, by registered or certified mail, specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or
(5) the entry of an order for relief against the Company under the Federal Bankruptcy Code by a court having jurisdiction in the premises or a decree or order by a court having jurisdiction in the premises adjudging the Company a bankrupt or insolvent under any other applicable Federal or State law, or the entry of a decree or order approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under the Federal Bankruptcy Code or any other applicable Federal or State law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 90 consecutive days; or
(6) the consent by the Company to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Code or any other applicable Federal or State law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or
(7) any other Event of Default provided in the supplemental indenture or Board Resolution under which such series of Securities is issued or in the form of Security for such series.
Section 502. Acceleration of Maturity; Rescission and
Annulment. If an Event of Default described in paragraph (1), (2), (3), (4) or
(7) (if the Event of Default under paragraph (4) or (7) is with respect to less
than all series of Securities then Outstanding) of Section 501 occurs and is
continuing with respect to any series, then and in each and every such case,
unless the principal of all the Securities of such
series shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Securities of such series then Outstanding hereunder (each such series acting as a separate class), by notice in writing to the Company (and to the Trustee if given by Holders), may declare the principal amount (or, if the Securities of such series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all the Securities of such series and all accrued interest thereon to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Securities of such series contained to the contrary notwithstanding. If an Event of Default described in paragraph (4) or (7) (if the Event of Default under paragraph (4) or (7) is with respect to all series of Securities then Outstanding), (5) or (6) of Section 501 occurs and is continuing, then and in each and every such case, unless the principal of all the Securities shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of all the Securities then Outstanding hereunder (treated as one class), by notice in writing to the Company (and to the Trustee if given by Holders), may declare the principal amount (or, if any Securities are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms thereof) of all the Securities then Outstanding and all accrued interest thereon to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Securities contained to the contrary notwithstanding.
At any time after such a declaration of acceleration has been made with respect to the Securities of any or all series, as the case may be, and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of such series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum sufficient to pay
(A) all overdue installments of interest on the Securities of such series,
(B) the principal of (and premium, if any, on) any Securities of such series which have become
due otherwise than by such declaration of acceleration, and interest thereon at the rate or rates prescribed therefor by the terms of the Securities of such series, to the extent that payment of such interest is lawful,
(C) interest upon overdue installments of interest at the rate or rates prescribed therefor by the terms of the Securities of such series to the extent that payment of such interest is lawful, and
(D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due the Trustee under Section 607;
and
(2) all Events of Default with respect to such series of Securities, other than the nonpayment of the principal of the Securities of such series which have become due solely by such acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right consequent thereon.
Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if
(1) default is made in the payment of any installment of interest on any Security of any series when such interest becomes due and payable, or
(2) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, or
(3) default is made in the payment of any sinking or purchase fund or analogous obligation when the same becomes due by the terms of the Securities of any series,
and any such default continues for any period of grace provided with respect to the Securities of such series, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holder of any such Security (or the Holders of any such series in the case of Clause (3) above), the whole amount then due and payable on any such Security (or on the Securities of any such series in the case of Clause (3) above) for principal
(and premium, if any) and interest, with interest, to the extent that payment of such interest shall be legally enforceable, upon the overdue principal (and premium, if any) and upon overdue installments of interest, at such rate or rates as may be prescribed therefor by the terms of any such Security (or of Securities of any such series in the case of Clause (3) above); and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due the Trustee under Section 607.
If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Securities of such series and collect the money adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated.
If an Event of Default with respect to any series of Securities occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
Section 504. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceedings or otherwise,
(i) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary and advisable in
order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due the Trustee under Section 607) and of the Securityholders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Securityholder to make such payment to the Trustee and in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding.
Section 505. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities of any series may be prosecuted and enforced by the Trustee without the possession of any of the Securities of such series or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision, for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel and any other amounts due the Trustee under Section 607, be for the ratable benefit of the Holders of the Securities of the series in respect of which such judgment has been recovered.
Section 506. Application of Money Collected. Any money collected by the Trustee with respect to a series of Securities pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal
(or premium, if any) or interest, upon presentation of the Securities of such series and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607.
SECOND: To the payment of the amounts then due and unpaid upon the Securities of that series for principal (and premium, if any) and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively.
THIRD: Any remaining money shall be returned to the Company.
Section 507. Limitation on Suits. No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to Securities of such series;
(2) the Holders of not less than 25% in principal amount of the Outstanding Securities of such series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of such series;
it being understood and intended that no one or more Holders of Securities of such series shall have any right in any manner whatever by virtue of, or by availing of, any provision of this indenture to affect, disturb or prejudice the rights of any other Holders of Securities of such series, or to obtain or to seek to obtain priority or preference over any other such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and proportionate benefit of all the Holders of all Securities of such series.
Section 508. Unconditional Right of Securityholders To Receive Principal, Premium and Interest. Notwithstanding any other provisions in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 307) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption or repayment, on the Redemption Date or Repayment Date, as the case may be) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder.
Section 509. Restoration of Rights and Remedies. If the Trustee or any Securityholder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, then and in every such case the Company, the Trustee and the Securityholders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Securityholders shall continue as though no such proceeding had been instituted.
Section 510. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Trustee or to the Securityholders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy, except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306 hereof.
Section 511. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Securityholders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Securityholders, as the case may be.
Section 512. Control by Securityholders. The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Securities of such series, provided that
(1) the Trustee shall have the right to decline to follow any such direction if the Trustee, being advised by counsel, determines that the action so directed may not lawfully be taken or would conflict with this Indenture or if the Trustee in good faith shall, by a Responsible Officer, determine that the proceedings so directed would involve it in personal liability or be unjustly prejudicial to the Holders not taking part in such direction, and
(2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.
Section 513. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to such series and its consequences, except a default not theretofore cured
(1) in the payment of the principal of (or premium, if any) or interest on any Security of such series, or in the payment of any sinking or purchase fund or analogous obligation with respect to the Securities of such series, or
(2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series.
Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture;
but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.
Section 514. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder, or group of Securityholders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities of any series to which the suit relates, or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption or repayment, on or after the Redemption Date or Repayment Date, as the case may be).
Section 515. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
ARTICLE SIX
The Trustee
Section 601. Certain Duties and Responsibilities. (a) Except during the continuance of an Event of Default with respect to any series of Securities,
(1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture with respect to the Securities of such series, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may, with respect to Securities of such series, conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture.
(b) In case an Event of Default with respect to any series of Securities has occurred and is continuing, the Trustee shall exercise with respect to the Securities of such series such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that
(1) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the
Outstanding Securities of any series pursuant to the provisions of
Section 5.12 relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this Indenture with
respect to the Securities of such series; and
(4) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.
Section 602. Notice of Defaults. Within 90 days after the
occurrence of any default hereunder with respect to Securities of any series,
the Trustee shall transmit by mail to all Securityholders of such series, as
their names and addresses appear in the Security Register, notice of such
default hereunder known to the Trustee, unless such default shall have been
cured or waived; provided, however, that, except in the case of a default in the
payment of the principal of (or premium, if any) or interest on any Security of
such series or in the payment of any sinking or purchase fund installment or
analogous obligation with respect to Securities of such series, the Trustee
shall be protected in withholding such notice if and so long as the board of
directors, the executive committee or a trust committee of directors and/or
Responsible Officers of the Trustee in good faith determine that the withholding
of such notice is in the interests of the Securityholders of such series; and
provided, further, that in the case of any default of the character specified in
Section 501(4) with respect to Securities of such series no such notice to
Securityholders of such series shall be given until at least 90 days after the
occurrence thereof. For the purpose of this Section, the term "default", with
respect to Securities of any series, means any event which is, or after notice
or lapse of time or both would become, an Event of Default with respect to
Securities of such series.
Section 603. Certain Rights of Trustee. Except as otherwise provided in Section 601:
(a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Securityholders pursuant to this Indenture, unless such Securityholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; and
(h) the Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture.
Section 604. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof.
Section 605. May Hold Securities. The Trustee, any Paying Agent, the Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar or such other agent.
Section 606. Money Held in Trust. Subject to the provisions of
Section 1003 hereof, all moneys received by the Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except to the extent
required by law. The Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed in writing with the
Company.
Section 607. Compensation and Reimbursement. The Company agrees
(1) to pay to the Trustee from time to time such compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and
(3) to indemnify each of the Trustee or any predecessor Trustee for, and to hold it harmless against, any and all losses, damages, claims, liabilities or expenses,
including taxes (other than taxes based upon, measured by, or determined by the income of the Trustee), incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder.
As security for the performance of the obligations of the Company under this Section the Trustee shall have a lien prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (and premium, if any) or interest on particular Securities.
When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 501(5) or Section 501(6), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or State bankruptcy, insolvency or other similar law.
The provisions of this Section shall survive the termination of this Indenture.
Section 608. Disqualification; Conflicting Interests. The Trustee for the Securities of any series issued hereunder shall be subject to the provisions of Section 310(b) of the Trust Indenture Act during the period of time provided for therein. In determining whether the Trustee has a conflicting interest as defined in Section 310(b) of the Trust Indenture Act with respect to the Securities of any series, there shall be excluded this Indenture with respect to Securities of any particular series of Securities other than that series. Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in the second to last paragraph of Section 310(b) of the Trust Indenture Act.
Section 609. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder with respect to each series of Securities, which shall be either
(i) a corporation organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers and subject to supervision or examination by Federal or State authority, or
(ii) a corporation or other Person organized and doing business under the laws of a foreign government that is permitted to act as Trustee pursuant to a rule, regulation or order of the Commission, authorized under such laws to exercise corporate trust powers, and subject to supervision or examination by authority of such foreign government or a political subdivision thereof substantially equivalent to supervision or examination applicable to United States institutional trustees,
in either case having a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Neither the Company nor any person directly or indirectly controlling, controlled by, or under common control with the Company shall serve as trustee for the Securities of any series issued hereunder. If at any time the Trustee with respect to any series of Securities shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect specified in Section 610.
Section 610. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign with respect to any series of Securities at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed with respect to any series of Securities at any time by Act of the Holders of a majority in principal amount of the Outstanding Securities of that series, delivered to the Trustee and to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of removal, the Trustee subject to removal may petition any court of competent jurisdiction for the appointment of a successor Trustee.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 310(b) of the Trust Indenture Act pursuant to Section 608 with respect to any series of Securities after written request therefor by the Company or by any Securityholder who has been a bona fide Holder of a Security of that series for at least 6 months, or
(2) the Trustee shall cease to be eligible under Section 609 with respect to any series of Securities and shall fail to resign after written request therefor by the Company or by any such Securityholder, or
(3) the Trustee shall become incapable of acting with respect to any series of Securities, or
(4) the Trustee shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, with respect to the series, or in the case of Clause (4), with respect to all series, or (ii) subject to Section 514, any Securityholder who has been a bona fide Holder of a Security of such series for at least 6 months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee with respect to the series, or, in the case of Clause (4), with respect to all series.
(e) If the Trustee shall resign, be removed or become incapable of acting with respect to any series of Securities, or if a vacancy shall occur in the office of the Trustee with respect to any series of Securities for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee for that series of Securities. If, within one year after such resignation, removal or incapacity, or the occurrence of such vacancy, a successor Trustee with respect to such series of Securities shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee with respect to such series and supersede the successor Trustee appointed by the Company with respect to such series.
If no successor Trustee with respect to such series shall have been so appointed by the Company or the Securityholders of such series and accepted appointment in the manner hereinafter provided, subject to Section 514, any Securityholder who has been a bona fide Holder of a Security of that series for at least 6 months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to such series.
(f) The Company shall give notice of each resignation and each removal of the Trustee with respect to any series and each appointment of a successor Trustee with respect to any series by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Securities of that series as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee and the address of its principal Corporate Trust Office.
Section 611. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the predecessor Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the predecessor Trustee shall become effective with respect to any series as to which it is resigning or being removed as Trustee, and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the predecessor Trustee with respect to any such series; but, on request of the Company or the successor Trustee, such predecessor Trustee shall, upon payment of its reasonable charges, if any, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the predecessor Trustee, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such predecessor Trustee hereunder with respect to all or any such series, subject nevertheless to its lien, if any, provided for in Section 607. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts.
In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the predecessor Trustee and each successor Trustee with respect to the Securities of any applicable series shall execute and deliver an indenture supplemental hereto which shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the predecessor Trustee with respect to
the Securities of any series as to which the predecessor Trustee is not being succeeded shall continue to be vested in the predecessor Trustee, and shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be Trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee.
No successor Trustee with respect to any series of Securities shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible with respect to that series under this Article.
Section 612. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.
Section 613. Preferential Collection of Claims Against Company. (a) Subject to Subsection (b) of this Section, if the Trustee shall be or shall become a creditor, directly or indirectly, secured or unsecured, of the Company within 3 months prior to a default, as defined in Subsection (c) of this Section, or subsequent to such a default, then, unless and until such default shall be cured, the Trustee shall set apart and hold in a special account for the benefit of the Trustee individually, the Holders of the Securities and the holders of other indenture securities (as defined in Subsection (c) of this Section):
(1) an amount equal to any and all reduction in the amount due and owing upon any claim as such creditor in
respect of principal or interest, effected after the beginning of such 3-month period and valid as against the Company and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in paragraph (2) of this Subsection, or from the exercise of any right of set-off which the Trustee could have exercised if a petition in bankruptcy had been filed by or against the Company upon the date of such default; and
(2) all property received by the Trustee in respect of any claim as such creditor, either as security therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such 3-month period, or an amount equal to the proceeds of any such property, if disposed of, subject, however, to the rights, if any, of the Company and its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the Trustee
(A) to retain for its own account (i) payments made on account of any such claim by any Person (other than the Company) who is liable thereon, and (ii) the proceeds of the bona fide sale of any such claim by the Trustee to a third person, and (iii) distributions made in cash, securities or other property in respect of claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Code or applicable State law;
(B) to realize, for its own account, upon any property held by it as security for any such claim, if such property was so held prior to the beginning of such 3-month period;
(C) to realize, for its own account, but only to the extent of the claim hereinafter mentioned, upon any property held by it as security for any such claim, if such claim was created after the beginning of such 3-month period and such property was received as security therefor simultaneously with the creation thereof, and if the Trustee shall sustain the burden of proving that at the time such property was so received the Trustee had no reasonable cause to believe that a default as defined in Subsection (c) of this Section would occur within 3 months; or
(D) to receive payment on any claim referred to in paragraph (B) or against the release of any property held as security for such claim as provided in paragraph (B) or (C), as the case may be, to the extent of the fair value of such property.
For the purposes of paragraphs (B), (C) and (D), property substituted after the beginning of such 3-month period for property held as security at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and, to the extent that any claim referred to in any of such paragraphs is created in renewal of or in substitution for or for the purpose of repaying or refunding any pre-existing claim of the Trustee as such creditor, such claim shall have the same status as such pre-existing claim.
If the Trustee shall be required to account, the funds and property held in such special account and the proceeds thereof shall be apportioned between the Trustee, the Securityholders and the holders of other indenture securities in such manner that the Trustee, the Securityholders and the holders of other indenture securities realize, as a result of payments from such special account and payments of dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Code or applicable State law, the same percentage of their respective claims, figured before crediting to the claim of the Trustee anything on account of the receipt by it from the Company of the funds and property in such special account and before crediting to the respective claims of the Trustee and the Securityholders and the holders of other indenture securities dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Code or applicable State law, but after crediting thereon receipts on account of the indebtedness represented by their respective claims from all sources other than from such dividends and from the funds and property so held in such special account. As used in this paragraph, with respect to any claim, the term "dividends" shall include any distribution with respect to such claim, in bankruptcy or receivership or proceedings for reorganization pursuant to the Federal Bankruptcy Code or applicable State law, whether such distribution is made in cash, securities, or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim. The court in which such bankruptcy, receivership or proceedings for reorganization is pending shall have jurisdiction (i) to apportion between the Trustee and the Securityholders and the holders of other indenture securities, in accordance with the
provisions of this paragraph, the funds and property held in such special account and proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to the provisions of this paragraph due consideration in determining the fairness of the distributions to be made to the Trustee and the Securityholders and the holders of other indenture securities with respect to their respective claims, in which event it shall not be necessary to liquidate or to appraise the value of any securities or other property held in such special account or as security for any such claim, or to make a specific allocation of such distributions as between the secured and unsecured portions of such claims, or otherwise to apply the provisions of this paragraph as a mathematical formula.
Any Trustee which has resigned or been removed after the beginning of such 3-month period shall be subject to the provisions of this Subsection as though such resignation or removal had not occurred. If any Trustee has resigned or been removed prior to the beginning of such 3-month period, it shall be subject to the provisions of this Subsection if and only if the following conditions exist:
(i) the receipt of property or reduction of claim, which would have given rise to the obligation to account, if such Trustee had continued as Trustee, occurred after the beginning of such 3-month period; and
(ii) such receipt of property or reduction of claim occurred within 3 months after such resignation or removal.
(b) There shall be excluded from the operation of Subsection
(a) of this Section a creditor relationship arising from
(1) the ownership or acquisition of securities issued under any indenture, or any security or securities having a maturity of one year or more at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court of competent jurisdiction, or by this Indenture, for the purpose of preserving any property which shall at any time be subject to the lien of this Indenture or of discharging tax liens or other prior liens or encumbrances thereon, if notice of such advances and of the circumstances surrounding the making thereof is given to the Securityholders at the time and in the manner provided in this Indenture;
(3) disbursements made in the ordinary course of business in the capacity of trustee under an indenture, transfer agent, registrar, custodian, paying agent, fiscal agent or depository, or other similar capacity;
(4) an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or securities sold in a cash transaction as defined in Subsection (c) of this Section;
(5) the ownership of stock or of other securities of a corporation organized under the provisions of Section 25(a) of the Federal Reserve Act, as amended, which is directly or indirectly a creditor of the Company; or
(6) the acquisition, ownership, acceptance or negotiation of any drafts, bills of exchange, acceptances or obligations which fall within the classification of self-liquidating paper as defined in Subsection (c) of this Section.
(c) For the purposes of this Section only:
(1) The term "default" means any failure to make payment in full of the principal of or interest on any of the Securities or upon the other indenture securities when and as such principal or interest becomes due and payable.
