Exhibit 10.1
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
by and between
BAKER HUGHES INCORPORATED
and
CHAD C. DEATON
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of January 1, 2009 (this
Agreement
),
by and between Chad C. Deaton (the
Executive
) and Baker Hughes Incorporated, a Delaware
corporation (the
Company
).
WHEREAS, the Board of Directors of the Company (the
Board
) has retained the Executive as the
Chief Executive Officer of the Company;
WHEREAS, the Company and the Executive previously entered into an Employment Agreement dated
as of October 31, 2004 (the
Employment Agreement
);
WHEREAS, the Company and the Executive desire to amend and restate the Employment Agreement as
set forth in this Agreement to comply with Section 409A of the Internal Revenue Code of 1986, as
amended (the
Code
) and the final Department of Treasury regulations issued thereunder (
Section
409A
); and
WHEREAS, the Executive is willing to commit himself to serve the Company, on the terms and
conditions herein provided;
WHEREAS, the Company and the Executive have previously executed a Change in Control Agreement
effective as of October 25, 2005 (the
Change in Control Agreement
);
NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements
of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree
as follows:
1.
Employment and Term
. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts such employment, on the terms and conditions hereinafter set forth. The
period of employment of the Executive by the Company hereunder (the
Employment Period
) commenced
on October 25, 2004 (the
Effective Date
) and shall end on the Executives Date of Termination (as
defined in Section 7(b) hereof). The term of this Agreement (the
Term
) commenced on the
Effective Date and shall end on the second anniversary thereof; provided, that, on October 25,
2005, and each anniversary of October 25 thereafter, the Term shall be extended for one additional
year unless, prior to September 25, 2005 with respect to the extension on October 25, 2005, and
each anniversary of September 25, thereafter with respect to each subsequent annual extension, the
Company or the Executive shall have given notice not to extend the Term or the Executive shall have
incurred a termination of employment with the Company.
2.
Position and Duties
.
(a) As of the Effective Date, the Executive shall serve as Chief Executive Officer of the
Company, in which capacity the Executive shall perform the usual and customary duties of such
office, which shall be those normally inherent in such capacity in U.S. publicly held corporations
of similar size and character. The Executive agrees and acknowledges that, in
connection with his employment relationship with the Company, the Executive owes fiduciary
duties to the Company and will act accordingly.
(b) During the Employment Period, the Executive agrees to devote substantially his full time,
attention and energies to the Companys business and agrees to faithfully and diligently endeavor
to the best of his ability to further the best interests of the Company. The Executive shall not
engage in any other business activity, whether or not such business activity is pursued for gain,
profit or other pecuniary advantage. Subject to the covenants of Section 9 herein, this shall not
be construed as preventing the Executive from investing his own assets in such form or manner as
will not require his services in the daily operations of the affairs of the companies in which such
investments are made. Further, subject to Section 9 herein, the Executive may serve as a director
of other companies, if such service is approved by the Compensation Committee of the Board (the
Compensation Committee
), so long as such service is not detrimental to the Company, does not
interfere with the Executives service to the Company and does not present the Executive with a
conflict of interest.
(c) In keeping with the Executives fiduciary duties to the Company, the Executive agrees that
he shall not, directly or indirectly, become involved in any conflict of interest, or upon
discovery thereof, allow such a conflict to continue. Moreover, the Executive agrees that he shall
promptly disclose to the Board any facts which might involve any reasonable possibility of a
conflict of interest, or be perceived as such.
(d) Circumstances in which a conflict of interest on the part of the Executive would or might
arise, and which should be reported immediately by the Executive to the Board, include the
following: (i) ownership of a material interest in, acting in any capacity for, or accepting
directly or indirectly any payments, services or loans from a supplier, contractor, subcontractor,
customer or other entity with which the Company does business; (ii) misuse of information or
facilities to which the Executive has access in a manner which will be detrimental to the Companys
interest; (iii) disclosure or other misuse of Confidential Information (as defined in Section 9);
(iv) acquiring or trading in, directly or indirectly, other properties or interests connected with
the design, manufacture or marketing of products designed, manufactured or marketed by the Company;
(v) the appropriation to the Executive or the diversion to others, directly or indirectly, of any
opportunity in which it is known or could reasonably be anticipated that the Company would be
interested; and (vi) the ownership, directly or indirectly, of a material interest in an enterprise
in competition with the Company or its dealers and distributors or acting as a director, officer,
partner, consultant, employee or agent of any enterprise which is in competition with the Company
or its dealers or distributors.
(e) Further, the Executive covenants, warrants and represents that he shall:
(i) devote his full and best efforts to the fulfillment of his employment obligations;
(ii) exercise the highest degree of fiduciary loyalty and care and the highest
standards and conduct in the performance of his duties; and
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(iii) endeavor to prevent any harm, in any way, to the business or reputation of the
Company.
(f) As Chief Executive Officer of the Company, the Executive is required to own common stock
in the Company equal to five times Base Salary (as defined in Section 4(a)) within five years from
the Effective Date. The Company acknowledges that the Executive has timely satisfied his
obligation to purchase shares of the Companys common stock and has no obligation to purchase
additional shares of the Companys common stock in order to be in continued compliance with this
Section 2(f) and the Companys Stock Ownership Policy provided that any subsequent disposition by
the Executive does not result in the Executive owning less shares than is required by the Companys
Stock Ownership Policy.
3.
Place of Performance
. In connection with the Executives employment by the
Company, the Executives principal business address shall be at the Companys current principal
executive offices in Houston, Texas (the
Principal Place of Employment
) or in such other place as
the Executive and the Company may agree.
4.
Compensation and Related Matters
.
(a)
Base Salary
. During the Employment Period, the Company shall pay the Executive an annual
base salary (
Base Salary
) in an amount that shall be established from time to time by the
Compensation Committee, payable in approximately equal installments in accordance with the
Companys customary payroll practices. The Base Salary is currently $1,155,000. The Compensation
Committee shall review the Executives Base Salary at least annually during the Employment Period.
The Executives Base Salary may be increased but not decreased during the Employment Period.
(b)
Bonuses
. During the Employment Period, the Executive shall be eligible to participate in
the Baker Hughes Incorporated Annual Incentive Compensation Plan or any successor plan thereto (the
Annual Incentive Plan
). The bonus opportunity afforded the Executive pursuant to this Section
4(b) may vary from year to year and any bonus earned thereunder (the
Annual Bonus
) shall be paid
at a time and in a manner consistent with the Companys customary practices. The Executives bonus
levels under the Annual Incentive Plan will be contingent upon the Company achieving predetermined
performance goals and approval by the Compensation Committee. The Company may also award the
Executive a discretionary cash bonus or other cash bonus outside of the Annual Incentive Plan for
services performed by the Executive during a fiscal year. The sum of the amount of the Executives
Annual Bonus for services rendered during a fiscal year and the amount of the Executives separate
bonus, if any, for services rendered during such fiscal year is the
Bonus Amount
.
(c)
Equity-Based Compensation and Performance Awards
. During the Employment Period, the
Executive shall be entitled to receive equity-based compensation awards and performance awards on
substantially similar terms and conditions no less favorable than awards made to the other senior
executive officers of the Company.
Upon employment the Executive received an award of 80,000 shares of restricted stock, under
the Baker Hughes Incorporated 2002 Director & Officer Long-Term Incentive Plan, one-
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quarter of which vested on October 25 of each of 2006, 2007, and 2008, and one-quarter of
which will vest on October 25 of 2009 subject to the Executives continued employment with the
Company. The Executive shall have a fully nonforfeitable interest in 80,000 of these restricted
shares in the event of (i) the death of the Executive while in the employ of the Company or (ii)
the termination of the Executives employment with the Company due to Disability (as defined in
Section 6(b)).
Each award agreement evidencing an award of restricted stock granted to the Executive under
the Long Term Incentive Plan or any other Company program or arrangement shall specify that the
Executive shall have a fully nonforfeitable interest in the shares of restricted stock in the event
of (i) the death of the Executive while in the employ of the Company or (ii) the termination of the
Executives employment due to Disability (as defined in Section 6(b)). Each award agreement
evidencing an award of a stock option to the Executive under the Long Term Incentive Plan or any
other Company program or arrangement shall specify that the option shall be fully exercisable in
the event of (i) the death of the Executive while in the employ of the Company or (ii) the
termination of the Executives employment due to Disability (as defined in Section 6(b)), in both
cases, prior to the expiration of the term of the stock option.
(d)
Expenses
. The Company shall promptly reimburse the Executive for all reasonable business
expenses incurred during the Employment Period by the Executive in performing services hereunder,
including all expenses of travel and living expenses while away from home on business or at the
request of and in the service of the Company; provided, in each case, that such expenses are
incurred and accounted for in accordance with the policies and procedures established by the
Company. Such payments under this Section 4(d) shall be made within ten (10) business days after
the delivery of the Executives written request for the payment accompanied by such evidence of
fees and expenses incurred as the Company may reasonably require. The parties intend and agree
that such ten (10) business day deadline is not to be extended as a result of the following
sentence which is included solely for the purpose of complying with Section 409A. The Company
shall pay the Executive the amount of such expenses by the last day of the Executives taxable year
following the taxable year in which the Executive incurred such expenses. The expenses that are
subject to reimbursement pursuant to this Section 4(d) shall not be limited as a result of when the
expenses are incurred. The amount of expenses eligible for reimbursement pursuant to this Section
4(d) during a given taxable year of the Executive shall not affect the amount of expenses eligible
for reimbursement in any other taxable year of the Executive. The right to reimbursement pursuant
to this Section 4(d) is not subject to liquidation or exchange for another benefit.
(e)
Other Benefits
. During the Employment Period, the Executive shall be entitled to
participate in all of the employee benefit plans and arrangements made available by the Company to
its other senior executive officers, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements, and shall be entitled to
perquisites, including executive life insurance, club memberships, financial planning (including
tax return preparation), an annual physical examination, security monitoring at the Executives
residences, phone/internet access at the Executives residences and other perquisites that may be
added with the approval of the Compensation Committee, each within the limitations of the Companys
Executive Perquisite Program. The pool of perquisite dollars that will be available to the
Executive under the Companys Executive Perquisite Program for years during
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the Employment Period other than 2004 is $25,000. Perquisite dollars will be paid in
accordance with the terms of the Companys Executive Perquisite Program. Notwithstanding the
foregoing, the Company shall have the right to change, amend or discontinue any benefit plan,
program, or perquisite, so long as such changes are similarly applicable to senior executive
officers of the Company generally.
Except for any reimbursements under the applicable group health plan that are subject to a
limitation on reimbursements during a specified period, the amount of expenses eligible for
reimbursement under this Section 4(e), or in-kind benefits provided, during the Executives taxable
year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided,
in any other taxable year of the Executive. The Executives right to reimbursement or in-kind
benefits pursuant to this Section 4(e) shall not be subject to liquidation or exchange for another
benefit.
(f)
Vacation
. During the Employment Period, after 2004 the Executive shall be entitled to 25
days of vacation per year.
(g)
Services Furnished
. During the Employment Period, the Executive shall at all times be
provided with office space, stenographic assistance and such other facilities and services as are
suitable to his position and no less favorable than those being provided to the Executive by the
Company as of the date hereof.
5.