(2) The term "other indenture securities" means securities upon which the Company is an obligor outstanding under any other indenture (i) under which the Trustee is also trustee, (ii) which contains provisions substantially similar to the provisions of this Section, and (iii) under which a default exists at the time of the apportionment of the funds and property held in such special account.
(3) The term "cash transaction" means any transaction in which full payment for goods or securities sold is made within 7 days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand.
(4) The term "self-liquidating paper" means any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from
the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with the Company arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation.
(5) The term "Company" means any obligor upon the Securities.
Section 614. Appointment of Authenticating Agent. At any time when any of the Securities remain Outstanding the Trustee, with the approval of the Company, may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as an Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and, if other than the Company itself, subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and, if other than the Company, to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and, if other than the Company, to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee, with the approval of the Company, may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent, will serve, as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section.
If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form:
Dated:__________
This is one of the Securities referred to in the within-mentioned Indenture.
The Bank of New York, as Trustee,
ARTICLE SEVEN
Securityholders' Lists and Reports by
Trustee and Company
Section 701. Company To Furnish Trustee Names and Addresses of Securityholders. The Company will furnish or cause to be furnished to the Trustee
(1) semi-annually, not later than December 1 and June 1 in each year in such form as the Trustee may reasonably require, a list of the names and addresses of the Holders of Securities of each series as of a date not more than 15 days prior to the date such list is furnished, and
(2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the date such list is furnished,
excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar.
Section 702. Preservation of Information; Communications to
Securityholders. (a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders of Securities
contained in the most recent list furnished to the Trustee as provided in
Section 701 and the names and addresses of Holders of Securities received by the
Trustee in its capacity as Security Registrar. The Trustee may destroy any list
furnished to it as provided in Section 701 upon receipt of a new list so
furnished.
(b) If 3 or more Holders of Securities of any series (hereinafter referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Security of such series for a period of at least 6 months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders of Securities of such series or with the Holders of all Securities with respect to their rights under this Indenture or under such Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within 5 Business Days after the receipt of such application, at its election, either
(i) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 702(a), or
(ii) inform such applicants as to the approximate number of Holders of Securities of such series or all Securities, as the case may be, whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 702 (a), and as to the approximate cost of mailing to such Securityholders the form of proxy or other communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants
access to such information, the Trustee shall, upon the written request of such
applicants, mail to each Holder of a Security of such series or to all
Securityholders, as the case may be, whose names and addresses appear in the
information preserved at the time by the Trustee in accordance with Section 702
(a), a copy of the form of proxy or other communication which is specified in
such request, with reasonable promptness after a tender to the Trustee of the
material to be mailed and of payment, or provision for the payment, of the
reasonable expenses of mailing, unless, within 5 days after such tender, the
Trustee shall mail to such applicants and file with the Commission, together
with a copy of the material to be mailed, a written statement to the effect
that, in the opinion of the Trustee, such mailing would be contrary to the best
interests of the Holders of Securities of such series or all Security-holders,
as the case may be, or would be in violation of applicable law. Such written
statement shall specify the basis of such opinion. If the Commission, after
opportunity for a hearing upon the objections specified in the written statement
so filed, shall enter an order refusing to sustain any of such objections or if,
after the entry of an order sustaining one or
more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all Securityholders of such series or all Securityholders, as the case may be, with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application.
(c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders of Securities in accordance with Section 702(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 702(b).
Section 703. Reports by Trustee. (a) The term "reporting date" as used in this Section means May 15. Within 60 days after the reporting date in each year, beginning in 1995, the Trustee shall transmit by mail to all Securityholders, as their names and addresses appear in the Security Register, a brief report dated as of such reporting date with respect to any of the following events which may have occurred during the twelve months preceding the date of such report (but if no such event has occurred within such period, no report need be transmitted):
(1) any change to its eligibility under Section 609 and its qualifications under Section 608;
(2) the creation of or any material change to a relationship specified in Section 310(b)(1) through Section 310(b)(10) of the Trust Indenture Act;
(3) the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) which remain unpaid on the date of such report, and for the reimbursement of which it claims or may claim a lien or charge, prior to that of Securities of any series, on any property or funds held or collected by it as Trustee, except that the Trustee shall not be required (but may elect) to report such advances if such advances so remaining unpaid aggregate not more than 1/2 of 1% of the principal amount of the Securities of such series Outstanding on the date of such report;
(4) any change to the amount, interest rate and maturity date
of all other indebtedness owing by the Company (or by any other
obligor on the Securities) to the Trustee in its individual capacity,
on the date of such report, with a brief description of any property
held as collateral security therefor, except an indebtedness based
upon a creditor relationship arising in any manner described in
Section 613(b)(2), (3), (4), or (6);
(5) any change to the property and funds, if any, physically in the possession of the Trustee as such on the date of such report;
(6) any additional issue of Securities which the Trustee has not previously reported; and
(7) any action taken by the Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Securities, except action in respect of a default, notice of which has been or is to be withheld by the Trustee in accordance with Section 602.
(b) The Trustee shall transmit by mail to all Securityholders, as their names and addresses appear in the Security Register, a brief report with respect to the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) since the date of the last report transmitted pursuant to Subsection (a) of this Section (or if no such report has yet been so transmitted, since the date of execution of this instrument) for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities of any series, on property or funds held or collected by it as Trustee, and which it has not previously reported pursuant to this Subsection, except that the Trustee shall not be required (but may elect) to report such advances if such advances remaining unpaid at any time aggregate 10% or less of the principal amount of the Securities outstanding of such series at such time, such report to be transmitted within 90 days after such time.
(c) A copy of each such report shall, at the time of such transmission to securityholders, be furnished to the Company and be filed by the Trustee with each stock exchange upon which the Securities are listed, and also with the Commission. The Company will promptly notify the Trustee when the Securities are listed on any stock exchange.
Section 704. Reports by Company. The Company will
(1) file with the Trustee, within 15 days after the company
is required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Company may
be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934; or, if the
Company is not required to file information, documents or reports
pursuant to either of said Sections, then it will file with the
Trustee and the Commission, in accordance with rules and regulations
prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which
may be required pursuant to Section 13 of the Securities Exchange Act
of 1934 in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such
rules and regulations;
(2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and
(3) transmit by mail to all Securityholders, as their names and addresses appear in the Security Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission.
Section 705. Delivery of Certain Information. If specified as contemplated by Section 301 with respect to a series of Securities, at any time when the Company is not subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, upon the request of a holder of a Security, the Company will promptly furnish or cause to be furnished Rule 144A Information (as defined below) to such Holder, to a prospective purchaser who is a "qualified institutional buyer", within the meaning of Rule 144A under the Securities Act of 1933, of such Security designated by such Holder in order to permit compliance by such Holder with Rule 144A in connection with the resale of such
Security by such Holder; provided, however, that unless otherwise specified as contemplated by Section 301, the Company shall not be required to furnish such information in connection with any request made on or after the date which is three years from the later of (i) the date such Security (or any predecessor Security) was acquired from the Company or (ii) the date such Security (or any predecessor Security) was last acquired from an "affiliate" of the Company within the meaning of Rule 144 under the Securities Act of 1933. "Rule 144A Information" shall be such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act of 1933 as in effect on the date hereof.
Section 706. Calculation of Original Issue Discount. In the event that there are Outstanding Original Issue Discount Securities during any calendar year, the Company shall file with the Trustee promptly at the end of such calendar year a written notice specifying the amount of original issue discount (including daily rates and accrual periods) accrued on such Securities as of the end of such year.
ARTICLE EIGHT
Consolidation, Merger, Conveyance or Transfer
Section 801. When Company May Merge or Transfer Assets. The Company, in a single transaction or through a series of related transactions, shall not consolidate with or merge with or into any other Person or transfer (by lease, assignment, sale or otherwise) all or substantially all of its properties and assets to another Person or group of affiliated Persons, unless:
(a) either (1) the Company shall be the continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or to which all or substantially all of the properties and assets of the Company are transferred (i) shall be a corporation, partnership or trust organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (ii) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all of the obligations of the Company under the Securities and this Indenture and the performance of every covenant of this Indenture on the part of the Company to be performed or observed;
(b) immediately after giving effect to such transaction, and the assumption contemplated by clause (a) above, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have occurred and be continuing; and
(c) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this Article 8 and that all conditions precedent herein provided for relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise) of the properties and assets of one or more Subsidiaries (other than to the Company or another wholly owned Subsidiary), which, if such assets were owned by the Company, would constitute all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company.
The successor Person formed by such consolidation or into which the Company is merged or the successor Person to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor had been named as the Company herein, and thereafter, except in the case of a lease of its properties and assets substantially as an entirety, the Company shall be discharged and released from all obligations and covenants under this Indenture and the Securities. The Trustee shall enter into a supplemental indenture to evidence the succession and substitution of such successor Person and such discharge and release of the Company.
ARTICLE NINE
Supplemental Indentures
Section 901. Supplemental Indentures Without Consent of Securityholders. Without the consent of the Holders of any Securities, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation to the Company, and the assumption by any such successor of the covenants of the Company herein and in the Securities contained; or
(2) to add to the covenants of the Company, or to surrender any right or power herein conferred upon the Company, for the benefit of the Holders of the Securities of any or all series (and if such covenants or the surrender of such right or power are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included or such surrenders are expressly being made solely for the benefit of one or more specified series); or
(3) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture; or
(4) to add to this Indenture such provisions as may be expressly permitted by the TIA, excluding, however, the provisions referred to in Section 316(a)(2) of the TIA as in effect at the date as of which this instrument was executed or any corresponding provision in any similar Federal statute hereafter enacted; or
(5) to establish any form of Security, as provided in Article Two, and to provide for the issuance of any series of securities as provided in Article Three and to set forth the terms thereof, and/or to add to the rights of the Holders of the Securities of any series; or
(6) to evidence and provide for the acceptance of appointment by another corporation as a successor Trustee hereunder with respect to one or more series of Securities and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to Section 611; or
(7) to add any additional Events of Default in respect of the Securities of any or all series (and if such additional Events of Default are to be in respect of less than all series of Securities, stating that such Events of Default are expressly being included solely for the benefit of one or more specified series); or
(8) to provide for the issuance of Securities in coupon as well as fully registered form.
No supplemental indenture for the purposes identified in Clauses (2), (3), (5) or (7) above may be entered into if to do so would adversely affect the interest of the Holders of Securities of any series.
Section 902. Supplemental Indentures with Consent of Securityholders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture or indentures, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of the Securities of each such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby,
(1) change the Maturity of the principal of, or the Stated Maturity of any premium on, or any installment of interest on, any Security, or reduce the principal amount thereof or the interest or any premium thereon, or change the method of computing the amount of principal thereof or interest thereon on any date or change any Place of Payment where any Security or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Maturity or the Stated Maturity, as the case may be, thereof (or, in the case of redemption or repayment, on or after the Redemption Date or the Repayment Date, as the case may be); or
(2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences, provided for in this Indenture; or
(3) modify any of the provisions of this Section, Section 513 or Section 1008, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby.
A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Securityholders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.
The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to consent to any indenture supplemental hereto. If a record date is fixed, the Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to consent to such supplemental indenture, whether or not such Holders remain Holders after such record date; provided, that unless such consent shall have become effective by virtue of the requisite percentage having been obtained prior to the date which is 90 days after such record date, any such consent previously given shall automatically and without further action by any Holder be cancelled and of no further effect.
Section 903. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise.
Section 904. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby to the extent provided therein.
Section 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of TIA as then in effect.
Section 906. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Artide may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities.
ARTICLE TEN
Covenants
Section 1001. Payment of Principal, Premium and Interest. With respect to each series of Securities, the Company will duly and punctually pay the principal of (and premium, if any) and interest on such Securities in accordance with their terms and this Indenture, and will duly comply with all the other terms, agreements and conditions contained in, or made in the Indenture for the benefit of, the Securities of such series.
Section 1002. Maintenance of Office or Agency. The Company
will maintain an office or agency in each Place of Payment where Securities may
be presented or surrendered for payment, where Securities may be surrendered for
transfer or exchange and where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and of any change in
the location, of such office or agency. If at any time the Company shall fail to
maintain such office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the principal Corporate Trust Office of the Trustee, Attention:
Corporate Trust Trustee Administration, and the Company hereby appoints the
Trustee its agent to receive all such presentations, surrenders, notices and
demands.
Section 1003. Money for Security Payments to be Held in Trust. If the Company shall at any time act as its own Paying Agent for any series of Securities, it will, on or before
each due date of the principal of (and premium, if any) or interest on, any of the Securities of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure to act.
Whenever the Company shall have one or more Paying Agents for any series of securities, it will, prior to each due date of the principal of (and premium, if any) or interest on, any Securities of such series, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal (and premium, if any) or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee for any series of Securities to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will
(1) hold all sums held by it for the payment of principal of (and premium, if any) or interest on Securities of such series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities of such series) in the making of any such payment of principal (and premium, if any) or interest on the Securities of such series; and
(3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture with respect to any series of Securities or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent in respect of each and every series of Securities as to which it seeks to discharge this Indenture or, if for any other purpose, all sums so held in trust by the Company in respect of
all Securities, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security of any series and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease. The Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company mail to the Holders of the Securities as to which the money to be repaid was held in trust, as their names and addresses appear in the Security Register, a notice that such moneys remain unclaimed and that, after a date specified in the notice, which shall not be less than 30 days from the date on which the notice was first mailed to the Holders of the Securities as to which the money to be repaid was held in trust, any unclaimed balance of such moneys then remaining will be paid to the Company free of the trust formerly impressed upon it.
Section 1004. Statement as to Compliance. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year, a written statement signed by the principal executive officer, principal financial officer or principal accounting officer of the Company stating that
(1) a review of the activities of the Company during such year and of performance under this Indenture and under the terms of the Securities has been made under his supervision; and
(2) to the best of his knowledge, based on such review, the Company has fulfilled all its obligations under this Indenture and has complied with all conditions and covenants on its part contained in this Indenture through such year, or, if there has been a default in the fulfillment of any such obligation, covenant or condition, specifying each such default known to him and the nature and status thereof.
For the purpose of this Section 1004, default and compliance shall be determined without regard to any grace period or requirement of notice provided pursuant to the terms of this Indenture.
Section 1005. Legal Existence. Subject to Article Eight the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its legal existence.
Section 1006. Limitation on Liens. The Company shall not create, assume or suffer to exist, or permit any Restricted Subsidiary to create, assume or suffer to exist, any Lien upon assets or property of the Company or any Restricted Subsidiary to secure any Debt of any Person, without making effective provision whereby the Securities then Outstanding and having the benefit of this Section shall be secured by the Lien equally and ratably with such Debt for so long as such Debt shall be so secured, except that the foregoing shall not prevent the Company or any Restricted Subsidiary from creating, assuming or suffering to exist Liens of the following character:
(1) with respect to any series of Securities, any Lien existing on the date of issuance of the series;
(2) any Lien existing on assets or property owned or leased by a corporation at the time it becomes a Restricted Subsidiary;
(3) any Lien existing on assets or property at the time of the acquisition thereof by the Company or a Restricted Subsidiary;
(4) any Lien to secure any Debt incurred prior to, at the time of, or within 12 months after the acquisition of any assets or property for the purpose of financing all or any part of the purchase price thereof and any Lien to the extent that it secures Debt which is in excess of such purchase price and for the payment of which recourse may be had only against such assets or property;
(5) any Lien to secure any Debt incurred prior to, at the time of, or within 12 months after the completion of the construction and commencement of commercial operation, alteration, repair or improvement of any assets or property for the purpose of financing all or any part of the cost thereof and any Lien to the extent that it secures Debt which is in excess of such cost and for the payment of which recourse may be had only against such assets or property;
(6) any Lien securing Debt of a Subsidiary owing to the Company or to another Subsidiary;
(7) any Lien in favor of the United States of America or any State thereof or any other country, or any agency, instrumentality or political subdivision of any of the foregoing, to secure partial, progress, advance or other payments or performance pursuant to the provisions of any contract or statute, or any Liens securing industrial development, pollution control, or similar revenue bonds;
(8) any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any Lien referred to in clauses (1) through (7) above, so long as the principal amount of the Debt secured thereby does not, exceed the principal amount of Debt so secured at the time of the extension, renewal or replacement (except that, where an additional principal amount of Debt is incurred to provide funds for the completion of a specific project, the additional principal amount, and any related financing costs, may be secured by the Lien as well) and the Lien is limited to the same property subject to the Lien so extended, renewed or replaced (plus improvements on the property); and
(9) any Lien not permitted by clauses (1) through (8) above securing Debt which, together with (i) the aggregate outstanding principal amount of all other Debt which would otherwise be subject to the foregoing restrictions, (ii) the aggregate Value of existing Sale and Leaseback Transactions which would be subject to the restrictions of Section 1007 but for this clause (9) and (iii) the aggregate outstanding principal amount of Funded Debt of Restricted Subsidiaries which would not be permitted under Section 1008 but for the second sentence of Section 1008, does not at any time exceed 15% of Consolidated Net Assets.
Section 1007. Limitation on Sale and Leasebacks. The Company shall not enter into any Sale and Leaseback Transaction, nor permit any Restricted Subsidiary so to do, unless either:
(1) the Company or such Restricted Subsidiary would be entitled to incur Debt, in a principal amount at least equal to the Value of such Sale and Leaseback Transaction, which is secured by Liens on the property to be leased (without equally and ratably securing the Outstanding Securities) because such Liens would be of such character that no violation of any of the provisions of Section 1006 would result; or
(2) the Company during the six months immediately following the effective date of such Sale and Leaseback Transaction causes to be applied to the voluntary retirement of Funded Debt (whether by redemption, defeasance, repurchase, or otherwise) an amount equal to the Value of such Sale and Leaseback Transaction.