Offices
. Subject to Sections 2, 3 and 4 hereof, the Executive agrees to serve
without additional compensation, if elected or appointed thereto, as a director of any of the
Companys subsidiaries and as a member of any committees of the board of directors of any such
corporations, and in one or more executive positions of any of the Companys subsidiaries;
provided, that the Executive is indemnified for serving in any and all such capacities on a basis
no less favorable than is currently or may be provided to any other director of the Company, any of
its subsidiaries, or in connection with any such executive position, as the case may be. This
indemnity is in addition to and not in replacement of the Companys obligations to provide
indemnity pursuant to Section 10 hereof.
6.
Termination
. The Employment Period shall end in the event of a termination of the
Executives employment in accordance with any of the provisions of Section 6 or 7, and the Term
shall expire in the event of a termination of Executives employment by the Company for Cause or by
the Executive without Good Reason, in each case, on the Executives Date of Termination. Otherwise
the Term shall expire as set forth in Section 1.
(a)
Death
. The Executives employment hereunder shall terminate upon his death.
(b)
Disability
. If, as a result of the Executives incapacity due to physical or mental
illness, the Executive shall have been absent from the full-time performance of his duties
hereunder for the entire period of ninety (90) days in the aggregate during any period of twelve
(12) consecutive months or it is reasonably expected that such disability will exist for more than
such period of time, and within thirty (30) days after written Notice of Termination (as defined in
Section 7) is given (which notice may be given during such ninety (90) day period) shall not
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have returned to the performance of his duties hereunder on a full-time basis, the Company may
terminate the Executives employment hereunder for
Disability
.
For any period during which the Executive fails to perform his duties hereunder as a result of
incapacity due to physical or mental illness (
Disability Period
), the Company shall pay the
Executive, at the time specified in Section 8(b), his Base Salary at the rate in effect at the
beginning of such period as well as all other payments and benefits set forth in Section 4 hereof,
reduced by any payments made to the Executive during the Disability Period under the disability
benefit plans of the Company then in effect or under the Social Security disability insurance
program.
(c)
Cause
. The Company may terminate the Executives employment hereunder for Cause. For
purposes of this Agreement, the Company shall have
Cause
to terminate the Executives employment
hereunder upon the occurrence of any of the following events:
(i) the Executive is convicted of an act of fraud, embezzlement, theft or other
criminal act constituting a felony;
(ii) a material breach by the Executive of any provision of this Agreement;
(iii) the failure by the Executive to perform any and all covenants contained in
Sections 2(c), 2(d), 2(e) and 9 of this Agreement for any reason other than the Executives
death, Disability or following the Executives delivery of a Notice of Termination for Good
Reason; or
(iv) a material breach by the Executive of the Companys Standards of Ethical Conduct;
provided, that, the Executive shall have thirty (30) business days from the date on which the
Executive receives the Companys Notice of Termination for Cause under clause (ii), (iii) or (iv)
above to remedy any such occurrence otherwise constituting Cause under such clause (ii), (iii)
or (iv).
Cause shall not exist unless and until the Company has delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than two-thirds (2/3) of the entire
membership of the Board at a meeting of the Board called and held for such purpose (after
reasonable notice to the Executive and an opportunity for the Executive, together with his counsel,
to be heard before the Board), finding that in the good faith opinion of the Board, the Executive
was guilty of the conduct set forth in this Section 6(c) and specifying the particulars thereof in
detail.
(d)
Good Reason
. The Executive may terminate his employment hereunder for Good Reason
.
Good Reason
for the Executives termination of employment shall mean the occurrence, without the
Executives prior written consent, of any one or more of the following:
(i) the assignment to the Executive of any duties inconsistent with the Executives
position (including status, office, title and reporting requirements),
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authorities, duties or other responsibilities as contemplated by Section 2 of this
Agreement;
(ii) the relocation of the Principal Place of Employment to a location more than fifty
(50) miles from the Principal Place of Employment; or
(iii) a material breach by the Company of any provision of this Agreement;
provided, in any case, that the Company shall have thirty (30) business days from the date on which
the Company receives the Executives Notice of Termination for Good Reason to remedy any such
occurrence otherwise constituting Good Reason.
(e)
Termination of Agreement.
Either party hereto may terminate this Agreement at any time by
giving the Board or the Executive, as the case may be, no more than thirty (30) days prior written
notice, in accordance with Section 7 hereof, of such partys intent to so terminate this Agreement.
7.
Termination Procedure
.
(a)
Notice of Termination
. Any termination of the Executives employment by the Company or by
the Executive (other than termination pursuant to Section 6(a) hereof) shall be communicated by
written Notice of Termination to the other party hereto in accordance with Section 12 hereof. For
purposes of this Agreement, a
Notice of Termination
shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of the Executives
employment under the provision so indicated.
(b)
Date of Termination
.
Date of Termination
shall mean (i) if the Executives employment
is terminated pursuant to Section 6(a) above, the date of the Executives death, (ii) if the
Executives employment is terminated pursuant to Section 6(b) above, thirty (30) days after Notice
of Termination is given (provided that the Executive shall not have returned to the performance of
his duties on a full-time basis during such thirty (30) day period), (iii) if the Executives
employment is terminated pursuant to Section 6(c) above, the date specified in the Notice of
Termination, which date may be no earlier than the date the Executive is given notice in accordance
with Section 12 hereof, (iv) if the Executives employment is terminated pursuant to Section 6(d)
above, the date on which a Notice of Termination is given or any later date (within thirty (30)
days of the date of such Notice of Termination) set forth in such Notice of Termination and (v) if
the Executives employment is terminated for any other reason, the date specified in the Notice of
Termination, which date shall be not later than thirty (30) days following the date on which Notice
of Termination is given; provided, that, if within ten (10) days after any Notice of Termination is
given the party receiving such Notice of Termination notifies the other party that a dispute exists
concerning such termination, the Date of Termination shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties or by a binding and final
arbitration award.