Section 1008. Limitation on Funded Debt of Restricted Subsidiaries. The Company will not permit any Restricted Subsidiary to create, incur, issue, assume or guarantee any Funded Debt, unless:
(1) with respect to any series of Securities, such Funded Debt existed on the date of the original issuance of such series; or
(2) such Funded Debt is owed to the Company or any Subsidiary; or
(3) such Funded Debt existed at the time the corporation that
issued such Funded Debt was merged with or into or consolidated with a
Restricted Subsidiary, or at the time of a sale, lease or other
disposition of the properties of such corporation as an entirety to
such Restricted Subsidiary, or such Funded Debt was created thereafter
(i) otherwise than in connection with the borrowing of money arranged
thereafter and (ii) pursuant to contractual commitments entered into
prior to and not in contemplation of any such merger or consolidation
or any such sale, lease or other disposition; or
(4) such Funded Debt is guaranteed by the Company; or
(5) such Funded Debt is guaranteed by a governmental agency; or
(6) such Funded Debt is issued, assumed or guaranteed in connection with, or with a view to, compliance by such Restricted Subsidiary with the requirements of any program adopted by any federal, state or local governmental authority and applicable to such Restricted Subsidiary and providing financial or tax benefits to such Restricted Subsidiary which are not available directly to the Company; or
(7) such Funded Debt is issued, assumed or guaranteed prior to, at the time of, or within 12 months after the acquisition of any assets or property for the purpose of financing all or any part of the purchase price thereof or, to the extent that the amount of such Funded Debt is in excess of
such purchase price, recourse may be had only against such assets or property for the payment of such Funded Debt;
(8) such Funded Debt is issued, assumed or guaranteed prior to, at the time of, or within 12 months after the completion of the construction and commencement of commercial operation, alteration, repair or improvement of any assets or property for the purpose of financing all or any part of the cost thereof or, to the extent that the amount of such Funded Debt is in excess of such cost, recourse may be had only against such assets or property for the payment of such Funded Debt;
(9) such Funded Debt is nonrecourse; or
(10) such Funded Debt is incurred for the purpose of extending, renewing, substituting, replacing or refunding Funded Debt permitted by the foregoing.
Notwithstanding the foregoing, any Restricted Subsidiary may create, incur, issue, assume or guarantee Funded Debt which would otherwise be subject to the foregoing restriction in an aggregate principal amount which, together with (i) the aggregate outstanding principal amount of all other Funded Debt of the Company's Restricted Subsidiaries which would otherwise be subject to the foregoing restriction (not including Funded Debt permitted to be incurred pursuant to clauses (1) through (10) above) but for this sentence, (ii) the aggregate outstanding principal amount of all Debt secured by Liens which would not be permitted pursuant to Section 1006 but for clause (9) thereof and (iii) the aggregate Value of existing Sale and Leaseback Transactions which would not be permitted by Section 1007 but for clause (9) of Section 1006, does not at the time such Funded Debt is incurred exceed an amount equal to 15% of Consolidated Net Assets.
Section 1009. Repurchase of Securities at Option of the Holder. (a) If (i) the Company incurs any New Debt and, as of the last day of the fiscal quarter in which such New Debt is incurred, the Ratio of Debt to Consolidated Capitalization is greater than .65 and the Cash Flow Coverage Ratio is less than 1.75 and (ii) as of the last day of the second full fiscal quarter commencing after the date of such incurrence (the "Leverage Measurement Date"), the Ratio of Debt to Consolidated Capitalization is greater than .65 and the Cash Flow Coverage Ratio is less than 1.75, a Special Repurchase Event shall be deemed to have occurred on such Leverage Measurement Date.
(b) If (i) the Consolidated Tangible Net Worth of the Company is less than the Minimum Tangible Net Worth as of
the end of any fiscal year and (ii) as of the last day of the second succeeding fiscal quarter (the "Net Worth Measurement Date"), the Consolidated Tangible Net Worth is less than the Minimum Tangible Net Worth, a Special Repurchase Event shall be deemed to have occurred on such Net Worth Measurement Date.
(c) (i) Subject to paragraph (e) of this Section 1009, in the event that a Special Repurchase Event is deemed to have occurred, each Holder of the Securities then outstanding shall have the right to require the Company to repurchase all or any part of such Holder's Securities on the date (the "Repurchase Date") that is 35 Business Days after the date such Special Purchase Event is deemed to have occurred, at a price equal to 100% of the principal amount thereof plus accrued interest to, but excluding, the date of repurchase (the "Repurchase Price").
(ii) Within 15 Business Days after the occurrence of a Special Repurchase Event, the Company shall mail a written notice of such occurrence by first-class mail to the Trustee, the Paying Agent and to each Holder (and to beneficial owners as required by applicable law) and shall cause a copy of such notice to be published in The Wall Street Journal or another daily newspaper of national circulation. The notice shall state:
(1) the date of such Special Repurchase Event and, briefly, the events causing such Special Repurchase Event;
(2) the date by which the notice required by this paragraph (ii) must be given;
(3) the Repurchase Date;
(4) the Repurchase Price;
(5) the name and address of the Paying Agent;
(6) the procedures the Holder must follow to exercise rights under this Section 1009; and
(7) the procedures for withdrawing a Repurchase Election Notice (as defined below).
(iii) A Holder may exercise its rights specified in Section 1009(c)(i) upon delivery of a written notice of repurchase (a "Repurchase Election Notice") to the Paying Agent at any time prior to the close of business on the Repurchase Date, stating:
(1) the certificate number of the Security which the Holder will deliver to be repurchased;
(2) the portion of the principal amount of the Security which the Holder will deliver to be repurchased, which portion must be $1,000 or an integral multiple thereof; and
(3) that such Security shall be repurchased pursuant to the terms and conditions specified in this Section 1009.
The delivery of such Security to the Paying Agent prior to, on or after the Repurchase Date (together with all necessary endorsements) at the offices of the Paying Agent shall be a condition to the receipt by the Holder of the Repurchase Price therefor; provided, however, that such Repurchase Price shall be so paid pursuant to this Section 1009 only if the Security so delivered to the Paying Agent shall conform in all respects to the description thereof set forth in the related Repurchase Election Notice.
The Company shall repurchase from the Holder thereof, pursuant to this Section 1009, a portion of a Security if the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to the repurchase of all of a Security also apply to the repurchase of such portion of such Security.
Any repurchase by the Company contemplated pursuant to the provisions of this Section 1009 shall be consummated by the delivery of the consideration to be received by the Holder promptly following the later of the Repurchase Date and the time of delivery of the Security.
Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Repurchase Election Notice contemplated by this Section 1009(c)(iii) shall have the right to withdraw such Repurchase Election Notice at any time prior to the close of business on the Repurchase Date by delivery of a written notice of withdrawal to the Paying Agent in accordance with paragraph (c)(iv).
(iv) A Repurchase Election Notice may be withdrawn by means of a written notice of withdrawal delivered to the office of the Paying Agent at any time prior to the close of business on the Repurchase Date to which it relates specifying:
(1) the certificate number of the Security in respect of which such notice of withdrawal is being submitted,
(2) the principal amount of the Security with respect to which such notice of withdrawal is being submitted, and
(3) the principal amount, if any, of such Security which remains subject to the original Repurchase Election Notice and which has been or will be delivered for repurchase by the Company.
(v) On or before the Business Day following a Repurchase Date, the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company or a Subsidiary or an Affiliate of either of them is acting as the Paying Agent, shall segregate and hold in trust as provided in Section 1003) an amount of money or, if permitted by the terms hereof, securities sufficient to pay the aggregate Repurchase Price of all the Securities or portions thereof which are to be repurchased as of such Repurchase Date.
(vi) Any Security which is to be repurchased only in part shall be surrendered at the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Security so surrendered which is not repurchased.
(vii) In connection with any offer to repurchase or repurchase of Securities under this Section 1009, the Company shall comply with all applicable federal and state securities laws so as to permit the rights and obligations under this Section 1009 to be exercised in the time and in the manner specified in this Section 1009.
(viii) The Trustee and the Paying Agent shall return to the Company any cash, together with interest on such cash, if any, held by them for the payment of a Repurchase Price in respect of cash that remains unclaimed as provided in Section 1003.
(ix) Upon receipt by the Paying Agent of the Repurchase
Election Notice specified in Section 1009 (c)(ii), the Holder of the
Security in respect of which such Repurchase Election Notice was given
shall (unless such Repurchase Election Notice is withdrawn as
specified in paragraph (c) (iv)) thereafter be entitled to receive
solely the Repurchase Price with respect to such Security. Such
Repurchase Price shall be paid to such Holder promptly following the
later of (x) the Repurchase Date with respect to such Security
(provided the conditions in Section 1009(c)(iii) have been satisfied)
and (y) the time of delivery of such Security to the Paying Agent by
the Holder thereof in the manner required by Section 1009 (c) (iii).
(d) For purposes of this Section 1009, the following terms shall have the meanings set forth below:
(i) "Acquired Debt" means Debt of a Person (1) assumed in connection with an Asset Acquisition from such Person or (2) existing at the time such Person becomes a Subsidiary of any other Person (other than any Debt incurred in connection with, or in contemplation of, such Asset Acquisition or such Person becoming such a Subsidiary).
(ii) "Asset Acquisition" means (1) an investment by the Company or any Subsidiary of the Company in any other Person pursuant to which such Person shall become a Subsidiary of the Company or any Subsidiary of the Company or a merger of such Person with the Company or any Subsidiary of the Company in which the surviving corporation is the Company or a Subsidiary of the Company or (2) the acquisition by the Company or any Subsidiary of the Company of the assets of any Person which constitute all or substantially all of the assets of such Person or any division or line of business of such Person.
(iii) "Asset Sale" means any direct or indirect sale,
issuance, conveyance, transfer, lease or other disposition to any
Person other than the Company or a wholly-owned Subsidiary of the
Company, in one transaction or a series of related transactions, of
(1) any capital stock of any Subsidiary of the Company; (2) all or
substantially all of the properties and assets of any division or line
of business of the Company or any Subsidiary of the Company; or (3)
any other properties or assets of the Company or any Subsidiary of the
Company other than in the ordinary course of business.
(iv) "Cash Flow Coverage Ratio" means, with respect to any Person, the ratio of the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of such Person for the four full fiscal quarters immediately preceding the date of measurement (the "Measurement Date") (such four full fiscal quarter period being referred to herein as the "Four Quarter Period") to the aggregate amount of Consolidated Interest Expense of such Person for the Four Quarter Period. For purposes of this definition, if the Measurement Date occurs prior to the first anniversary of the Issue Date, "Consolidated Cash Flow Available for Fixed Charges" and "Consolidated Interest Expense" shall be calculated, in the case of the Company, after giving effect on a pro forma basis as if the distribution of the Company's common stock as a dividend to the stockholders of Litton Industries, Inc. on March 17, 1994 and the concurrent financial transactions to which the Company was a party on the first day of the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated Cash Flow Available for Fixed Charges" and "Consolidated Interest Expense" shall be calculated after giving effect on a pro forma basis for the period of such calculation to (1) the incurrence of any Debt of such Person or any of its Subsidiaries giving rise to the need to make such calculation and any incurrence of other Debt at any time subsequent to the last day of the Four Quarter Period and on or prior to the Measurement Date, as if such incurrence occurred on the first day of the Four Quarter Period and (2) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Subsidiaries (including any Person who becomes a Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Debt) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Measurement Date, as if such Asset Sale or Asset Acquisition occurred on the first day of the Four Quarter Period. If such Person or any of its Subsidiaries directly or indirectly guarantees Debt of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Debt as if such Person or any Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Debt. Furthermore, in calculating "Consolidated Interest Expense" for purposes of determining the denominator (but not the numerator) of this "Cash Flow Coverage Ratio," (1) interest on Debt determined on a fluctuating basis as of the Measurement Date and which will continue to be so determined thereafter
shall be deemed to accrue at a fixed rate per annum equal to the rate
of interest on such Debt in effect on the Measurement Date; (2) if
interest on any Debt actually incurred on the Measurement Date may
optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other
rates, then the interest rate in effect on the Measurement Date will
be deemed to have been in effect during the Four Quarter Period; and
(3) notwithstanding clause (1) above, interest on Debt determined on a
fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Rate Protection Obligations, shall be
deemed to accrue at the rate per annum resulting after giving effect
to the operation of such agreements.
(v) "Consolidated Capitalization" means without duplication, the sum of Total Debt of the Company and its subsidiaries at the time outstanding, plus shareholders' equity and minority interests, all as shown on a consolidated balance sheet of the Company and its subsidiaries prepared in accordance with GAAP consistently applied.
(vi) "Consolidated Cash Flow Available for Fixed Charges" means, with respect to any Person for any period, the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (a) Consolidated Net Income, (b) Consolidated Interest Expense and (c) Consolidated Income Tax Expense; provided, however, that if, during such period, such Person or any of its Subsidiaries shall have made any Asset Sales or Asset Acquisitions, Consolidated Cash Flow Available for Fixed Charges for such Person and its Subsidiaries for such period shall be reduced (in the case of an Asset Sale) or increased (in the case of an Asset Acquisition) by an amount equal to the Consolidated Cash Flow Available for Fixed Charges directly attributable to the assets which are the subject of such Asset Sales or Asset Acquisitions during such period.
(vii) "Consolidated Income Tax Expense" means, with respect to any Person for any period, the provision for federal, state, local and foreign income taxes of such Person and its Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP consistently applied.
(viii) "Consolidated Interest Expense" means, with respect to any Person for any period, without duplication, the sum of (i) the interest expense of such Person and its
Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP consistently applied, including, without limitation, any amortization of debt discount, plus, without duplication, (ii) all capitalized interest of the Company and its Subsidiaries for such period; provided, however, that if, during such period, such Person or any of its Subsidiaries shall have made any Asset Sales or Asset Acquisitions, Consolidated Interest Expense for such Person and its Subsidiaries for such period shall be reduced (in the case of an Asset Sale) or increased (in the case of an Asset Acquisition) by an amount equal to the Consolidated Interest Expense directly attributable to the assets which are the subject of such Asset Sales or Asset Acquisitions during such period.
(ix) "Consolidated Net Income" means, with respect to any Person for any period, the consolidated net income (or loss) of such Person and its Subsidiaries for such period as determined in accordance with GAAP, adjusted, to the extent included in calculating such net income, by excluding, without duplication, (i) all extraordinary gains or losses (net of fees and expenses relating to the transaction giving rise thereto), (ii) the portion of net income (or loss) of such Person and its Subsidiaries allocable to minority interests in unconsolidated Persons to the extent that cash dividends or distributions have not actually been received by such Person or one of its Subsidiaries, (iii) net income (or loss) of any Person combined with such Person or one of its Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (iv) any gain or loss, net of taxes, realized upon the termination of any employee pension benefit plan, (v) gains or losses in respect of any Asset Sales by such Person or one of its Subsidiaries (net of fees and expenses relating to the transaction giving rise thereto) and (vi) the net income of any Subsidiary of such Person to the extent that the declaration of dividends or similar distributions by that Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulations applicable to that Subsidiary or its stockholders.
(x) "Consolidated Tangible Net Worth" means, with respect to any Person at any date, the consolidated stockholders' equity of such Person, less the amount of such stockholders' equity attributable to redeemable capital stock of such Person and its Subsidiaries, and less
amounts representing licenses, patents, patent applications, copyrights, trademarks, trade names, good will, experimental or organizational expense and other like intangibles, treasury stock and unamortized debt discount and expense, as determined in accordance with GAAP consistently applied.
(xi) "Interest Rate Protection Obligations" means the obligations of any Person pursuant to any arrangement with any other Person whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include without limitation, interest rate swaps, caps, floors, collars and similar agreements.
(xii) "Minimum Tangible Net Worth" means at any date, $312,140,000 increased by 50% of cumulative Consolidated Net Income of the Company (but without any decrease in the event such cumulative Consolidated Net Income is a loss) for the period commencing April 1, 1994 and ending on the last day of the most recently completed fiscal year.
(xiii) "New Debt" of any Person means any Debt of such Person other than Debt that is incurred for the purpose of extending, renewing, substituting, replacing or refunding Debt of such Person that was an obligation of such Person on the last day of the most recent fiscal quarter ended prior to the date of such incurrence.
(xiv) "Ratio of Debt to Consolidated Capitalization" means the quotient obtained by dividing Total Debt by Consolidated Capitalization.
(xv) "Total Debt" means the total consolidated Debt of the Company and its subsidiaries as shown on a consolidated balance sheet of the Company and its subsidiaries prepared in accordance with GAAP consistently applied.
(e) In the event that the Ratio of Debt to Consolidated Capitalization is less than .40 and the Cash Flow Coverage Ratio is greater than 2.5, in each case on the last day of each of six consecutive fiscal quarters of the Company, the provisions of this Section 1009 shall no longer apply to the
Securities and shall have no force or effect for any purpose of this Indenture.
Section 1010. Waiver of Certain Covenants. The Company may omit in respect of any series of Securities, in any particular instance, to comply with any covenant or condition set forth in Sections 1006, 1007, 1008 and 1009, if before or after the time for such compliance the Holders of at least a majority in principal amount of the Securities at the time Outstanding of such series shall, by Act of such Securityholders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect.
ARTICLE ELEVEN
Redemption of Securities
Section 1101. Applicability of Article. The Company may reserve the right to redeem and pay before Stated Maturity all or any part of the Securities of any series, either by optional redemption, sinking or purchase fund or analogous obligation or otherwise, by provision therefor in the form of Security for such series established and approved pursuant to Section 202 and on such terms as are specified in such form or in the indenture supplemental hereto with respect to Securities of such series as provided in Section 301. Redemption of Securities of any series shall be made in accordance with the terms of such Securities and, to the extent that this Article does not conflict with such terms, the succeeding Sections of this Article.
Section 1102. Election To Redeem; Notice to Trustee. The election of the Company to redeem any Securities redeemable at the election of the Company shall be evidenced by, or pursuant to authority granted by, a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 45 days (60 days in the case of a redemption of less than all of the Securities of any series) prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series and the Tranche (as defined in Section 1103) to be redeemed.
In the case of any redemption of Securities (i) prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, or (ii) pursuant to an election of the Company which is subject to a condition specified in the terms of such Securities, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction or condition.
Section 1103. Selection by Trustee of Securities To Be Redeemed. If less than all the Securities of like tenor and terms of any series (a "Tranche") are to be redeemed, the particular securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the outstanding Securities of such Tranche not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may include provision for the election for redemption of portions of the principal of Securities of such Tranche of a denomination larger than the minimum authorized denomination for Securities of that series. Unless otherwise provided in the terms of a particular series of Securities, the portions of the principal of Securities so selected for partial redemption shall be equal to the minimum authorized denomination of the Securities of such series, or an integral multiple thereof, and the principal amount which remains outstanding shall not be less than the minimum authorized denomination for Securities of such series. If less than all the Securities of unlike tenor and terms of a series are to be redeemed, the particular Tranche of Securities to be redeemed shall be selected by the Company.
In the case of any Security selected for partial redemption, the Trustee shall promptly notify the Company in writing of the Securities selected for redemption and the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal of such Security which has been or is to be redeemed.
Section 1104. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each holder of Securities to be redeemed, at his address appearing in the Security Register.
All notices of redemption shall state:
(l) the Redemption Date;
(2) the Redemption Price;
(3) the CUSIP number;
(4) if less than all outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the Securities to be redeemed, from the Holder to whom the notice is given;
(5) that on the Redemption Date the Redemption Price will become due and payable upon each such Security, and that interest, if any, thereon shall cease to accrue from and after said date;
(6) the place where such Securities are to be surrendered for payment of the Redemption Price, which shall be the office or agency of the Company in the Place of Payment; and
(7) that the redemption is on account of a sinking or purchase fund, or other analogous obligation, if that be the case.
Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company.
Section 1105. Deposit of Redemption Price. On or prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of all the Securities which are to be redeemed on that date; provided that such amount shall be so deposited with the Trustee or Paying Agent in time for the Trustee or Paying Agent, as the case may be, to pay such Redemption Price in accordance with its normal procedures.
Section 1106. Securities Payable on Redemption Date. Notice of Redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price) such Securities shall
cease to bear interest. Upon surrender of such Securities for redemption in accordance with the notice, such Securities shall be paid by the Company at the Redemption Price. Unless otherwise provided with respect to such Securities pursuant to Section 301, installments of interest the Stated Maturity of which is on or prior to the Redemption Date shall be payable to the Holders of such Securities registered as such on the relevant Regular Record Dates according to their terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal shall, until paid, bear interest from the Redemption Date at the rate borne by the Security, or as otherwise provided in such Security.
Section 1107. Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at the office or agency of the Company in the Place of Payment with respect to that series (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Security or Securities of the same series and Stated Maturity and of like tenor and terms, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered.
Section 1108. Provisions with Respect to any Sinking Funds. Unless the form or terms of any series of Securities shall provide otherwise, in lieu of making all or any part of any mandatory sinking fund payment with respect to such series of Securities in cash, the Company may at its option (1) deliver to the Trustee for cancellation any Securities of such series theretofore acquired by the Company, or (2) receive credit for any Securities of such series (not previously so credited) acquired by the Company (including by way of optional redemption (pursuant to the sinking fund or otherwise) but not by way of mandatory sinking fund redemption) and theretofore delivered to the Trustee for cancellation, and if it does so then (i) Securities so delivered or credited shall be credited at the applicable sinking fund Redemption Price with respect to Securities of such series, and (ii) on or before the 60th day next preceding each sinking fund Redemption Date with respect to such series of Securities, the Company will deliver to the Trustee (A) an Officers' Certificate specifying the portions of
such sinking fund payment to be satisfied by payment of cash and by delivery or credit of Securities of such series acquired by the Company, and (B) such Securities, to the extent not previously surrendered. Such Officers' Certificate shall also state the basis for such credit and that the Securities for which the Company elects to receive credit have not been previously so credited and were not acquired by the Company through operation of the mandatory sinking fund, if any, provided with respect to such Securities and shall also state that no Event of Default with respect to Securities of such series has occurred and is continuing. All Securities so delivered to the Trustee shall be cancelled by the Trustee and no Securities shall be authenticated in lieu thereof.
If the sinking fund payment or payments (mandatory or
optional) with respect to any series of Securities made in cash plus any unused
balance of any preceding sinking fund payments with respect to Securities of
such series made in cash shall exceed $50,000 (or a lesser sum if the Company
shall so request), unless otherwise provided by the terms of such series of
Securities, that cash shall be applied by the Trustee on the sinking fund
Redemption Date with respect to Securities of such series next following the
date of such payment to the redemption of Securities of such series at the
applicable sinking fund Redemption Price with respect to Securities of such
series, together with accrued interest, if any, to the date fixed for
redemption, with the effect provided in Section 1106. The Trustee shall select,
in the manner provided in Section 1103, for redemption on such sinking fund
Redemption Date a sufficient principal amount of Securities of such series to
utilize that cash and shall thereupon cause notice of redemption of the
Securities of such series for the sinking fund to be given in the manner
provided in Section 1104 (and with the effect provided in Section 1106) for the
redemption of Securities in part at the option of the Company. Any sinking fund
moneys not so applied or allocated by the Trustee to the redemption of
Securities of such series shall be added to the next cash sinking fund payment
with respect to Securities of such series received by the Trustee and, together
with such payment, shall be applied in accordance with the provisions of this
Section 1108. Any and all sinking fund moneys with respect to Securities of any
series held by the Trustee at the Maturity of Securities of such series, and not
held for the payment or redemption of particular Securities of such series,
shall be applied by the Trustee, together with other moneys, if necessary, to be
deposited sufficient for the purpose, to the payment of the principal of the
Securities of such series at Maturity.
On or before each sinking fund Redemption Date provided with respect to Securities of any series, the Company
shall deposit with the Trustee cash in a sum equal to all accrued interest, if any, to the date fixed for redemption on Securities to be redeemed on such sinking fund Redemption Date pursuant to this Section 1108; provided that such cash shall be so deposited with the Trustee in time for the Trustee to make the payment of such accrued interest in accordance with its normal procedures.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written.
WESTERN ATLAS INC.,
by /s/ MICHAEL E. KEANE ------------------------------ Name: Michael E. Keane Title: Vice President and Treasurer [SEAL] Attest: /s/ VIRGINIA S. YOUNG ------------------------------ Name: Virginia S. Young Title: Secretary THE BANK OF NEW YORK, as Trustee, |
On 6/10/94 before me, Linda J. Sandoval, Notary Public
------- -------------------------------------------------------, DATE NAME, TITLE OF OFFICER-E.G., "JANE DOE,NOTARY PUBLIC" personally appeared Michael E. Keane -------------------------------------------------------, NAME(S) OF SIGNER(S) |
[X] personally known to me -OR- [ ] proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
[SEAL]
/s/ LINDA J. SANDOVAL ---------------------------------- SIGNATURE OF NOTARY |
======OPTIONAL SECTION======
CAPACITY CLAIMED BY SIGNER
Though statute does not require
the Notary to fill in the data
below, doing so may prove
invaluable to persons relying on
the document.
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
================================OPTIONAL SECTION================================
THIS CERTIFICATE MUST BE TITLE OR TYPE OF DOCUMENT Trust Indenture ATTACHED TO THE DOCUMENT --------------------- DESCRIBED AT RIGHT: ------------------------- NUMBER OF PAGES 90 DATE OF DOCUMENT 5/15/94 ---- ----------- Though the data requested SIGNER(S) OTHER THAN NAMED ABOVE here is not required by law, -------------- it could prevent fraudulent reattachment of this form. |
STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) |
On the 14th day of June, 1994, before me personally came W. J. Cunningham, to me known, who, being by me duly sworn, did depose and say that he resides at Denville, N.J.; is Vice President of The Bank of New York, one of the parties described in and which executed the above instrument; and that he signed his name thereto by authority of the board of directors of The Bank of New York.
/s/ TIMOTHY J. SHEA ------------------------------ Name |
Timothy J. Shea
Notary Public, State of New York
No. 01SH5027547
Qualified in New York County
Commission Expires May 5, 199[ILLEGIBLE]
WESTERN ATLAS INC.
8.55% Debenture due 2024
If this Security is registered in the name of The Depository Trust Company (the Depositary") (55 Water Street, New York, New York) or its nominee, this Security may not be transferred except as a whole by the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary unless and until this Security is exchanged in whole or in part for Securities in definitive form. Unless this certificate is presented by an authorized representative of the Depositary to the Company or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of the Depositary and any payment is made to Cede & Co. or such other entity as is requested by such authorized representative, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
CUSIP NO: 957674 AD 6
No. D-1 $150,000,000
WESTERN ATLAS INC., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of One Hundred Fifty Million Dollars on June 15, 2024, and to pay interest thereon from June 15, 1994 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on
June 15 and December 15 in each year, commencing December 15, 1994, at the rate of 8.55% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the June 1 or December 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of and any such interest on this Security will be made at the office or agency of the Company maintained for that purpose in The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.
WESTERN ATLAS INC.
By /s/ ALTON J. BRAUN -------------------------------- [Seal] Attest: By /s/ VIRGINIA S. YOUNG ----------------------------------- TRUSTEE'S CERTIFICATE OF AUTHENTICATION Dated: |
This is one of the Securities referred to in the within-mentioned Indenture.
The Bank of New York, as Trustee,
By: ------------------------------------ Authorized Signatory
[Reverse of Security]
This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of May 15, 1994 (herein called the "Indenture"), between the Company and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $150,000,000.
The Securities of this series may not be redeemed prior to maturity.
If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of, and all accrued and unpaid interest on, the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Security at the
times, place and rate, and in the coin or currency, herein prescribed.
Interest on this Security shall be calculated on the basis of a 360-day year of twelve 30-day months.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein and herein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same.
This Security is exchangeable only if (x) the Depository notifies the Company that it is unwilling or unable to continue as Depository for this global Debenture or if at any time the Depository ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, or (y) the Company in its sole discretion determines that this Debenture shall be exchangeable for certificated Debentures in registered form, provided that the certificated Debentures so issued by the Company in exchange for this permanent global Debenture shall be in denominations of $1,000 and any integral multiple of $1,000 in excess thereof and be of like aggregate principal amount and tenor as the portion of this permanent global Debenture to be exchanged, and provided further that, unless the Company agrees otherwise, Debentures of this series in certificated registered form will be issued in exchange for this permanent global Debenture, or any portion hereof, only if such Debentures in certificated registered form were requested by written notice to the Trustee or the Security Registrar by or on behalf of a Person who is the beneficial owner of an interest herein given through the Holder hereof. Except as provided above, owners of beneficial interests in this permanent
global Debenture will not be entitled to receive physical delivery of Debentures in certificated registered form and will not be considered the Holders thereof for any purpose under the Indenture.
No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
This Security shall be construed in accordance with and governed by the laws of the State of New York, without regard to conflicts of laws principles thereof.
All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE
the within Debenture of WESTERN ATLAS INC. and does hereby irrevocably constitute and appoint
attorney to transfer the said Debenture on the books of the Company, with full power of substitution in the premises.
NOTICE: The signature of this assignment must correspond with the name as written upon the within instrument in every particular, without alteration or enlargement or any change whatever.
WESTERN ATLAS INC.
7-7/8% Note due 2004
If this Security is registered in the name of The Depository Trust Company (the "Depositary") (55 Water Street, New York, New York) or its nominee, this Security may not be transferred except as a whole by the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary unless and until this Security is exchanged in whole or in part for Securities in definitive form. Unless this certificate is presented by an authorized representative of the Depositary to the Company or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of the Depositary and any payment is made to Cede & Co. or such other entity as is requested by such authorized representative, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. CUSIP No.: 957674 AC 8 No. N-1 $150,000,000 WESTERN ATLAS INC., a corporation duly organized and existing under the |
laws of the State of Delaware (herein called the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of One Hundred Fifty Million Dollars on June 15, 2004, and to pay interest thereon from June 15, 1994 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on
June 15 and December 15 in each year, commencing December 15, 1994, at the rate of 7-7/8% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the June 1 or December 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of and any such interest on this Security will be made at the office or agency of the Company maintained for that purpose in The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.
WESTERN ATLAS INC.
By /s/ ALTON J. BRAUN -------------------------------- (Seal] Attest: By /s/ VIRGINIA S. YOUNG --------------------------- TRUSTEE'S CERTIFICATE OF AUTHENTICATION Dated: |
This is one of the Securities referred to in the within-mentioned Indenture.
The Bank of New York, as Trustee,
[Reverse of Security)
This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities") issued and to be issued in one or more series under an Indenture, dated as of May 15, 1994 (herein called the "Indenture"), between the Company and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $250,000,000.
The Securities of this series may not be redeemed prior to maturity.
If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of, and all accrued and unpaid interest on, the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Security at the
times, place and rate, and in the coin or currency, herein prescribed.
Interest on this Security shall be calculated on the basis of a 360-day year of twelve 30-day months.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein and herein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same.
This Security is exchangeable only if (x) the Depository notifies the Company that it is unwilling or unable to continue as Depository for this global Note or if at any time the Depository ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, or (y) the Company in its sole discretion determines that this Note shall, be exchangeable for certificated Notes in registered form, provided that the certificated Notes so issued by the Company in exchange for this permanent global Note shall be in denominations of $1,000 and any integral multiple of $1,000 in excess thereof and be of like aggregate principal amount and tenor as the portion of this permanent global Note to be exchanged, and provided further that, unless the Company agrees otherwise, Notes of this series in certificated registered form will be issued in exchange for this permanent global Note, or any portion hereof, only if such Notes in certificated registered form were requested by written notice to the Trustee or the Security Registrar by or on behalf of a Person who is the beneficial owner of an interest herein given through the Holder hereof. Except as provided above, owners of beneficial interests in this permanent global Note will not be entitled to receive physical delivery of Notes in certificated registered form and
will not be considered the Holders thereof for any purpose under the Indenture.
No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
This Security shall be construed in accordance with and governed by the laws of the State of New York, without regard to conflicts of laws principles thereof.
All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE
the within Note of WESTERN ATLAS INC. and does hereby irrevocably constitute and appoint
attorney to transfer the said Note on the books of the Company, with full power of substitution in the premises.
NOTICE: The signature of this assignment must correspond with the name as written upon the within instrument in every particular, without alteration or enlargement or any change whatever.
WESTERN ATLAS INC.
7-7/8% Note due 2004
If this Security is registered in the name of The Depository Trust Company (the "Depositary") (55 Water Street, New York, New York) or its nominee, this Security may not be transferred except as a whole by the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary unless and until this Security is exchanged in whole or in part for Securities in definitive form. Unless this certificate is presented by an authorized representative of the Depositary to the Company or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of the Depositary and any payment is made to Cede & Co. or such other entity as is requested by such authorized representative, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. CUSIP No.: 957674 AC 8 No. N-2 $100,000,000 WESTERN ATLAS INC., a corporation duly organized and existing under the |
laws of the State of Delaware (herein called the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of One Hundred Million Dollars on June 15, 2004, and to pay interest thereon from June 15, 1994 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on June
and December 15 in each year, commencing December 15, 1994, at the rate of 7-7/8% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the June 1 or December 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of and any such interest on this Security will be made at the office or agency of the Company maintained for that purpose in The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.
WESTERN ATLAS INC.
By /s/ ALTON J. BRAUN ----------------------------------- [Seal] Attest: By /s/ VIRGINIA S. YOUNG ----------------------------- TRUSTEE'S CERTIFICATE OF AUTHENTICATION Dated: |
This is one of the Securities referred to in the within-mentioned Indenture.
The Bank of New York, as Trustee,
[Reverse of Security]
This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of May 15, 1994 (herein called the "Indenture"), between the Company and The Bank of New York, as Trustee (herein called the "Trustee", which term any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $250,000,000.
The Securities of this series may not be redeemed prior to maturity.
If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of, and all accrued and unpaid interest on, the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Security at the
times, place and rate, and in the coin or currency, herein prescribed.
Interest on this Security shall be calculated on the basis of a 360-day year of twelve 30-day months.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein and herein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same.
This Security is exchangeable only if (x) the Depository notifies the Company that it is unwilling or unable to continue as Depository for this global Note or if at any time the Depository ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, or (y) the Company in its sole discretion determines that this Note shall be exchangeable for certificated Notes in registered form, provided that the certificated Notes so issued by the Company in exchange for this permanent global Note shall be in denominations of $1,000 and any integral multiple of $1,000 in excess thereof and be of like aggregate principal amount and tenor as the portion of this permanent global Note to be exchanged, and provided further that, unless the Company agrees otherwise, Notes of this series in certificated registered form will be issued in exchange for this permanent global Note, or any portion hereof, only if such Notes in certificated registered form were requested by written notice to the Trustee or the Security Registrar by or on behalf of a Person who is the beneficial owner of an interest herein given through the Holder hereof. Except as provided above, owners of beneficial interests in this permanent global Note will not be entitled to receive physical delivery of Notes in certificated registered form and
will not be considered the Holders thereof for any purpose under the Indenture.
No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
This security shall be construed in accordance with and governed by the laws of the State of New York, without regard to conflicts of laws principles thereof.
All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING
POSTAL ZIP CODE OF ASSIGNEE
the within Note of WESTERN ATLAS INC. and does hereby irrevocably constitute and appoint
attorney to transfer the said Note on the books of the Company, with full power of substitution in the premises.
NOTICE: The signature of this assignment must correspond with the name as written upon the within instrument in every particular, without alteration or enlargement or any change whatever.
EXHIBIT 10.44
[BAKER HUGHES LOGO]
BAKER HUGHES INCORPORATED
STOCK OPTION AGREEMENT
<<FULL_NAME_2>>
GRANTEE
Date of Grant: JULY 28, 2004 Total Number of Shares Granted: <<AWARD_AMT>> Exercise Price per Share: $39.23 Expiration Date: JULY 28, 2014 Term of Award; Vesting Schedule: 3 YEARS, WITH VESTING OF 33 1/3% ON THE ANNIVERSARY DATE OF THE DATE OF GRANT IN EACH OF THE YEARS 2005, 2006, AND 2007. Other Terms of Award: TERMS AND CONDITIONS ARE PROVIDED UPON REQUEST AND ARE LOCATED ON THE BHI INTRANET AT: HTTP://INTERCHANGE/HUMANRESOURCES/COMPENSATION |
GRANT OF OPTION
Pursuant to action taken by the Compensation Committee of the Board of Directors of Baker Hughes Incorporated, a Delaware corporation (the "Company"), for the purposes of administration of the BAKER HUGHES INCORPORATED <<PLAN_NAME>> (the "Plan"), thE above-named Grantee is hereby granted <<TYPE_SPELLED>> stock option to purchase the above number of shares of the Company's $1 par value per share common stock at the exercise price stated above for each share subject to this option, with the exercise price payable at the time of exercise. This option may not be exercised after the Expiration Date.
By your acceptance of the option, you agree that the option is granted under and governed by the terms of the Plan, this Stock Option Agreement and the Terms and Conditions of Option Agreements (dated July 28, 2004).