(c)
Compensation During Dispute
. If a purported termination occurs during the Term, and such
termination is disputed in accordance with subsection (b) of this Section 7, the Company shall pay
the Executive, at the time specified in Section 8, the full compensation in
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effect when the notice giving rise to the dispute was given (including, but not limited to,
Base Salary) and shall continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when the notice giving rise to the dispute
was given, until the Date of Termination, determined in accordance with subsection (b) of this
Section 7. Amounts paid under this Section 7(c) are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due under this
Agreement.
8.
Compensation upon Termination or During Disability
.
(a)
Benefit Obligation and Accrued Obligation Defined
. For purposes of this Agreement,
payment of the
Benefit Obligation
shall mean payment by the Company to the Executive (or his
designated beneficiary or legal representative, as applicable), when due, of all vested benefits to
which the Executive is entitled under the terms of the employee benefit plans and compensation
arrangements in which the Executive is a participant as of the Date of Termination. For the
avoidance of doubt, the Executives benefits under the Baker Hughes Incorporated Pension Plan and
the Baker Hughes Incorporated Thrift Plan shall not be subject to a mandatory six-month delay in
payment pursuant to Section 409A as such plans are exempt from Section 409A.
Accrued Obligation
means the sum of (1) the Executives Base Salary through the Date of Termination for periods
through but not following his Separation From Service (as defined in Section 8(b) below) and (2)
any accrued vacation pay earned by the Executive, in each case, to the extent not theretofore paid.
(b)
Disability; Death
. Following the termination of the Executives employment pursuant to
Section 6(a) or Section 6(b) hereof, the Company shall pay to the Executive (or his designated
beneficiary or legal representative, if applicable):
(i) the Accrued Obligation;
(ii) the Executives Base Salary through the Date of Termination for periods following
his Separation From Service, to the extent not theretofore paid;
(iii) a lump sum in cash equal to one-half of the Executives Base Salary as in effect
on the Date of Termination (for each year and prorated for any partial years) for the
remainder of the Term; and
(iv) a lump sum in cash equal to the Executives expected value of the Executives
bonus opportunity under the Annual Incentive Plan and any other bonus programs for the
fiscal year of the Company in which the Date of Termination occurs. Such payment is in lieu
of the bonus that would have otherwise been due to the Executive under the Annual Incentive
Plan and any other bonus programs for the performance period in which the Date of
Termination occurs.
In the event of the termination of the Executives employment pursuant to Section 6(a) or Section
6(b) the Company shall pay the Executive or his estate the Accrued Obligation within thirty (30)
days after the Date of Termination.
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In the event of the termination of the Executives employment pursuant to Section 6(a) the Company
shall pay the Executives estate the amounts required pursuant to clauses (ii), (iii) and (iv) of
this Section 8(b) within sixty (60) days after the Date of Termination. In the event of the
termination of the Executives employment pursuant to Section 6(b) in a circumstance where the
Executive has incurred a Section 409A Disability, the Company shall pay the Executive the amounts
required to be paid pursuant to clauses (ii), (iii) and (iv) of this Section 8(b) within 60 days
after the date the Executive incurs a Section 409A Disability. For purposes of this Agreement,
Section 409A Disability
means the inability of the Executive to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment which can be
expected to result in death or can be expected to last for a continuous period of not less than 12
months. The Executive shall also be treated as having a
Section 409A Disability
if he is, by
reason of a medically determinable physical or mental impairment that can be expected to result in
death or can be expected to last for a continuous period of not less than 12 months, receiving
income replacement benefits for a period of not less than three months under an accident and health
plan covering employees of the Company. The Company shall determine whether the Executive has
incurred a Section 409A Disability. Such determination shall be supported by the written medical
opinion of a medical doctor who is mutually acceptable to the Company and the Executive. In the
event of the termination of the Executives employment pursuant to Section 6(b) in a circumstance
where the Executive has not incurred a Section 409A Disability, the Company shall pay the Executive
the amounts required to be paid pursuant to clauses (ii), (iii) and (iv) of this Section 8(b)
within sixty (60) days following his Separation From Service if he is not a Specified Employee or
on the date that is six months following the date of the Executives Separation from Service if he
is a Specified Employee. For purposes of this Agreement, the term
Separation From Service
shall
have the meaning ascribed to such term in Section 409A. The term
Specified Employee
means a
person who is a specified employee within the meaning of Section 409A, taking into account the
elections made and procedures established in resolutions adopted by the Administrative Committee.
Neither the Executive nor his estate shall be permitted to specify the taxable year in which a
payment described in this Section 8(b) shall be paid.
In the event of the termination of the Executives employment pursuant to Section 6(a) or Section
6(b) the Company shall pay the Executive the Benefit Obligation at the times specified in and in
accordance with the terms of the applicable employee benefit plans and compensation arrangements.
(c)
By the Company for Cause
. If during the Term the Executives employment is terminated by
the Company pursuant to Section 6(c) hereof, the Company shall pay to the Executive the Accrued
Obligation within thirty (30) days following the Date of Termination. The Company shall pay to the
Executive his Base Salary for periods following his Separation From Service, to the extent not
theretofore paid, within thirty (30) days following his Separation From Service if he is not a
Specified Employee or on the date that is six months following his Separation From Service if he is
a Specified Employee. Following such payments, the Company shall have no further obligations to
the Executive other than as may be required by law or the terms of an employee benefit plan of the
Company. The Company shall pay the Executive the Benefit Obligation at the times specified in and
in accordance with the terms of the applicable employee benefit plans and compensation
arrangements.