BAKER HUGHES INCORPORATED
/s/ Michael E. Wiley Michael E. Wiley - Chairman & CEO |
BAKER HUGHES INCORPORATED
TERMS AND CONDITIONS
OF
OPTION AGREEMENTS
(JULY 28, 2004)
These Terms and Conditions are applicable to options granted pursuant to the Baker Hughes Incorporated [2002 Employee Long-Term Incentive Plan/2002 Director & Officer Long-Term Incentive Plan] (the "Plan").
1. TERMINATION OF EMPLOYMENT. The following provisions will apply in the event of Grantee's termination of employment:
1.1 Termination Generally. If Grantee's employment is terminated for any reason other than
(i) a termination covered by Sections 1.2 through 1.6, or
(ii) a termination, within two years following a Change in Control (as defined in the Plan) that occurs after the Date of Grant, either (A) by the Company without Cause (as defined in the Plan) or (B) by the Grantee for Good Reason (as defined in the Plan),
the option will wholly and completely terminate on the date of termination of employment, to the extent it is not then exercisable; however, to the extent the option is exercisable, Grantee shall have three years from the date of termination of employment to exercise the option (but in no event later than the Expiration Date).
1.2 Termination for Cause. If Grantee's employment is terminated for cause, including (without limitation) fraud, theft, embezzlement committed against the Company or any of its affiliated companies or a customer of the Company, or for conflict of interest, unethical conduct, dishonesty affecting the assets, properties or business of the Company or any of its affiliated companies, willful misconduct, or continued material dereliction of duties, the option will wholly and completely terminate on the date of termination of employment if such termination occurs (i) prior to a Change of Control that occurs after the Date of Grant or (ii) after the second anniversary of a Change of Control that occurs after the Date of Grant. If Grantee's employment is terminated for Cause (as defined in the Plan), the option will wholly and completely terminate on the date thirty days following such termination (but not later than the Expiration Date) if such termination occurs within two years following a Change of Control that occurs after the Date of Grant.
1.3 Termination without Cause or for Good Reason in Connection with a Change in Control. Notwithstanding any other provision of this Stock Option Agreement to the contrary, if a Change in Control of the Company occurs, the provisions of Article 14 of the Plan shall govern.
1.4 Divestiture of Business Unit. If the Company divests its ownership in a business unit that employs the Grantee, then the option will be deemed to be fully vested on the effective date of the Divestiture of the business unit. The Grantee will have three years in which to exercise the option. A "Divestiture" includes the disposition of any business unit of the Company and its subsidiaries to an entity that the Company does not consolidate in its financial statements, whether the disposition is structured as a sale or transfer of stock, a merger, a consolidation or a sale or transfer of assets, or a combination thereof, provided that a "Divestiture" shall not include a disposition that constitutes a Change in Control.
1.5 Retirement or Disability. In the event of the retirement (such that the Grantee's age plus years of service with the Company equals or exceeds 65) or long-term disability of the Grantee, as long-term disability is determined in the discretion of the Committee (as defined in the Plan), all granted but unvested options shall immediately vest upon the Grantee's retirement or long-term disability. The Grantee shall have five years from the date of termination of employment due to retirement or long-term disability to exercise the option (but not later than the Expiration Date).
1.6 Death. Upon the death of the Grantee in active service, all granted but unvested options shall immediately vest upon the Grantee's death and otherwise shall be exercisable for a period of one year following Grantee's death (but in no event later than the Expiration Date).
2. PROHIBITED ACTIVITY. Notwithstanding any other provision of this Stock Option Agreement, if Grantee engages in a "Prohibited Activity," as described below, while employed by the Company or any of its affiliates or within two years after Grantee's employment termination date, then Grantee's right to exercise any portion of the option, to the extent still outstanding at that time, shall immediately thereupon wholly and completely terminate. If an allegation of a Prohibited Activity by Grantee is made to the Committee, the Committee, in its discretion, may suspend the exercisability of the option for up to two months to permit the investigation of such allegation. If it is determined that no Prohibited Activity was engaged in by Grantee, the period of exercisability of the option will be increased by the amount of time of the suspension; however, in no event will the option be exercisable more than ten years from the date of grant. A "Prohibited Activity" shall be deemed to have occurred, as determined by the Committee in its sole and absolute discretion, if Grantee:
(i) divulges any non-public, confidential or proprietary information of the Company or of its past, present or future affiliates (collectively, the "Baker Hughes Group"), but excluding information that (a) becomes generally available to the public other than as a result of Grantee's public use, disclosure, or fault, or (b) becomes available to Grantee on a non-confidential basis after Grantee's employment termination date from a source other than a member of the Baker Hughes Group prior to the public use or disclosure by Grantee, provided that such source is not bound by a confidentiality agreement or otherwise prohibited from transmitting the information by a contractual, legal or fiduciary obligation; or
(ii) directly or indirectly, consults or becomes affiliated with, conducts, participates or engages in, or becomes employed by, any business that is competitive with the business of any member of the Baker Hughes Group, wherever from time to time conducted throughout the world, including situations where Grantee solicits or participates in or assists in any way in the solicitation or recruitment, directly or indirectly, of any employees of any member of the Baker Hughes Group.
3. CASHLESS EXERCISE. Cashless exercise, in accordance with the terms of the Plan, shall be available to Grantee for the shares subject to the option.
4. TAX WITHHOLDING. To the extent the exercise of the option results in taxable income to Grantee, the Company is authorized to withhold from any remuneration payable to Grantee any tax required to be withheld by reason of such taxable income.
5. NONTRANSFERABILITY. The option is not transferable by the Grantee otherwise than by will or by the laws of descent and distribution, and is exercisable during the Grantee's lifetime only by the Grantee.
6. LIMIT OF LIABILITY. Under no circumstances will the Company be liable for any indirect, incidental, consequential or special damages (including lost profits) of any form incurred by any person, whether or not foreseeable and regardless of the form of the act in which such a claim may be brought, with respect to the Plan or the Company's role as Plan sponsor.
7. MISCELLANEOUS. The option is granted under and is subject to all of the provisions of the Plan, including amendments to the Plan, if any. In the event of a conflict between these Terms and Conditions and the Plan provisions, the Plan provisions will control. Capitalized terms that are not defined herein shall have the meaning ascribed to such terms in the Plan.
[BAKER HUGHES LOGO]
EXHIBIT 10.48
BAKER HUGHES INCORPORATED
STOCK OPTION AGREEMENT
<<FULL_NAME>>
GRANTEE
Date of Grant: JANUARY 26, 2005 Total Number of Shares Granted: <<JAN_SO>> Exercise Price per Share: $42.60 Expiration Date: JANUARY 26, 2015 Term of Award; Vesting Schedule: 3 YEARS, WITH VESTING OF 33 1/3% ON THE ANNIVERSARY DATE OF THE DATE OF GRANT IN EACH OF THE YEARS 2006, 2007, AND 2008. Other Terms of Award: TERMS AND CONDITIONS ARE PROVIDED UPON REQUEST AND ARE LOCATED ON THE BHI INTRANET AT: HTTP://INTERCHANGE/HUMANRESOURCES/COMPENSATION |
GRANT OF OPTION
Pursuant to action taken by the Compensation Committee of the Board of Directors of Baker Hughes Incorporated, a Delaware corporation (the "Company"), for the purposes of administration of the BAKER HUGHES INCORPORATED <<PLAN_NAME>> (the "Plan"), the above-named Grantee is hereby granted <<Type>> stock option to purchase the above number of shares of the Company's $1 par value per share common stock at the exercise price stated above for each share subject to this option, with the exercise price payable at the time of exercise. This option may not be exercised after the Expiration Date.
By your acceptance of the option, you agree that the option is granted under and governed by the terms of the Plan, this Stock Option Agreement and the Terms and Conditions of Option Agreements (dated January 26, 2005).
BAKER HUGHES INCORPORATED
/s/ Chad C. Deaton ---------------------------------- Chad C. Deaton - Chairman & CEO |
BAKER HUGHES INCORPORATED
TERMS AND CONDITIONS
OF
OPTION AGREEMENTS
(JANUARY 26, 2005)
These Terms and Conditions are applicable to options granted pursuant to the Baker Hughes Incorporated [2002 Director & Officer Long-Term Incentive Plan/2002 Employee Long-Term Incentive Plan] (the "Plan").
1. TERMINATION OF EMPLOYMENT. The following provisions will apply in the event of Grantee's termination of employment:
1.1 Termination Generally. If Grantee's employment is terminated for any reason other than
(i) a termination covered by Sections 1.2 through 1.6, or
(ii) a termination, within two years following a Change in Control (as defined in the Plan) that occurs after the Date of Grant, either (A) by the Company without Cause (as defined in the Plan) or (B) by the Grantee for Good Reason (as defined in the Plan),
the option will wholly and completely terminate on the date of termination of employment, to the extent it is not then exercisable; however, to the extent the option is exercisable, Grantee shall have three years from the date of termination of employment to exercise the option (but in no event later than the Expiration Date).
1.2 Termination for Cause. If Grantee's employment is terminated for cause, including (without limitation) fraud, theft, embezzlement committed against the Company or any of its affiliated companies or a customer of the Company, or for conflict of interest, unethical conduct, dishonesty affecting the assets, properties or business of the Company or any of its affiliated companies, willful misconduct, or continued material dereliction of duties, the option will wholly and completely terminate on the date of termination of employment if such termination occurs (i) prior to a Change of Control that occurs after the Date of Grant or (ii) after the second anniversary of a Change of Control that occurs after the Date of Grant. If Grantee's employment is terminated for Cause (as defined in the Plan), the option will wholly and completely terminate on the date thirty days following such termination (but not later than the Expiration Date) if such termination occurs within two years following a Change of Control that occurs after the Date of Grant.
1.3 Termination without Cause or for Good Reason in Connection with a Change in Control. Notwithstanding any other provision of this Stock Option Agreement to the contrary, if a Change in Control of the Company occurs, the provisions of Article 14 of the Plan shall govern.
1.4 Divestiture of Business Unit. If the Company divests its ownership in a business unit that employs the Grantee, then the option will be deemed to be fully vested on the effective date of the Divestiture of the business unit. The Grantee will have three years in which to exercise the option. A "Divestiture" includes the disposition of any business unit of the Company and its subsidiaries to an entity that the Company does not consolidate in its financial statements, whether the disposition is structured as a sale or transfer of stock, a merger, a consolidation or a sale or transfer of assets, or a combination thereof, provided that a "Divestiture" shall not include a disposition that constitutes a Change in Control.
1.5 Retirement or Disability. In the event of the retirement (such that the Grantee's age plus years of service with the Company equals or exceeds 65) or long-term disability of the Grantee, as long-term disability is determined in the discretion of the Committee (as defined in the Plan), all granted but unvested options shall immediately vest upon the Grantee's retirement or long-term disability. The Grantee shall have five years from the date of termination of employment due to retirement or long-term disability to exercise the option (but not later than the Expiration Date).
1.6 Death. Upon the death of the Grantee in active service, all granted but unvested options shall immediately vest upon the Grantee's death and otherwise shall be exercisable for a period of one year following Grantee's death (but in no event later than the Expiration Date).
2. PROHIBITED ACTIVITY. Notwithstanding any other provision of this Stock Option Agreement, if Grantee engages in a "Prohibited Activity," as described below, while employed by the Company or any of its affiliates or within two years after Grantee's employment termination date, then Grantee's right to exercise any portion of the option, to the extent still outstanding at that time, shall immediately thereupon wholly and completely terminate. If an allegation of a Prohibited Activity by Grantee is made to the Committee, the Committee, in its discretion, may suspend the exercisability of the option for up to two months to permit the investigation of such allegation. If it is determined that no Prohibited Activity was engaged in by Grantee, the period of exercisability of the option will be increased by the amount of time of the suspension; however, in no event will the option be exercisable more than ten years from the date of grant. A "Prohibited Activity" shall be deemed to have occurred, as determined by the Committee in its sole and absolute discretion, if Grantee:
(i) divulges any non-public, confidential or proprietary information of the Company or of its past, present or future affiliates (collectively, the "Baker Hughes Group"), but excluding information that (a) becomes generally available to the public other than as a result of Grantee's public use, disclosure, or fault, or (b) becomes available to Grantee on a non-confidential basis after Grantee's employment termination date from a source other than a member of the Baker Hughes Group prior to the public use or disclosure by Grantee, provided that such source is not bound by a confidentiality agreement or otherwise prohibited from transmitting the information by a contractual, legal or fiduciary obligation; or
(ii) directly or indirectly, consults or becomes affiliated with, conducts, participates or engages in, or becomes employed by, any business that is competitive with the business of any member of the Baker Hughes Group, wherever from time to time conducted throughout the world, including situations where Grantee solicits or participates in or assists in any way in the solicitation or recruitment, directly or indirectly, of any employees of any member of the Baker Hughes Group.
3. CASHLESS EXERCISE. Cashless exercise, in accordance with the terms of the Plan, shall be available to Grantee for the shares subject to the option.
4. TAX WITHHOLDING. To the extent the exercise of the option results in taxable income to Grantee, the Company is authorized to withhold from any remuneration payable to Grantee any tax required to be withheld by reason of such taxable income.
5. NONTRANSFERABILITY. The option is not transferable by the Grantee otherwise than by will or by the laws of descent and distribution, and is exercisable during the Grantee's lifetime only by the Grantee.
6. LIMIT OF LIABILITY. Under no circumstances will the Company be liable for any indirect, incidental, consequential or special damages (including lost profits) of any form incurred by any person, whether or not foreseeable and regardless of the form of the act in which such a claim may be brought, with respect to the Plan or the Company's role as Plan sponsor.
7. MISCELLANEOUS. The option is granted under and is subject to all of the provisions of the Plan, including amendments to the Plan, if any. In the event of a conflict between these Terms and Conditions and the Plan provisions, the Plan provisions will control. Capitalized terms that are not defined herein shall have the meaning ascribed to such terms in the
Plan.
EXHIBIT 10.49
BAKER HUGHES INCORPORATED
RESTRICTED STOCK AWARD AGREEMENT
AWARDEE
DATE OF AWARD:
NUMBER OF SHARES:
AWARD OF RESTRICTED STOCK
The Compensation Committee (the "Committee") of the Board of Directors of Baker Hughes Incorporated, a Delaware corporation (the "Company"), pursuant to the Baker Hughes Incorporated 2002 Director & Officer Long-Term Incentive Plan (the "Plan"), hereby awards to you, the above-named awardee, effective as of the Date of Award set forth above (the "Date of Award"), that number of shares (the "Shares") of the Company's Common Stock, $1.00 par value per share (the "Common Stock"), set forth above as Restricted Stock on the following terms and conditions:
During the Restricted Period, the Shares of Restricted Stock will be evidenced by entries in the stock register of the Company reflecting that such Shares of Restricted Stock have been issued in your name. For purposes of this Agreement, the term "Restricted Period" means the period designated by the Committee during which the Shares may not be sold, assigned, transferred, pledged, or otherwise encumbered.
The Shares that are awarded hereby to you as Restricted Stock shall be subject to the prohibitions and restrictions set forth herein with respect to the sale or other disposition of such Shares and the obligation to forfeit and surrender such Shares to the Company (the "Forfeiture Restrictions"). The Forfeiture Restrictions shall lapse as to the Shares that are awarded hereby in accordance with the following schedule provided that your employment with the Company and its Affiliates has not terminated prior to the applicable lapse date:
(a) on the first anniversary of the Date of Award, the Forfeiture Restrictions shall lapse as to one-third of the Shares subject to this Agreement; and
(b) on each succeeding anniversary of the Date of Award, the Forfeiture Restrictions shall lapse as to an additional one-third of the Shares subject to this Agreement, so that on the third anniversary of the Date of Award the Forfeiture Restrictions shall lapse as to all of the Shares subject to this Agreement.
If a Change in Control of the Company occurs or your employment with the Company and all Affiliates terminates before the third anniversary of the Date of Award, your rights to the Shares of Restricted Stock under this Agreement will be determined as provided in the attached Terms and Conditions of Award Agreements (dated ________________) (the "Terms and Conditions").
The Shares of Restricted Stock awarded hereby may not be sold, assigned, pledged, exchanged, hypothecated or otherwise transferred, encumbered or disposed of (other than by will or the applicable laws of descent and distribution) to the extent then subject to the Forfeiture Restrictions. Any such attempted sale, assignment, pledge, exchange, hypothecation, transfer, encumbrance or disposition in violation of this Agreement shall be void and the Company shall not be bound thereby. Further, the Shares awarded hereby that are no longer subject to Forfeiture Restrictions may not be sold or otherwise disposed of in any manner that would constitute a violation of any applicable federal or state securities laws. You also agree that (a) the Company may refuse to cause the transfer of the Shares to be registered on the stock register of the Company if such proposed transfer would in the opinion of counsel satisfactory to the Company constitute a violation of any applicable securities law and (b) the Company may give related instructions to the transfer agent, if any, to stop registration of the transfer of the Shares.
Upon the lapse of the Forfeiture Restrictions with respect to Shares awarded hereby the Company shall cause to be delivered to you a stock certificate representing such Shares, and such Shares shall be transferable by you (except to the extent that any proposed transfer would, in the opinion of counsel satisfactory to the Company, constitute a violation of applicable securities law).
The Shares that may be issued under the Plan are registered with the Securities and Exchange Commission under a Registration Statement on Form S-8. A Prospectus describing the Plan and the Shares can be found on the Baker Hughes Interchange at http://interchange/legal/Benefit%20Plans/benefit.htm.
Capitalized terms that are not defined herein shall have the meaning ascribed to such terms in the Plan or the Terms and Conditions.
In accepting the award of Shares of Restricted Stock set forth in this Agreement you accept and agree to be bound by all the terms and conditions of the Plan, this Agreement and the Terms and Conditions.
BAKER HUGHES INCORPORATED
/s/ Chad C. Deaton --------------------------------- Chad C. Deaton -- Chairman & CEO |
EXHIBIT 10.50
BAKER HUGHES INCORPORATED
TERMS AND CONDITIONS
OF
AWARD AGREEMENTS
1. TERMINATION OF EMPLOYMENT. The following provisions will apply in the event your employment with the Company and all wholly-owned subsidiaries of the Company (collectively, the "Company Group") terminates before the third anniversary of the Date of Award (the "Third Anniversary Date") under the Restricted Stock Award Agreement awarded to you (the "Agreement"):
1.1 Termination Generally. If your employment with the Company Group terminates on or before the Third Anniversary Date for any reason other than one of the reasons described in Sections 1.2 through 1.5 below, the Forfeiture Restrictions then applicable to the Shares of Restricted Stock shall not lapse and the number of Shares of Restricted Stock then subject to the Forfeiture Restrictions shall be forfeited to the Company on the date your employment terminates.
1.2 Potential or Actual Change in Control.
(i) Termination Without Cause or for Good Reason in Connection With a Potential Change in Control Before the Third Anniversary Date. If (a) the Company Group terminates your employment without Cause on or before the Third Anniversary Date prior to a Change in Control of the Company (whether or not a Change in Control ever occurs) and such termination is at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control of the Company or is otherwise in connection with or in anticipation of a Change in Control of the Company (whether or not a Change in Control ever occurs) or (b) you terminate your employment with the Company Group for Good Reason on or before the Third Anniversary Date prior to a Change in Control of the Company (whether or not a Change in Control ever occurs), and such termination or the circumstance or event which constitutes Good Reason occurs at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control of the Company or is otherwise in connection with or in anticipation of a Change in Control of the Company (whether or not a Change in Control ever occurs), then all remaining Forfeiture Restrictions shall immediately lapse on the date of the termination of your employment relationship.
(ii) Employment Not Terminated Before a Change in Control on or Before the Third Anniversary Date. If a Change in Control of the Company occurs on or before the Third Anniversary Date and your employment with the Company
Group does not terminate before the date the Change in Control of the Company occurs, then all remaining Forfeiture Restrictions shall immediately lapse on the date the Change in Control of the Company occurs.
1.3 Divestiture of Business Unit. Notwithstanding any other provision of the Agreement or these Terms and Conditions to the contrary, if the Company Group divests its ownership of a business unit of the Company or one or more subsidiaries (a "Unit") and your employment with the Company Group terminates in connection with such divestiture (other than for Cause or death or due to your becoming permanently disabled within the meaning of Section 1.4), the Forfeiture Restrictions shall immediately lapse as to that number of Shares of Restricted Stock that are then subject to Forfeiture Restrictions on the date of the termination of your employment relationship with the Company Group equal to:
(1) multiplied by (2) divided by (3)
where (1) is the number of Shares of Restricted Stock that are then subject to Forfeiture Restrictions on the date of the termination of your employment relationship with the Company Group, (2) is the number of days during the period commencing on the Date of Award and ending on the date your employment relationship with the Company Group and all of its Affiliates is terminated, and (3) is the number of days during the period commencing on the Date of Award and ending on the Third Anniversary Date. The Forfeiture Restrictions then applicable to all the remaining Shares of the Restricted Stock after the application of the previous provisions of this Section 1.3 shall not lapse and such Shares of Restricted Stock shall be immediately forfeited to the Company. A "Divestiture" includes the disposition of a Unit to an entity that the Company does not consolidate in its financial statements, whether the disposition is structured as a sale or transfer of stock, a merger, a consolidation or a sale or transfer of assets, or a combination thereof, provided that a "Divestiture" shall not include a disposition that constitutes a Change in Control.
1.4 Disability. Notwithstanding any other provision of the Agreement or these Terms and Conditions to the contrary, if you become permanently disabled before the Third Anniversary Date and while in the active employ of one or more members of the Company Group, all remaining Forfeiture Restrictions shall immediately lapse on the date of the termination of your employment due to your becoming permanently disabled. For purposes of this Section 1.4, you will be "permanently disabled" if you qualify for long-term disability benefits under a long-term disability program sponsored by the Company.
1.5 Death. Notwithstanding any other provision of the Agreement or these Terms and Conditions to the contrary, if you die before the Third Anniversary Date and while in the active employ of one or more members of the Company Group, all remaining Forfeiture Restrictions shall immediately lapse on the date of the termination of your employment due to death.
2. PROHIBITED ACTIVITY. Notwithstanding any other provision of these Terms and Conditions or the Agreement, if you engage in a "Prohibited Activity," as described below, while employed by one or more members of the Company Group or within two years after the date your employment with the Company Group terminates, then your right to receive the Shares, to the extent still outstanding at that time, shall be completely forfeited. A "Prohibited Activity" shall be deemed to have occurred, as determined by the Committee in its sole and absolute discretion, if you divulge any non-public, confidential or proprietary information of the Company or of its past, present or future affiliates (collectively, the "Baker Hughes Group"), but excluding information that (a) becomes generally available to the public other than as a result of your public use, disclosure, or fault, or (b) becomes available to you on a non-confidential basis after your employment termination date from a source other than a member of the Baker Hughes Group prior to the public use or disclosure by you, provided that such source is not bound by a confidentiality agreement or otherwise prohibited from transmitting the information by a contractual, legal or fiduciary obligation.
3. TAX WITHHOLDING. To the extent that the receipt of the Shares of Restricted Stock or the lapse of any Forfeiture Restrictions results in income to you for federal, state or local income, employment or other tax purposes with respect to which the Company has a withholding obligation, you shall deliver to the Company at the time of such receipt or lapse, as the case may be, such amount of money as the Company may require to meet its obligation under applicable tax laws or regulations, and, if you fail to do so, the Company is authorized to withhold from the Shares awarded hereby or from any cash or stock remuneration then or thereafter payable to you any tax required to be withheld by reason of such taxable income, including (without limitation) Shares of the Restricted Stock sufficient to satisfy the withholding obligation based on the last per share sales price of the Common Stock for the trading day immediately preceding the date that the withholding obligation arises, as reported in the New York Stock Exchange Composite Transactions.
4. NONTRANSFERABILITY. The Agreement is not transferable by you otherwise than by will or by the laws of descent and distribution.
5. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The existence of the Shares of Restricted Stock shall not affect in any way the right or power of the Company or any company the stock of which is awarded pursuant to the Agreement to make or authorize any adjustment, recapitalization, reorganization or other change in its capital structure or its business, engage in any merger or consolidation, issue any debt or equity securities, dissolve or liquidate, or sell, lease, exchange or otherwise dispose of all or any part of its assets or business, or engage in any other corporate act or proceeding.
6. RIGHTS REGARDING DISTRIBUTIONS MADE BY THE COMPANY DURING THE RESTRICTED PERIOD. During the Restricted Period, (a) any securities of the Company distributed by the Company in respect of the Shares of Restricted Stock will be evidenced by entries in the appropriate securities register of the Company reflecting that such securities of the Company, if any, have been issued in your name (the "Retained Company Securities") and (b) any securities of any company other than the Company or
any other property (other than regular cash dividends) distributed by the Company in respect of the Shares of Restricted Stock will be evidenced in your name by such certificates or in such other manner as the Company determines (the "Retained Other Securities and Property") and shall bear a restrictive legend to the effect that ownership of such Retained Other Securities and Property and the enjoyment of all rights appurtenant thereto, are subject to the restrictions, terms, and conditions provided in the Plan, the Agreement and these Terms and Conditions. The Retained Company Securities and the Retained Other Securities and Property (collectively, the "Retained Distributions") shall be subject to the same restrictions, terms and conditions as are applicable to the Shares of Restricted Stock.
7. RIGHTS WITH RESPECT TO SHARES OF RESTRICTED STOCK AND RETAINED DISTRIBUTIONS DURING RESTRICTED PERIOD. You shall have the right to vote the Shares of Restricted Stock awarded to you and to receive and retain all regular cash dividends, and to exercise all other rights, powers and privileges of a holder of the Common Stock, with respect to such Shares of Restricted Stock, with the exception that (a) you shall not be entitled to delivery of a stock certificate or certificates representing such Shares of Restricted Stock until the Forfeiture Restrictions applicable thereto shall have lapsed, (b) the Company shall retain custody of all Retained Distributions made or declared with respect to the Shares of Restricted Stock until such time, if ever, as the Forfeiture Restrictions applicable to the Shares of Restricted Stock with respect to which such Retained Distributions shall have been made, paid, or declared shall have lapsed, and such Retained Distributions shall not bear interest or be segregated in separate accounts and (c) you may not sell, assign, transfer, pledge, exchange, encumber, or dispose of the Shares of Restricted Stock or any Retained Distributions during the Restricted Period. During the Restricted Period, the Company may, in its sole discretion, issue certificates for some or all of the Shares of Restricted Stock, in which case all such certificates shall be delivered to the Corporate Secretary of the Company or to such other depository as may be designated by the Committee as a depository for safekeeping until the forfeiture of such Shares of Restricted Stock occurs or the Forfeiture Restrictions lapse. When requested by the Company, you shall execute such stock powers or other instruments of assignment as the Company requests relating to transfer to the Company of all or any portion of such Shares of Restricted Stock and any Retained Distributions that are forfeited in accordance with the Plan, the Agreement and these Terms and Conditions.
8. EMPLOYMENT RELATIONSHIP. For purposes of the Agreement, you shall be considered to be in the employment of the Company as long as you have an employment relationship with the Company. The Committee shall determine any questions as to whether and when there has been a termination of such employment relationship, and the cause of such termination, under the Plan and the Committee's determination shall be final and binding on all persons.
9. SECTION 83(B) ELECTION. You shall not exercise the election permitted under Section 83(b) of the Code with respect to the Shares of Restricted Stock without the written approval of the Chief Financial Officer of the Company.
10. NO FRACTIONAL SHARES. All provisions of the Agreement concern whole Shares. If the application of any provision hereunder would yield a fractional share, such fractional share shall be rounded down to the next whole share if it is less than 0.5 and rounded up to the next whole share if it is 0.5 or more.
11. NOT AN EMPLOYMENT AGREEMENT. The Agreement is not an employment agreement, and no provision of the Agreement shall be construed or interpreted to create an employment relationship between you and the Company or any of its Affiliates or guarantee the right to remain employed by the Company or any of its Affiliates for any specified term.
12. SECURITIES ACT LEGEND. If you are an officer or affiliate of the Company under the Securities Act of 1933, you consent to the placing on any certificate for the Shares of an appropriate legend restricting resale or other transfer of the Shares except in accordance with such Act and all applicable rules thereunder.
13. LIMIT OF LIABILITY. Under no circumstances will the Company be liable for any indirect, incidental, consequential or special damages (including lost profits) of any form incurred by any person, whether or not foreseeable and regardless of the form of the act in which such a claim may be brought, with respect to the Plan or the Company's role as Plan sponsor.
14. MISCELLANEOUS. The Agreement is awarded pursuant to and is subject to all of the provisions of the Plan, including amendments to the Plan, if any. In the event of a conflict between these Terms and Conditions and the Plan provisions, the Plan provisions will control. The term "you" and "your" refer to the Awardee named in the Agreement. Capitalized terms that are not defined herein shall have the meanings ascribed to such terms in the Plan or the Agreement.
EXHIBIT 10.51
BAKER HUGHES INCORPORATED
RESTRICTED STOCK UNIT AWARD AGREEMENT
AWARDEE
DATE OF AWARD:
NUMBER OF RESTRICTED STOCK UNITS:
AWARD OF RESTRICTED STOCK UNITS
The Compensation Committee (the "Committee") of the Board of Directors of Baker Hughes Incorporated, a Delaware corporation (the "Company"), pursuant to the Baker Hughes Incorporated [2002 Employee Long-Term Incentive Plan/2002 Director & Officer Long-Term Incentive Plan] (the "Plan"), hereby awards to you, the above-named awardee, effective as of the Date of Award set forth above (the "Date of Award"), that number of restricted stock units set forth above (the "Restricted Stock Units"), on the following terms and conditions:
The Restricted Stock Units that are awarded hereby to you shall be subject to the prohibitions and restrictions set forth herein with respect to the sale or other disposition of such Restricted Stock Units and the obligation to forfeit and surrender such Restricted Stock Units to the Company (the "Forfeiture Restrictions"). The Forfeiture Restrictions shall lapse as to the Restricted Stock Units that are awarded hereby in accordance with the following schedule provided that your employment with the Company and its Affiliates has not terminated prior to the applicable lapse date:
(a) on the first anniversary of the Date of Award, the Forfeiture Restrictions shall lapse as to one-third of the Restricted Stock Units subject to this Agreement; and
(b) on each succeeding anniversary of the Date of Award, the Forfeiture Restrictions shall lapse as to an additional one-third of the Restricted Stock Units subject to this Agreement, so that on the third anniversary of the Date of Award the Forfeiture Restrictions shall lapse as to all of the Restricted Stock Units subject to this Agreement.
If a Change in Control of the Company occurs or your employment with the Company and all Affiliates terminates before the third anniversary of the Date of Award, your rights to the Restricted Stock Units under this Agreement will be determined as provided in the attached Terms and Conditions of Award Agreements (dated ________________) (the "Terms and Conditions").
Upon the lapse of the Forfeiture Restrictions applicable to a Restricted Stock Unit that is awarded hereby, the Company shall issue to you one share of the Company's Common Stock, $1.00 par value per share (the "Common Stock"), in exchange for such Restricted Stock Unit and thereafter you shall have no further rights with respect to such Restricted Stock Unit. The Company shall cause to be delivered to you a stock certificate representing those shares of the Common Stock issued in exchange for Restricted Stock Units awarded hereby, and such shares of the Common Stock shall be transferable by you (except to the extent that any proposed transfer would, in the opinion of counsel satisfactory to the Company, constitute a violation of applicable securities law).
If during the period you hold any Restricted Stock Units awarded hereby the Company pays a dividend in cash with respect to the outstanding shares of the Common Stock (a "Cash Dividend"), then the Company will pay in cash to you, as soon as administratively practicable after the payment of such Cash Dividend, an amount equal to the product of (a) the Restricted Stock Units awarded hereby that have not been forfeited to the Company or exchanged by the Company for shares of the Common Stock and (b) the amount of the Cash Dividend paid per share of the Common Stock.
If during the period you hold any Restricted Stock Units awarded hereby the Company pays a dividend in shares of the Common Stock with respect to the outstanding shares of the Common Stock, then the Company will increase the Restricted Stock Units awarded hereby that have not then been exchanged by the Company for shares of the Common Stock by an amount equal to the product of (a) the Restricted Stock Units awarded hereby that have not been forfeited to the Company or exchanged by the Company for shares of the Common Stock and (b) the number of shares of the Common Stock paid by the Company per share of the Common Stock (collectively, the "Stock Dividend Restricted Stock Units"). Each Stock Dividend Restricted Stock Unit will be subject to same Forfeiture Restrictions and other restrictions, limitations and conditions applicable to the Restricted Stock Unit for which such Stock Dividend Restricted Stock Unit was awarded and will be exchanged for shares of the Common Stock at the same time and on the same basis as such Restricted Stock Unit.
The Restricted Stock Units may not be sold, assigned, pledged, exchanged, hypothecated or otherwise transferred, encumbered or disposed of (other than by will or the applicable laws of descent and distribution). Any such attempted sale, assignment, pledge, exchange, hypothecation, transfer, encumbrance or disposition in violation of this Agreement shall be void and the Company shall not be bound thereby.
Any shares of the Common Stock issued to you in exchange for Restricted Stock Units awarded hereby may not be sold or otherwise disposed of in any manner that would constitute a violation of any applicable securities laws. You also agree that (a) the Company may refuse to cause the transfer of any such shares of the Common Stock to be registered on the stock register of the Company if such proposed transfer would in the opinion of counsel satisfactory to the Company constitute a violation of any applicable securities law and (b) the Company may give related instructions to the transfer agent, if any, to stop registration of the transfer of such shares of the Common Stock.
The shares of Common Stock that may be issued under the Plan are registered with the Securities and Exchange Commission under a Registration Statement on Form S-8. A Prospectus describing the Plan and the shares of Common Stock can be found on the Baker Hughes Interchange at http://interchange/legal/Benefit%20Plans/benefit.htm.
Capitalized terms that are not defined herein shall have the meaning ascribed to such terms in the Plan or the Terms and Conditions.
In accepting the award of Restricted Stock Units set forth in this Agreement you accept and agree to be bound by all the terms and conditions of the Plan, this Agreement and the Terms and Conditions.
BAKER HUGHES INCORPORATED
/s/ Chad C. Deaton ------------------------------------------ Chad C. Deaton -- Chairman & CEO |
EXHIBIT 10.52
BAKER HUGHES INCORPORATED
TERMS AND CONDITIONS
OF
AWARD AGREEMENTS
1. TERMINATION OF EMPLOYMENT. The following provisions will apply in the event your employment with the Company and all wholly-owned subsidiaries of the Company (collectively, the "Company Group") terminates before the third anniversary of the Date of Award (the "Third Anniversary Date") under the Restricted Stock Unit Award Agreement awarded to you (the "Agreement"):
1.1 Termination Generally. If your employment with the Company Group terminates on or before the Third Anniversary Date for any reason other than one of the reasons described in Sections 1.2 through 1.5 below, the Forfeiture Restrictions then applicable to the Restricted Stock Units shall not lapse and the number of Restricted Stock Units then subject to the Forfeiture Restrictions shall be forfeited to the Company on the date your employment terminates.
1.2 Potential or Actual Change in Control.
(i) Termination Without Cause or for Good Reason in Connection With a Potential Change in Control on or Before the Third Anniversary Date. If (a) the Company Group terminates your employment without Cause on or before the Third Anniversary Date prior to a Change in Control of the Company (whether or not a Change in Control ever occurs) and such termination is at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control of the Company or is otherwise in connection with or in anticipation of a Change in Control of the Company (whether or not a Change in Control ever occurs) or (b) you terminate your employment with the Company Group for Good Reason on or before the Third Anniversary Date prior to a Change in Control of the Company (whether or not a Change in Control ever occurs), and such termination or the circumstance or event which constitutes Good Reason occurs at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control of the Company or is otherwise in connection with or in anticipation of a Change in Control of the Company (whether or not a Change in Control ever occurs), then all remaining Forfeiture Restrictions shall immediately lapse on the date of the termination of your employment relationship.
(ii) Employment Not Terminated Before a Change in Control on or Before the Third Anniversary Date. If a Change in Control of the Company occurs on or before the Third Anniversary Date and your employment with the Company
Group does not terminate before the date the Change in Control of the Company occurs, then all remaining Forfeiture Restrictions shall immediately lapse on the date the Change in Control of the Company occurs.