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(d)
By the Executive Without Good Reason
. If during the Term the Executive terminates his
employment for any reason other than Good Reason, the Company shall pay to the Executive the
Accrued Obligation within thirty (30) days following the Date of Termination. The Company shall
pay to the Executive his Base Salary for periods following his Separation From Service, to the
extent not theretofore paid, within thirty (30) days following his Separation From Service if he is
not a Specified Employee or on the date that is six months following his Separation From Service if
he is a Specified Employee. Following such payments, the Company shall have no further obligations
to the Executive other than as may be required by law or the terms of an employee benefit plan of
the Company. The Company shall pay the Executive the Benefit Obligation at the times specified in
and in accordance with the terms of the applicable employee benefit plans and compensation
arrangements. The Executive shall not have breached this Agreement if he terminates his employment
for any reason.
(e)
By the Company Without Cause or by the Executive for Good Reason
. If during the Term the
Executives employment is terminated by the Company other than for Cause, death or Disability or if
the Executive terminates his employment for Good Reason, then:
(i) The Company shall pay to the Executive, at the times specified in Section 8(e)(vii)
below, the following amounts:
(A) the Accrued Obligation;
(B) the Executives Base Salary through the Date of Termination for periods
following his Separation From Service, to the extent not theretofore paid;
(C) a lump sum in cash equal to two times the Executives Base Salary (at the
rate in effect as of the Date of Termination);
(D) a lump sum in cash equal to the product of (x) the monthly basic life
insurance premium applicable to the Executives basic life insurance coverage
immediately prior to the Date of Termination and (y) the number of full months and
fractional months (if any) remaining in the Term. The Executive may, at his option,
convert his basic life insurance coverage to an individual policy after the Date of
Termination by completing the forms required by the Company for this purpose;
(E) a lump sum in cash equal to the employer contributions the Company would
have credited to the Executives Baker Hughes Incorporated Supplemental Retirement
Plan (the
Supplemental Retirement Plan
) account had he continued to remain
employed by the Company for the remainder of the Term, assuming for this purpose
that (1) the Executives earned compensation for a year is the sum of the average of
the Executives three highest Annual Bonus Amounts received by the Executive with
respect to the five fiscal years of the Company immediately preceding the fiscal
year in which occurs the Date of Termination (the
Highest Bonus Amount
) and the
amount of Executives annualized Base Salary for the calendar year in which the Date
of Termination occurs, and (2) the applicable legal limitations and the
contribution, deferral, credit and accrual
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percentages under the Supplemental Retirement Plan by and on behalf of the Executive
under the Supplemental Retirement Plan for the remainder of the Term, are the same
percentages and limitations in effect immediately prior to the Date of Termination;
and
(F) a lump sum in cash equal to the product of (x) the Executives Highest
Bonus Amount and (y) a fraction, the numerator of which is the number of days during
the Companys then current fiscal year through the Date of Termination and the
denominator of which is 365. Such payment is in lieu of the bonus that would have
otherwise been due to the Executive under the Annual Incentive Plan and any other
bonus programs for the performance period in which the Date of Termination occurs.
(ii) Subject to clause (iv), for the remainder of the Term the Company shall arrange to
provide the Executive and his dependents medical insurance benefits substantially similar to
those provided to the Executive and his dependents immediately prior to the Date of
Termination (at no greater cost to the Executive than such cost to the Executive in effect
immediately prior to the Date of Termination, or, if greater, the cost to similarly situated
active employees of the Company under the applicable group health plan of the Company).
Except for any reimbursements under the applicable group health plan that are subject to a
limitation on reimbursements during a specified period, the amount of expenses eligible for
reimbursement under this Section 8(e)(ii), or in-kind benefits provided, during the
Executives taxable year shall not affect the expenses eligible for reimbursement, or
in-kind benefits to be provided, in any other taxable year of the Executive. The
Executives right to reimbursement or in-kind benefits pursuant to this Section 8(e)(ii)
shall not be subject to liquidation or exchange for another benefit. To the extent that the
payments or reimbursements made pursuant to this Section 8(e)(ii) are taxable to the
Executive and are not otherwise exempt from Section 409A, if the Executive is a Specified
Employee, any amounts to which the Executive would otherwise be entitled under this Section
8(e)(ii) during the first six months following the date of the Executives Separation From
Service shall be accumulated and paid to the Executive on the date that is six months
following the date of his Separation From Service.
(iii) For the remainder of the Term the Company shall continue to provide the Executive
perquisites, other than executive life insurance, in the manner specified in Section 4(e).
However, to the extent that the payments made pursuant to this Section 8(e)(iii) are taxable
to the Executive and are not otherwise exempt from Section 409A, if the Executive is a
Specified Employee, any amounts to which the Executive would otherwise be entitled under
this Section 8(e)(iii) during the first six months following the date of the Executives
Separation From Service shall be accumulated and paid to the Executive on the date that is
six months following the date of his Separation From Service.
(iv) Subject to the Executives group health plan coverage continuation rights under
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, the benefits and
perquisites listed in clauses (ii) and (iii) of this Section 8(e) shall be reduced to the
extent benefits and perquisites of the same type are received by or made available
-11-
to the Executive during such period, and provided, further, that the Executive shall
have the obligation to notify the Company that he is entitled to or receiving such benefits
and perquisites. The Company agrees that, if the Executives employment with the Company
terminates for any reason during the Term, the Executive is not required to seek other
employment or to attempt in any way to reduce any amounts payable to the Executive by the
Company pursuant to this Section 8. Further, except with respect to the benefits provided
pursuant to clause (ii) and (iii) above, the amount of any payment or benefit provided for
in this Agreement shall not be reduced by any compensation earned by the Executive as the
result of employment by another employer, by retirement benefits, or by offset against any
amount claimed to be owed by the Executive to the Company.
(v) Payments to the Executive under this Section 8 (other than Accrued Obligations) are
contingent upon the Executives execution of a release substantially in the form of Exhibit
A hereto.
(vi) The Executive shall not be permitted to specify the taxable year in which a
payment described in this Section 8(e) shall be made to him.