1.3 Divestiture of Business Unit Notwithstanding any other provision of the Agreement or these Terms and Conditions to the contrary, if the Company Group divests its ownership of a business unit of the Company or one or more subsidiaries (a "Unit") and your employment with the Company Group terminates in connection with such divestiture (other than for Cause or death or due to your becoming permanently disabled within the meaning of Section 1.4), the Forfeiture Restrictions shall immediately lapse as to that number of Restricted Stock Units that are then subject to Forfeiture Restrictions on the date of the termination of your employment relationship with the Company Group equal to:
(1) multiplied by (2) divided by (3)
where (1) is the number of Restricted Stock Units that are then subject to
Forfeiture Restrictions on the date of the termination of your employment
relationship with the Company Group, (2) is the number of days during the
period commencing on the Date of Award and ending on the date your
employment relationship with the Company Group and all of its Affiliates
is terminated, and (3) is the number of days during the period commencing
on the Date of Award and ending on the Third Anniversary Date. The
Forfeiture Restrictions then applicable to all the remaining Restricted
Stock Units after the application of the previous provisions of this
Section 1.3 shall not lapse and such Restricted Stock Units shall be
immediately forfeited to the Company. A "Divestiture" includes the
disposition of a Unit to an entity that the Company does not consolidate
in its financial statements, whether the disposition is structured as a
sale or transfer of stock, a merger, a consolidation or a sale or transfer
of assets, or a combination thereof, provided that a "Divestiture" shall
not include a disposition that constitutes a Change in Control.
1.4 Disability. Notwithstanding any other provision of the Agreement or these Terms and Conditions to the contrary, if you become permanently disabled before the Third Anniversary Date and while in the active employ of one or more members of the Company Group, all remaining Forfeiture Restrictions shall immediately lapse on the date of the termination of your employment due to your becoming permanently disabled. For purposes of this Section 1.4, you will be "permanently disabled" if you qualify for long-term disability benefits under a long-term disability program sponsored by the Company.
1.5 Death. Notwithstanding any other provision of the Agreement or these Terms and Conditions to the contrary, if you die before the Third Anniversary Date and while in the active employ of one or more members of the Company Group, all remaining Forfeiture Restrictions shall immediately lapse on the date of the termination of your employment due to death.
2. PROHIBITED ACTIVITY. Notwithstanding any other provision of these Terms and Conditions or the Agreement, if you engage in a "Prohibited Activity," as described below, while employed by one or more members of the Company Group or within two years after the date your employment with the Company Group terminates, then your right to receive the shares of the Common Stock, to the extent still outstanding at that time, shall be completely forfeited. A "Prohibited Activity" shall be deemed to have occurred, as determined by the Committee in its sole and absolute discretion, if you divulge any non-public, confidential or proprietary information of the Company or of its past, present or future affiliates (collectively, the "Baker Hughes Group"), but excluding information that (a) becomes generally available to the public other than as a result of your public use, disclosure, or fault, or (b) becomes available to you on a non-confidential basis after your employment termination date from a source other than a member of the Baker Hughes Group prior to the public use or disclosure by you, provided that such source is not bound by a confidentiality agreement or otherwise prohibited from transmitting the information by a contractual, legal or fiduciary obligation.
3. TAX WITHHOLDING. To the extent that the receipt of the Restricted Stock Units or the lapse of any Forfeiture Restrictions results in income to you for any income, employment or other tax purposes with respect to which the Company has a withholding obligation, you shall deliver to the Company at the time of such receipt or lapse, as the case may be, such amount of money as the Company may require to meet its obligation under applicable tax laws or regulations, and, if you fail to do so, the Company is authorized to withhold from any shares of Common Stock issued under the Agreement or from any cash or stock remuneration then or thereafter payable to you any tax required to be withheld by reason of such taxable income, including (without limitation) shares of the Common Stock sufficient to satisfy the withholding obligation based on the last per share sales price of the Common Stock for the trading day immediately preceding the date that the withholding obligation arises, as reported in the New York Stock Exchange Composite Transactions.
4. NONTRANSFERABILITY. The Agreement is not transferable by you otherwise than by will or by the laws of descent and distribution.
5. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The existence of the Restricted Stock Units shall not affect in any way the right or power of the Company or any company the stock of which is awarded pursuant to the Agreement to make or authorize any adjustment, recapitalization, reorganization or other change in its capital structure or its business, engage in any merger or consolidation, issue any debt or equity securities, dissolve or liquidate, or sell, lease, exchange or otherwise dispose of all or any part of its assets or business, or engage in any other corporate act or proceeding.
6. RESTRICTED STOCK UNITS DO NOT AWARD ANY RIGHTS OF A SHAREHOLDER. You shall not have the voting rights or any of the other rights, powers or privileges of a holder of the Common Stock with respect to the Restricted Stock Units that are awarded hereby. Only after a share of the Common Stock is issued in exchange for a Restricted Stock Unit will you have all of the rights of a shareholder
with respect to such share of Common Stock issued in exchange for a Restricted Stock Unit.
7. EMPLOYMENT RELATIONSHIP. For purposes of the Agreement, you shall be considered to be in the employment of the Company as long as you have an employment relationship with the Company. The Committee shall determine any questions as to whether and when there has been a termination of such employment relationship, and the cause of such termination, under the Plan and the Committee's determination shall be final and binding on all persons.
8. NO FRACTIONAL SHARES. All provisions of the Agreement concern whole Shares. If the application of any provision hereunder would yield a fractional share, such fractional share shall be rounded down to the next whole share if it is less than 0.5 and rounded up to the next whole share if it is 0.5 or more.
9. NOT AN EMPLOYMENT AGREEMENT. The Agreement is not an employment agreement, and no provision of the Agreement shall be construed or interpreted to create an employment relationship between you and the Company or any of its Affiliates or guarantee the right to remain employed by the Company or any of its Affiliates for any specified term.
10. SECURITIES ACT LEGEND. If you are an officer or affiliate of the Company under the Securities Act of 1933, you consent to the placing on any certificate for shares of the Common Stock issued under the Agreement an appropriate legend restricting resale or other transfer of such shares except in accordance with such Act and all applicable rules thereunder.
11. LIMIT OF LIABILITY. Under no circumstances will the Company be liable for any indirect, incidental, consequential or special damages (including lost profits) of any form incurred by any person, whether or not foreseeable and regardless of the form of the act in which such a claim may be brought, with respect to the Plan or the Company's role as Plan sponsor.
12. MISCELLANEOUS. The Agreement is awarded pursuant to and is subject to all of the provisions of the Plan, including amendments to the Plan, if any. In the event of a conflict between these Terms and Conditions and the Plan provisions, the Plan provisions will control. The term "you" and "your" refer to the Awardee named in the Agreement. Capitalized terms that are not defined herein shall have the meanings ascribed to such terms in the Plan or the Agreement.
.
.
.
Exhibit 10.53
BAKER HUGHES INCORPORATED
Compensation Table for Named Executive Officers and Directors
Base Salary Effective Named Executive Officers: Base Salary June 2005 ------------- ----------- Chad C. Deaton(1) $ 825,000 $925,000 James R. Clark(2) 625,000 645,000 G. Stephen Finley(2) 520,000 535,000 Alan R. Crain Jr.(2) 410,000 425,000 Douglas J. Wall(2) 375,000 375,000 Non-Employee Directors(3): Annual Cash Retainer $ 60,000 Audit/Ethics Committee Chairman Annual Retainer: $ 20,000 Other Committee Chairman Annual Retainer: $ 15,000 Audit/Ethics Committee Members Retainer: $ 10,000 Other Committee Members Retainer (Excluding Executive Committee): $ 5,000 Annual Non-Retainer Equity (restricted stock awarded 50% in January and 50% in July of each year): $ 70,000 |
(1) Mr. Deaton has an Employment Agreement with Baker Hughes Incorporated, filed as Exhibit 10.3 to Current Report on Form 8-K filed October 7, 2004.
(2) In addition to their base salaries, these named executive officers, at the discretion of the Board of Directors can receive equity compensation pursuant to the 2002 Director & Officer Long-Term Compensation Plan, filed as Exhibit 10.2 on Form 10-Q for the quarter ended September 30, 2003. These named executive officers also are entitled to participate in the Company's 1995 Employee Annual Incentive Compensation Plan, as amended, filed as Exhibit 10.17 on Form 10-K for the year ended December 31, 2002.
(3) Non-employee directors are reimbursed for reasonable travel and related
expenses.
EXHIBIT 10.55
[JP Morgan LOGO]
JPMorgan Chase Bank
4 Metrotech Center, 17th Floor
Brooklyn, New York 11245
INTEREST RATE SWAP CONFIRMATION TO : BAKER HUGHES INC 3900 ESSEX LANE SUITE 1200 HOUSTON TEXAS 77027-5177 USA CONTACT: DOUG DOTY T: 713-439-8678 ATTN : Swap Operations FAX : 713-439-8678 DATE : 7 April 2004 RE : Transaction Reference No. 0004161145/68565083 The purpose of this letter agreement is to confirm the terms and |
conditions of the Transaction entered into between us on the Trade Date below. It constitutes a "Confirmation" as referred to in the ISDA Master Agreement described below.
The definitions and provisions contained in the 2000 ISDA Definitions as published by the International Swaps and Derivatives Association, Inc. ("ISDA") (the "Definitions") are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern.
1. This Confirmation supplements, forms parts of, and is subject to, the ISDA Master Agreement dated as of 6 March 2000, as amended and supplemented from time to time (the "Agreement"), between JPMorgan Chase Bank ("JPMorgan") and Baker Hughes Inc ("Counterparty"). All provisions contained in the Agreement govern this Confirmation except as expressly modified below.
2. The terms of the particular Transaction to which this Confirmation relates are as follows:
NOTIONAL AMOUNT: USD 325,000,000.00 TRADE DATE: 7 April 2004 EFFECTIVE DATE: 13 April 2004 TERMINATION DATE: 15 January 2009, subject to adjustment in accordance with the Modified Following Business Day Convention. |
Confirmation - Swap Transaction JP Morgan Ref: 0004161145/68565083
FLOATING AMOUNTS: FLOATING RATE PAYER: COUNTERPARTY FLOATING RATE PAYER 15 July, 15 January of each year commencing with PAYMENT DATES: 15 July 2004 and ending with, and including, the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention. FLOATING RATE FOR INITIAL CALCULATION PERIOD: 1.140000 percent (exclusive of spread) FLOATING RATE OPTION: USD - LIBOR - BBA SPREAD: Plus 2.741000 percent DESIGNATED MATURITY: 6 Months, except for the initial Calculation Period which shall be interpolated RESET DATES: The first day of each Calculation Period COMPOUNDING: Not Applicable FLOATING RATE DAY COUNT FRACTION: Actual/360 BUSINESS DAYS: London, New York FIXED AMOUNTS: FIXED RATE PAYER: JPMORGAN FIXED RATE PAYER 15 July, 15 January of each year commencing with PAYMENT DATES: 15 July 2004 and ending with, and including, the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention FIXED RATE DAY COUNT FRACTION: 30/360 PERIOD END DATE: No Adjustment BUSINESS DAYS: London, New York CALCULATION AGENT: JPMorgan, unless otherwise specified in the Agreement |
Confirmation - Swap Transaction JP Morgan Ref: 0004161145/68565083
3. ACCOUNT DETAILS
PAYMENTS TO JP MORGAN:
JP MORGAN CHASE BANK, NEW YORK, JPMORGAN, NY ABA#
021000021, A/C# __________________
PAYMENTS TO COUNTERPARTY:
To JPMORGAN CHASE BANK HOUSTON, Account No:____________
Favor BAKER HUGHES INC, Houston
4. OFFICE, ADDRESS AND TELEPHONE NUMBER FOR NOTICES IN CONNECTION WITH THIS TRANSACTION
(a) COUNTERPARTY: its Office in
3900 ESSEX LANE, SUITE 1200
HOUSTON TEXAS 77027-5177 USA
CONTACT: DOUG DOTY
T: 713-439-8678
F: 713-439-8699
(b) JPMORGAN: its head Office in New York c/o 4 Metrotech Center, 17th Floor Brooklyn, New York 11245
5. DOCUMENTS TO BE DELIVERED
Each party shall deliver to the other, at the time of its execution of this Confirmation, evidence of the incumbency and specimen signature of the person(s) executing this Confirmation, unless such evidence has been previously supplied and remains true and in effect.
Confirmation - Swap Transaction JP Morgan Ref: 0004161145/68565083
Please confirm that the foregoing correctly sets forth the terms of our agreement by executing a copy of this Confirmation and returning it to us.
Yours sincerely,
JPMORGAN CHASE BANK
By: /s/Carmine Pilla ------------------------------ Name: Carmine Pilla Title: Vice President |
CONFIRMED AS OF THE DATE FIRST
ABOVE WRITTEN:
BAKER HUGHES INC
By: /s/ Douglas C. Doty ---------------------- Name: Douglas C. Doty Title: V.P. & Treasurer |
(MULTICURRENCY-CROSS BORDER)
SCHEDULE TO THE MASTER AGREEMENT
DATED AS OF MARCH 6, 2000 BETWEEN
[BANK] ("PARTY A")
AND
BAKER HUGHES,INC. ("PARTY B")
PART 1: TERMINATION PROVISIONS AND CERTAIN OTHER MATTERS
(a) "SPECIFIED ENTITY" means, in relation to Party A, for the purpose of:
SECTION 5(a)(v), none;
SECTION 5(a)(vi), none;
SECTION 5(a)(vii), none; and
SECTION 5(b)(iv), none;
and, in relation to Party B, for the purpose of:
SECTION 5(a)(v), none;
SECTION 5(a)(vi), none;
SECTION 5(a)(vii), none; and
SECTION 5(b)(iv), none.
(b) "SPECIFIED TRANSACTION" will have the meaning specified in Section 14.
(c) The "CROSS-DEFAULT" provisions of Section 5(a)(vi) will apply to Party A and Party B. In connection therewith, "SPECIFIED INDEBTEDNESS" will have the meaning specified in Section 14, except that such term shall not include obligations in respect of deposits received in the ordinary course of such party's banking business, and "THRESHOLD AMOUNT" means an amount equal to three percent of such party's shareholders' equity, determined in accordance with generally accepted accounting principles in such party's country of incorporation or organization, consistently applied, as at the end of such party's most recently completed fiscal year. For purposes of this definition, any Specified Indebtedness denominated in a currency other than the currency
in which the financial statements of such party are denominated shall be converted into USD.
(d) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv) will apply to Party A and Party B; provided, however, that the phrase "materially weaker" means (i) the senior long-term debt or deposits of the resulting, surviving or transferee entity is or are, as the case may be, rated less than investment grade by Standard & Poor's Corporation or Moody's Investors Service, Inc., or (ii) in the event that there are no such Standard & Poor's Corporation or Moody's Investors Service, Inc. ratings, the Policies (as defined below) in effect at the time, of the party which is not the Affected Party, would lead such non-Affected Party, solely as a result of a change in the nature, character, identity or condition of the Affected Party, any Credit Support Provider of the Affected Party or any applicable Specified Entity of the Affected Party, as the case may be, from its state prior to such consolidation, amalgamation, merger or transfer, to decline to make an extension of credit to, or enter into a Transaction with, the resulting, surviving or transferee entity. "Policies", for the purposes of this definition means: (l)(A) internal credit limits applicable to individual entities or (B) other limits on doing business with entities domiciled or doing business in certain jurisdictions or engaging in certain activities, or (2) internal restrictions on doing business with entities with whom the party which is not the Affected Party has had prior adverse business relations.
(e) The "AUTOMATIC EARLY TERMINATION" provision of Section 6(a) will not apply to Party A or Party B.
(f) PAYMENTS ON EARLY TERMINATION. For the purpose of Section 6(e):
(i) Market Quotation will apply.
(ii) The Second Method will apply.
(g) "TERMINATION CURRENCY" means United States Dollars.
(h) ADDITIONAL TERMINATION EVENT. (i) The following shall constitute an Additional Termination Event (with any event specified in the following constituting an "Impossibility"):
Due to the occurrence of a natural or man-made disaster, armed conflict, act of terrorism, riot, labor disruption, act of State, or any other similar circumstance beyond its control after the date on which a Transaction is entered into, it becomes impossible (other than as a result of its own misconduct) for a party (which will be the Affected Party):
(1) to perform any absolute or contingent obligation, to make a payment or delivery or to receive a payment or delivery in respect of a Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party or such Credit Support Provider has under any Credit Support Document relating to a Transaction.
(ii) The definition of "Affected Transactions" in Section 14 of this Agreement is amended by adding the word "Impossibility" immediately before the word "Illegality" in the first line thereof.
(iii) If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Impossibility, it will be treated as a Termination Event and will not constitute an Event of Default.
PART 2: TAX REPRESENTATIONS
Not applicable.
PART 3: AGREEMENT TO DELIVER DOCUMENTS
For the purpose of Sections 4(a)(i) and (ii) of this Agreement, each party agrees to deliver the following documents:
(a) Tax forms, documents or certificates to be delivered are: none.
(b) Other documents to be delivered are:
PARTY REQUIRED COVERED BY TO DELIVER FORM/DOCUMENT/ DATE BY WHICH SECTION 3(d) DOCUMENT CERTIFICATE TO BE DELIVERED REPRESENTATION -------------- --------------- --------------- -------------- Party B Annual Report As soon as Yes of Party B available and containing in any event consolidated within 120 days financial after the end statements of each fiscal certified by year of Party B independent certified public accountants and prepared in accordance with GAAP |
Party B Unaudited As soon as Yes consolidated available and financial in any event statements of within 45 days Party B for a after the end fiscal quarter of each fiscal prepared in quarter of accordance with Party B GAAP and on a basis consistent with that of the annual financial statements of Party B Party B Certified Upon execution Yes copies of all and delivery of corporate this Agreement authorizations and any other documents with respect to the execution, delivery and performance of this Agreement Party B Certificate of Upon execution Yes authority and and delivery of specimen this Agreement signatures of and thereafter individuals upon request of executing this Party A Agreement and Confirmations |
PART 4: MISCELLANEOUS
(a) Address for Notices. For the purpose of Section 12(a) of this Agreement:
Address for notice or communications to Party A:
Any notice relating to a particular Transaction shall be delivered to the address or facsimile or telex number specified in the Confirmation of such Transaction. Any notice delivered for purposes of Sections 5 and 6 of this Agreement shall be delivered to the following address:
[Bank's Contact Information]
Attention: Legal Department-Capital Markets Group
Address for notice or communications to Party B:
Baker Hughes, Inc.