(vii) The Company shall pay the Executive the Benefit Obligation at the times specified
in and in accordance with the terms of the applicable employee benefit plans and
compensation arrangements. The Company shall pay the Executive the amounts specified in
Section 8(e)(i)(A) within thirty (30) days after the Date of Termination. The Company shall
pay or provide to the Executive the amounts or benefits specified in Sections 8(e)(i)(B),
8(e)(i)(C), 8(e)(i)(D), 8(e)(i)(E) and 8(e)(i)(F) 30 days following the date of the
Executives Separation From Service if he is not a Specified Employee or on the date that is
six months following the date of his Separation From Service if he is a Specified Employee.
Further, if the Executive is a Specified Employee at the time of his Separation From
Service, the Company shall pay to the Executive, on the date that is six months following
the Executives Separation From Service, an additional interest amount equal to the amount
of interest that would be earned on the amounts specified in Sections 8(e)(i)(B),
8(e)(i)(C), 8(e)(i)(D), 8(e)(i)(E) and 8(e)(i)(F) and, to the extent subject to a mandatory
six-month delay in payment, the amounts specified in Sections 8(e)(ii) and 8(e)(iii), for
the period commencing on the date of the Executives Separation From Service until the date
of payment of such amounts, calculated using an interest rate equal to the six month London
Interbank Offered Rate in effect on the date of the Executives Separation From Service plus
two percentage points.
(f)
Failure to Timely Pay
. The parties acknowledge and agree that if (i) payments under this
Section 8 are delayed for six months following the Executives Separation From Service pursuant to
the application of Section 409A and (ii) the Company fails to pay such amounts within three days
following the expiration of such six-month delay period, the Company will be deemed to have
materially breached its obligations under this Agreement and, accordingly, the Executive shall be
relieved of his obligations under paragraphs (b) and (c) of Section 9.
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9.
Confidential Information; Non-Competition; Non-Solicitation
.
(a)
Confidential Information
. The Executive shall hold in a fiduciary capacity for the
benefit of the Company all trade secrets, confidential information, and knowledge or data relating
to the Company and its businesses, which shall have been obtained by the Executive during the
Executives employment by the Company and which shall not have been or hereafter become public
knowledge (other than by acts by the Executive or representatives of the Executive in violation of
this Agreement) (hereinafter being collectively referred to as
Confidential Information
). For
the avoidance of doubt, Confidential Information shall not include information that:
(i) is already in Executives possession; provided that the information is not known by
the Executive to be subject to another confidentiality agreement with, or other obligation
of secrecy to, the Company or any of its subsidiaries,
(ii) becomes generally available to the public other than as a result of a disclosure
by the Executive, or
(iii) becomes available to the Executive on a non-confidential basis from a source
other than the Company or any of its subsidiaries or any of their respective directors,
officers, employees, agents or advisors; provided, that such source is not known by the
Executive to be bound by a confidentiality agreement with or other obligation of secrecy to
the Company or any of its subsidiaries.
The Executive shall not, without the prior written consent of the Company or as may otherwise be
required by law or legal process, communicate or divulge any such trade secrets, information,
knowledge or data to anyone other than the Company and those designated by the Company. Any
termination of the Executives employment or of this Agreement shall have no effect on the
continuing operation of this Section 9(a). The Executive agrees to return all Confidential
Information, including all photocopies, extracts and summaries thereof, and any such information
stored electronically on tapes, computer disks or in any other manner to the Company at any time
upon request by the Company and upon the termination of his employment hereunder for any reason.
(b)
Non-Competition
. During the Employment Period and for a period of two (2) years following
the Date of Termination (such period following the Employment Period, the
Restricted Period
), the
Executive shall not engage in Competition, as defined below, with the Company; provided, that it
shall not be a violation of this Section 9(b) for the Executive to become the registered or
beneficial owner of up to five percent (5%) of any class of the capital stock of a corporation
registered under the Securities Exchange Act of 1934, as amended, provided that the Executive does
not actively participate in the business of such corporation until such time as this covenant
expires.
For purposes of this Agreement,
Competition
by the Executive means the Executives engaging
in, or otherwise directly or indirectly being employed by or acting as a consultant or lender to,
or being a director, officer, employee, principal, agent, stockholder, member, owner or partner of,
or permitting his name to be used in connection with the activities of any other
-13-
business or organization which competes, directly or indirectly, with the business of the
Company as the same shall be constituted at any time during the Term.
(c)
Non-Solicitation
. During the Restricted Period, the Executive agrees that he will not,
directly or indirectly, for his benefit or for the benefit of any other person, firm or entity, do
any of the following:
(i) solicit from any customer doing business with the Company as of the Date of
Termination that is known to Executive, business of the same or of a similar nature to the
business of the Company with such customer;
(ii) solicit from any potential customer of the Company that is known to the Executive
business of the same or of a similar nature to that which has been the subject of a known
written or oral bid, offer or proposal by the Company, or of substantial preparation with a
view to making such a bid, proposal or offer, within six (6) months prior to such Date of
Termination;
(iii) solicit the employment or services of any person who was known to be employed by
or was a known consultant to the Company upon the Date of Termination, or within six (6)
months prior thereto; or
(iv) otherwise knowingly interfere with the business or accounts of the Company.
The Executive and the Company agree and acknowledge that the Company has a substantial and
legitimate interest in protecting the Companys Confidential Information and goodwill. The
Executive and the Company further agree and acknowledge that the provisions of this Section 9 are
reasonably necessary to protect the Companys legitimate business interests and are designed to
protect the Companys Confidential Information and goodwill.