Attention: Gene Shiels, Assistant Treasurer
3900 Essex Lane
Houston, Texas 77027
Telex No.: _____; Answerback: _____
Facsimile No.: (713) 439-8678
(b) PROCESS AGENT. For the purpose of Section 13(c):
Party A appoints as its Process Agent: Not applicable. Party B appoints as its Process Agent: Not applicable.
(c) OFFICES. The provisions of Section 10(a) will apply to this Agreement.
(d) MULTIBRANCH PARTY. For the purpose of Section 10 of this Agreement:
Party A is a Multibranch Party and may act through any Office specified in a Confirmation.
Party B is not a Multibranch Party.
(e) CALCULATION AGENT. The Calculation Agent is Party A, unless otherwise specified in a Confirmation in relation to the relevant Transaction.
(f) CREDIT SUPPORT DOCUMENT. Details of any Credit Support Document: not applicable.
(g) CREDIT SUPPORT PROVIDER. Credit Support Provider means, in relation to either party: not applicable.
(h) GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine).
(i) NETTING OF PAYMENTS. Subparagraph (ii) of Section 2(c) will not apply to any Transaction unless specified in the relevant Confirmation.
(j) "AFFILIATE" will have the meaning specified in Section 14 of this Agreement.
PART 5: OTHER PROVISIONS
(a) SET-OFF. Any amount (the "Early Termination Amount") payable to one party (the "Payee") by the other party (the "Payer") under Section 6(e), in circumstances where there is a Defaulting Party or one Affected Party in the case where a Termination Event under Section 5(b)(iv) has occurred, will, at the option of the party ('X') other than the Defaulting Party or the Affected Party (and without prior notice to the Defaulting Party or the Affected Party), be reduced by its set-off against any amount(s) (the 'Other Agreement Amount') payable (whether at such time or in the future or upon the occurrence of a contingency) by the Payee to the Payer (irrespective of the currency, place of payment or booking office of the obligation) under any other agreement(s) between the Payee and the Payer or instrument(s) or undertaking(s) issued or executed by one party to, or in favor of, the other party (and the Other Agreement Amount will be discharged promptly and in all respects to the extent it is so set-off). X will give notice to the other party of any set-off effected under this section.
For this purpose, either the Early Termination Amount or the Other Agreement Amount (or the relevant portion of such amounts) may be converted by X into the currency in which the other is denominated at the rate of exchange at which such party would be able, acting in a reasonable manner and in good faith, to purchase the relevant amount of such currency.
If an obligation is unascertained, X may in good faith estimate that obligation and set-off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained.
Nothing in this section shall be effective to create a charge or other security interest. This section shall be without prejudice and in addition to any right of set-off, combination of accounts, lien or other right to which any party is at any time otherwise entitled (whether by operation of law, contract or otherwise).
(b) Exchange of Confirmations. For each Transaction entered into hereunder, Party A shall promptly send to Party B a Confirmation, via telex or facsimile transmission. Party B agrees to respond to such Confirmation within 10 Business Days (for this purpose, Business Days refers to Business Days in the location of the recipient), either confirming agreement thereto or requesting a correction of any error(s) contained therein. Failure by Party B to respond within such period shall not affect the validity or enforceability of such Transaction and shall be deemed to be an affirmation of the terms contained in such Confirmation, absent manifest error. The parties agree that any such exchange of telexes or facsimile transmissions shall constitute a Confirmation for all purposes hereunder.
(C) WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(d) TELEPHONIC RECORDING. Each party (i) consents to the recording of the telephone conversations of trading, marketing and operations personnel of the parties and their Affiliates in connection with this Agreement or any potential Transaction and (ii) agrees to obtain any necessary consent of, and give notice of such recording to, such personnel of it and its Affiliates.
(e) FURTHER REPRESENTATIONS. (i) Party B represents to Party A (which representations will be deemed to be repeated by Party B on each date on which a Transaction is entered into) that:
NO CHANGE. Since March 31, 1999, there has been no material adverse change in the business, operations, assets or financial or other condition of Party B.
(ii) Each party represents to the other party (which representation will be deemed to be repeated on each date on which a Transaction is entered into) that it is an "eligible swap participant" as such term is defined in Part 35 of Chapter I of Title 17 of the Code of Federal Regulations, promulgated by the Commodity Futures Trading Commission, entitled "Exemption of Swap Agreements."
(f) FURTHER REPRESENTATIONS OF PARTY A AND PARTY B. With respect to commodity swap transactions, commodity cap transactions, commodity floor transactions, commodity collar transactions and commodity option transactions (for purposes of this Part 5(f), "Commodity Transactions"), each party represents to the other (which representations will be deemed to be repeated by each party on each date on which a Commodity Transaction is entered into) that:
(i) it has entered into this Agreement and each Commodity Transaction in conjunction with its line of business (which may include financial intermediation services) or the financing of its business;
(ii) the material terms of this Agreement and each Commodity Transaction have been and will be individually tailored and negotiated;
(iii) the creditworthiness of the other party was or will be a material consideration in its entering into this Agreement and any such Commodity Transaction;
(iv) solely with respect to Party B, it is a producer, processor, or commercial user of, or a merchant handling, the commodity which is the subject of any Commodity Transaction, or the products or by-products thereof, and that it is
entering into any such Commodity Transaction solely for purposes related to its business as such; and
(v) solely with respect to Party A, it shall always be the offeror of each Commodity Transaction and that Party A offered to enter into this Agreement with Party B and initiated their trading relationship.
(g) RELATIONSHIP BETWEEN PARTIES. The following representation shall be inserted as a new Section 3(g) of this Agreement:
"(g) RELATIONSHIP BETWEEN PARTIES. Each party will be deemed to represent to the other party on the date on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction):
(i) NON-RELIANCE. It is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction; it being understood that information and explanations related to the terms and conditions of a Transaction shall not be considered investment advice or a recommendation to enter into that Transaction. No communication (written or oral) received from the other party shall be deemed to be an assurance or guarantee as to the expected results of that Transaction.
(ii) ASSESSMENT AND UNDERSTANDING. It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes, the risks of that Transaction.
(iii) STATUS OF PARTIES. The other party is not acting as a fiduciary for or an adviser to it in respect of that Transaction."
(h) EMU PROVISIONS. (i) 1998 ISDA EURO DEFINITIONS. Unless the parties expressly agree otherwise in the related Confirmation, each Transaction currently existing or to be entered into between the parties will be deemed to incorporate, to the extent applicable, the 1998 ISDA Euro Definitions as published on 25th November 1998 and any subsequent amendments and supplements thereto (the "Euro Definitions"). In the event of any inconsistency between the Euro Definitions and any other provisions or definitions incorporated by reference into the Confirmation in respect of any Transaction, the Euro Definitions shall prevail.
(ii) ISDA EMU PROTOCOL. The parties agree that the definitions and provisions contained in Annexes 1 and 3 and Section 6 of the ISDA EMU Protocol published on 6th May 1998 (the "ISDA Protocol"), are incorporated into and apply to this Agreement and form a part hereof. References in those definitions and provisions to any "ISDA Master Agreement" will be deemed to be references to this Agreement.
(i) NEGATIVE INTEREST RATES. (i) FLOATING AMOUNTS. "Swap Transaction" means, for the purposes of this provision concerning Negative Interest Rates, a rate exchange or swap transaction, including transactions involving a single currency or two or more currencies. Party A and Party B agree that, if with respect to a Calculation Period for a Swap Transaction either party is obligated to pay a Floating Amount that is a negative number (either due to a quoted negative Floating Rate or by operation of a Spread that is subtracted from the Floating Rate), the Floating Amount with respect to that party for that Calculation Period will be deemed to be zero, and the other party will pay to that party the absolute value of the negative Floating Amount as calculated, in addition to any amounts otherwise owed by the other party for that Calculation Period with respect to that Swap Transaction, on the Payment Date that the Floating Amount would have been due if it had been a positive number. Any amounts paid by the other party with respect to the absolute value of a negative Floating Amount will be paid to such account as the receiving party may designate (unless such other party gives timely notice of a reasonable objection to such designation) in the currency in which that Floating Amount would have been paid if it had been a positive number (and without regard to the currency in which the other party is otherwise obligated to make payments).
(ii) COMPOUNDING. Party A and Party B agree that, if with respect to one or more Compounding Periods for a Swap Transaction where "Compounding" or "Flat Compounding" is specified to be applicable the Compounding Period Amount, the Basic Compounding Period Amount or the Additional Compounding Period Amount is a negative number (either due to a quoted negative Floating Rate or by operation of a Spread that is subtracted from the Floating Rate), then the Floating Amount for the Calculation Period in which that Compounding Period or those Compounding Periods occur will be either the sum of all the Compounding Period Amounts or the sum of all the Basic Compounding Period Amounts and all the Additional Compounding Period Amounts in that Calculation Period (whether positive or negative). If such sum is positive, then the Floating Rate Payer with respect to the Floating Amount so calculated will pay that Floating Amount to the other party. If such sum is negative, the Floating Amount with respect to the party that would be obligated to pay that Floating Amount will be deemed to be zero, and the other party will pay to that party the absolute value of the negative Floating Amount as calculated, such payment to be made in accordance with (i) above.
(j) ABSENCE OF LITIGATION. Section 3(c) of this Agreement is amended by deleting the words "or, to its knowledge, threatened" in the first line thereof.
PART 6: FOREIGN EXCHANGE TRANSACTIONS
(a) DEFINITIONS AND APPLICATION. (i) This Agreement is subject to the 1998 FX and Currency Option Definitions (the "FX Definitions"), as published by the International Swaps and Derivatives Association, Inc., the Emerging Markets Traders Association, and The Foreign Exchange Committee, as hereinafter amended. In the event of any inconsistency between the FX Definitions and this Agreement, this Agreement will govern. Unless otherwise agreed in writing by the parties, each FX Transaction and Currency Option Transaction, whether now existing or hereafter entered into, between the parties shall be governed by this Agreement, notwithstanding Section 1(b) of this Agreement, the absence of any reference to this Agreement in the Confirmation in respect of any such FX Transaction or Currency Option Transaction, or the reference to any other governing terms or law in such Confirmation.
(ii) Section 3.4 of the FX Definitions is amended by adding the following:
(c) Non-Payment. If any Premium is not received on the Premium Payment Date, the Seller may elect either: (i) to accept a late payment of such Premium; (ii) to give written notice of such non-payment and, if such payment shall not be received within three (3) Local Business Days (as defined in this Agreement) of such notice, treat the related Currency Option Transaction as void; or (iii) if such payment shall not be received within three (3) Local Business Days of such notice, treat such non-payment as an Event of Default under Section 5(a)(i) of this Agreement. If the Seller elects to act under either clause (i) or (ii) of the preceding sentence, the Buyer shall pay all out-of-pocket costs and actual damages incurred in connection with such unpaid or late Premium or void Currency Option Transaction, including, without limitation, interest on such Premium in the same currency as such Premium at the then prevailing market rate and any other costs or expenses incurred by the Seller in covering its obligations (including, without limitation, a delta hedge) with respect to such Currency Option Transaction.
(d) Discharge and Termination. Unless otherwise agreed, any Call or any Put written by a party will automatically be terminated and discharged, in whole or in part, as applicable, against a Call or a Put, respectively, written by the other party, such termination and discharge to occur automatically upon the payment in full of the last Premium payable in respect of such Currency Option Transactions; provided that such termination and discharge may only occur in respect of Currency Option Transactions:
(i) each being with respect to the same Put Currency and the same Call Currency;
(ii) each having the same Expiration Date and Expiration Time;
(iii) each being of the same style, i.e. either both being American style Currency Option Transactions or both being European style Currency Option Transactions;
(iv) each having the same Strike Price;
(v) neither of which shall have been exercised by delivery of a Notice of Exercise; and
(vi) each having been transacted by the same pair of offices of the Buyer and the Seller
and, upon the occurrence of such termination and discharge, neither party shall have any further obligation to the other party in respect of the relevant Currency Option Transactions or, as the case may be, parts thereof so terminated and discharged. In the case of a partial termination and discharge (i.e., where the relevant Currency Option Transactions are for different amounts of the Currency Pair), the remaining portion of the Currency Option Transaction which is partially discharged and terminated shall continue to be a Currency Option Transaction for all purposes of this Agreement, including this Section 3.4(d).
(b) CONFIRMATIONS. In respect of FX Transactions and Currency Option Transactions, the term "Confirmation" means a writing (including telex, facsimile or other electronic means from which it is possible to produce a hard copy) evidencing an FX Transaction or Currency Option Transaction, as the case may be, notwithstanding the absence of any reference to this Agreement therein or the reference therein to any other governing terms or law. In relation to such Confirmations, unless either party objects to the terms contained in any Confirmation within three (3) Business Days in its location of receipt thereof, or such shorter time as may be appropriate given the Settlement Date of an FX Transaction, the terms of such Confirmation shall be deemed correct and accepted absent manifest error, unless a corrected Confirmation is sent by a party within such three (3) Business Days, or shorter period, as appropriate, in which case the party receiving such corrected Confirmation shall have three (3) Business Days in its location, or shorter period, as appropriate, after receipt thereof to object to the terms contained in such corrected Confirmation. In the event of any conflict between the terms of such a Confirmation of an FX Transaction or a Currency Option Transaction, as the case may be, and this Agreement, the terms of this Agreement shall prevail, and the Confirmation shall not modify the terms of this Agreement.
Accepted and agreed: [Bank] BAKER HUGHES INCORPORATED By: By: /s/ DOUGLAS C. DOTY -------------------------- ---------------------------------- Name: Name: Douglas C. Doty Title: Title: Vice President & Treasurer |
.
.
.
EXHIBIT 21.1
BAKER HUGHES INCORPORATED
SIGNIFICANT SUBSIDIARIES
December 31, 2004
PERCENTAGE SUBSIDIARY JURISDICTION OWNERSHIP ----------------------------------------------------------------------- --------------- ---------- Baker Hughes Financing Company Delaware 100% Western Atlas, Inc. Delaware 100% Baker Hughes Oilfield Operations, Inc. California (1) Baker Hughes International Branches, Inc. Delaware (2) Baker Hughes EHHC, Inc. Delaware 100% Baker Hughes GmbH Austria 100% Latin America Finance S.r.l. Barbados (3) Baker Hughes Asia Pacific Ltd. Cayman Islands 100% Baker Hughes EHO Ltd. Bermuda 100% Baker Hughes Limited England 100% Baker Hughes Nederland Holdings B.V. The Netherlands 100% Baker Hughes Canada Holdings B.V. The Netherlands 100% Baker Hughes Canada Company Nova Scotia 100% Baker Hughes Finance International S.r.l. The Netherlands (4) Baker Hughes Norge A/S Norge (5) JDI International Leasing Limited Cayman Islands 100% Wm. S. Barnickel & Company Missouri 100% Baker Petrolite Corporation Delaware 100% Western Research Holdings, Inc. Delaware 100% Western Atlas International, Inc. Delaware 100% |
(1) Baker Hughes Oilfield Operations, Inc. Western Atlas Inc. 93.98% Other subsidiaries 6.02% (2) Baker Hughes International Branches, Inc. Baker Hughes Oilfield Operations, Inc. 96.65% Other subsidiaries 3.35% (3) Latin America Finance S.r.l. Baker Hughes GmbH 99.00% Other subsidiaries 1.00% (4) Baker Hughes Finance International S.r.l. Baker Hughes Canada Company 99.90% Other subsidiaries 0.10% (5) Baker Hughes Norge A/S Bake Hughes Finance International S.r.l. 52.00% Other subsidiaries 48.00% |
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Post-Effective Amendment Nos. 1 and 2 to
Registration Statement No. 33-14803 on Form S-8, in Registration Statement No. 33-52195 on Form
S-8, in Registration Statement No. 33-57759 on Form S-8, in Registration Statement No. 333-19771 on
Form S-8, in Post-Effective Amendment No. 1 on Form S-8 to Registration Statement No. 333-28123 on
Form S-4, in Post-Effective Amendment No. 1 on Form S-8 to Registration Statement No. 333-29027 on
Form S-4, in Registration Statement No. 333-49327 on Form S-8, in Registration Statement No.
333-61065 on Form S-8, in Registration Statement No. 333-62205 on Form S-8, in Registration
Statement No. 333-74897 on Form S-8, in Registration Statement No. 333-81463 on Form S-8, in
Post-Effective Amendment No. 1 to Registration Statement No. 333-87829 on Form S-3, in Registration
Statement No. 333-41982 on Form S-8, in Registration Statement No. 333-87372 on Form S-8, in
Registration Statement No. 333-103838 on Form S-8, and in Registration Statement No. 333-103839 on
Form S-8 of our reports dated February 24, 2005, relating to the financial statements and financial
statement schedule of Baker Hughes Incorporated (the Company) (which report expresses an
unqualified opinion and includes an explanatory paragraph relating to the Companys adoption of
certain accounting standards during the three year period ended December 31, 2004) and to
managements report on the effectiveness of internal control over financial reporting, appearing in
this Annual Report on Form 10-K of the Company for the year ended December 31, 2004.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 24, 2005
Exhibit 31.1
CERTIFICATION
I, Chad C. Deaton, certify that:
1. I have reviewed this annual report on Form 10-K of Baker Hughes Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 25, 2005 By: /s/Chad C. Deaton ------------------------------- Chad C. Deaton Chairman of the Board and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, G. Stephen Finley, certify that:
1. I have reviewed this annual report on Form 10-K of Baker Hughes Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 25, 2005 By: /s/G. Stephen Finley ------------------------------------------ G. Stephen Finley Sr. Vice President - Finance and Administration and Chief Financial Officer |
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Baker Hughes Incorporated (the "Company") on Form 10-K for the period ended December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Chad C. Deaton, Chief Executive Officer of the Company, and G. Stephen Finley, the Chief Financial Officer of the Company, each of the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(i) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
The certification is given to the knowledge of the undersigned.
/s/ Chad C. Deaton ----------------------------------- Name: Chad C. Deaton Title: Chief Executive Officer Date: February 25, 2005 /s/ G. Stephen Finley ----------------------------------- Name: G. Stephen Finley Title: Chief Financial Officer Date: February 25, 2005 |