The Executive agrees that the scope of the restrictions as to time, geographic area, and scope
of activity in this Section 9 are reasonably necessary for the protection of the Companys
legitimate business interests and are not oppressive or injurious to the public interest. The
Executive agrees that in the event of a breach or threatened breach of any of the provisions of
this Section 9 the Company shall be entitled to injunctive relief against the Executives
activities to the extent allowed by law, and the Executive waives any requirement for the posting
of any bond by the Company in connection with such action. The Executive further agrees that any
breach or threatened breach of any of the provisions of Section 9(a) would cause injury to the
Company for which monetary damages alone would not be a sufficient remedy.
(d)
Publicity
. The Executive agrees that the Company may use, and hereby grants the Company
the nonexclusive and worldwide right to use, the Executives name, picture, likeness, photograph,
signature or any other attribute of the Executives persona (all of such attributes are hereafter
collectively referred to as
Persona
) in any media for any advertising, publicity or other purpose
at any time, either during or subsequent to his employment by the Company. The Executive agrees
that such use of his Persona will not result in any invasion or violation of any privacy or
property rights the Executive may have; and the Executive agrees that he will receive no additional
compensation for the use of his Persona. The Executive further agrees that any
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negatives, prints or other material for printing or reproduction purposes prepared in
connection with the use of his Persona by the Company shall be and are the sole property of the
Company.
10.
Indemnification; Insurance
. The Company shall indemnify the Executive to the
fullest extent permitted by the laws of the Companys state of incorporation in effect at that
time, or certificate of incorporation and by-laws of the Company, whichever affords the greater
protection to the Executive. The Executive will be entitled to any insurance policies the Company
may elect to maintain generally for the benefit of its officers and directors against all costs,
charges and expenses incurred in connection with any action, suit or proceeding to which he may be
made a party by reason of being a director or officer of the Company.
11.
Successors; Binding Agreement
.
(a)
Companys Successors
. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no such succession had
taken place. Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount and on the same terms as he would be
entitled to hereunder if he terminated his employment for Good Reason, except that for purposes of
implementing the foregoing, the date on which any such succession becomes effective shall be deemed
the Date of Termination. As used in this Agreement, Company shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as aforesaid which executes
and delivers the agreement provided for in this Section 11 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b)
Executives Successors
. This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executives personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive
should die while any amounts would still be payable to him hereunder if he had continued to live,
all such amounts unless otherwise provided herein shall be paid in accordance with the terms of
this Agreement to the Executives devisee, legatee or other designee or, if there is no such
designee, to the Executives estate.
12.
Notice
. For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be deemed to have been
duly given when delivered or (unless otherwise specified) mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Mr. Chad C. Deaton
13914 I. O. Court
Willis, Texas 77318
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If to the Company:
Baker Hughes Incorporated
2929 Allen Parkway, Suite 2100
Houston, Texas 70019
Attention: General Counsel
or to such other address as either party may have furnished to the other in writing in accordance
herewith, except that notices of change of address shall be effective only upon receipt.
13.
Amendment or Modification; Waiver
. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and such officer of the Company as may be specifically designated
by the Board or its Compensation Committee. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in Agreement.
14.
Dispute Resolution
. Any dispute or controversy arising under or in connection
with this Agreement, the Executives employment by the Company or the Executives compensation or
benefits (a
Dispute
) shall be settled in accordance with the procedures described in this Section
14.
(a) First, the parties shall attempt in good faith to resolve any Dispute promptly by
negotiations between the Executive and executives or directors of the Company who have authority to
settle the Dispute. Either party may give the other disputing party written notice of any Dispute
not resolved in the normal course of business. Within five days after the effective date of that
notice, the Executive and such executives or directors of the Company shall agree upon a mutually
acceptable time and place to meet and shall meet at that time and place, and thereafter as often as
they reasonably deem necessary, to exchange relevant information and to attempt to resolve the
Dispute. The first of those meetings shall take place within 30 days of the effective date of the
disputing partys notice. If the Dispute has not been resolved within 60 days of the disputing
partys notice, or if the parties fail to agree on a time and place for an initial meeting within
five days of that notice, either party may initiate mediation and arbitration of the Dispute as
provided hereinafter. If a negotiator intends to be accompanied at a meeting by an attorney, the
other negotiators shall be given at least three business days notice of that intention and may
also be accompanied by an attorney. All negotiations pursuant to this Section 14 shall be treated
as compromise and settlement negotiations for the purposes of applicable rules of evidence and
procedure.
(b) Second, if the Dispute is not resolved through negotiation as provided in Section 14(a),
either disputing party may require the other to submit to non-binding mediation with the assistance
of a neutral, unaffiliated mediator. If the parties encounter difficulty in agreeing upon a
neutral mediator, they shall seek the assistance of the American Arbitration Association in the
selection process.
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(c) Any Dispute that has not been resolved by the non-binding procedures provided in Sections
14(a) and 14(b) within 90 days of the initiation of the first of the procedures shall be finally
settled by arbitration conducted expeditiously in accordance with the Commercial Arbitration Rules
of the American Arbitration Association or of such similar organization as the parties hereto may
mutually agree; provided, that if one party has requested the other to participate in a non-binding
procedure and the other has failed to participate within 30 days of the written request, the
requesting party may initiate arbitration before the expiration of the period. The arbitration
shall be conducted by three independent and impartial arbitrators. The Executive shall appoint one
arbitrator, the Company shall appoint a second arbitrator, and a third arbitrator not appointed by
the parties shall be appointed by the first two arbitrators selected. The arbitration shall be
held in Houston, Harris County, Texas. Judgment may be entered on the arbitrators award in any
court having jurisdiction. The arbitrators shall award the prevailing party in the arbitration its
costs and expenses, including reasonable attorneys fees, incurred in connection with the Dispute.
The arbitrators shall not award any amount to either the Executive or the Company in excess of the
compensation, employee benefits and indemnification amounts that the Company paid or should have
paid to the Executive pursuant to this Agreement.
(d) Notwithstanding the Dispute resolution provisions of this Section 14, either party may
bring an action in a court of competent jurisdiction in an effort to enforce the provisions of this
Section 14 and to seek injunctive relief to protect the partys rights pending resolution of a
Dispute pursuant to this Section 14, including, without limitation, the Companys rights pursuant
to Section 9 of this Agreement.
15.
Governing Law
. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Texas without regard to its conflicts of
law principles.
16.
Miscellaneous
. All references to sections of any statute shall be deemed also to
refer to any successor provisions to such sections. The obligations of the parties under Sections
8, 9, 10 and 14 hereof shall survive the expiration of the Term. The compensation and benefits
payable to the Executive or his beneficiary under Section 8 of this Agreement shall be in lieu of
any other severance benefits to which the Executive may otherwise be entitled upon his termination
of employment under any severance plan, program, policy or arrangement of the Company other than
the Change in Control Agreement and the Executive shall not be entitled to receive any benefits
under Section 8 hereof if he has become eligible to receive benefits under the Change in Control
Agreement.
17.
Severability
. The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect throughout the Term. Should any one or more
of the provisions of this Agreement be held to be excessive or unreasonable as to duration,
geographical scope or activity, then that provision shall be construed by limiting and reducing it
so as to be reasonable and enforceable to the extent compatible with the applicable law.
18.
Counterparts
. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will constitute one and the same
instrument.
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19.
Release
. In consideration of the benefits and compensation which may be awarded
to the Executive pursuant to Section 8 of this Agreement, the Executive hereby agrees to execute
and be bound by, as a condition precedent to receiving said benefits and compensation, the Release
attached hereto as Exhibit A, such Release being incorporated herein by reference.
20.
Compliance With Section 409A
. It is intended that this Agreement shall comply
with Section 409A. The provisions of this Agreement shall be interpreted and administered in a
manner that complies with Section 409A. The provisions of this Agreement dealing with Section 409A
reflect the manner in which this Agreement has been operated in good faith compliance with Section
409A since January 1, 2005.
21.
Entire Agreement
. This Agreement sets forth the entire agreement of the parties
hereto in respect of the subject matter contained herein and, as of the Effective Date, supersedes
all prior agreements, promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative of any party
hereto; provided, that the Change in Control Agreement shall not be superseded hereby.
22.
Effectiveness
. This Agreement shall become effective upon approval of the Board
of Directors. The Company shall provide a certified copy of the resolution evidencing such approval
as soon as practical after such approval.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective as of January 1, 2009.
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BAKER HUGHES INCORPORATED
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By:
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/s/ H. John Riley, Jr.
H. John Riley, Jr.
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Lead Director and Chairman of
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the Compensation Committee
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Date: December 16, 2008
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CHAD C. DEATON
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/s/Chad C. Deaton
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Date: December 15, 2008
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EXHIBIT A
RELEASE
The Executive hereby irrevocably and unconditionally releases, acquits and forever discharges
the Company (as defined in the Executives Employment Agreement) and its affiliated companies and
their directors, officers, employees and representatives, (collectively
Releasees
), from any and
all claims, liabilities, obligations, damages, causes of action, demands, costs, losses and/or
expenses (including attorneys fees) of any nature whatsoever, whether known or unknown, including,
but not limited to, rights arising out of alleged violations of any contracts, express or implied,
any covenant of good faith and fair dealing, express or implied, or any tort, or any legal
restrictions on the Companys right to terminate employees, or any federal, state or other
governmental statute, regulation, or ordinance, including, without limitation, Title VII of the
Civil Rights Act of 1964, as amended and the Age Discrimination in Employment Act of 1967, as
amended, which the Executive claims to have against any of the Releasees (in each case, except as
to indemnification provided by (a) the Executives Employment Agreement with the Company (as
amended or superseded from time to time) and/or (b) by the Companys bylaws and any indemnification
agreement or arrangement permitted by Section 145 of the Delaware General Corporation Law and by
directors, officers and other liability insurance coverages to the extent you would have enjoyed
such coverages had you remained a director or officer of the Company). In addition, the Executive
waives all rights and benefits afforded by any state laws which provide in substance that a general
release does not extend to claims which a person does not know or suspect to exist in his favor at
the time of executing the release which, if known by him, must have materially affected the
Executives settlement with the other person. The only exception to the foregoing are claims and
rights that may arise after the date of execution of this Release, claims and rights arising under
any employee benefit plan (including, but not limited to the Long Term Incentive Plan and the
Annual Incentive Plan) and claims and rights arising under Section 8 of the Executives Employment
Agreement.
The Executive understands and agrees that:
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A.
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He has a period of 21 days within which to consider whether he desires to
execute this Agreement, that no one hurried him into executing this Agreement during
that 21-day period, and that no one coerced him into executing this Agreement.
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B.
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He has carefully read and fully understands all of the provisions of this
Agreement, and declares that the Agreement is written in a manner that he fully
understands.
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C.
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He is, through this Agreement, releasing the Releasees from any and all claims
he may have against the Releasees, and that this Agreement constitutes a release and
discharge of claims arising under the Age Discrimination in Employment Act of 1967, as
amended, 29 U.S.C. §§ 621-634, including the Older Workers Benefit Protection Act, 29
U.S.C. § 626(f).
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D.
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He declares that his agreement to all of the terms set forth in this Release is
knowing and is voluntary.
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E.
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He knowingly and voluntarily intends to be legally bound by the terms of this
Release.
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F.
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He was advised and hereby is advised in writing to consult with an attorney of
his choice concerning the legal effect of this Release prior to executing this Release.
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G.
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He understands that rights or claims that may arise after the date this
Agreement is executed are not waived.
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H.
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He understands that, in connection with the release of any claim of age
discrimination, he has a period of seven days to revoke his acceptance of this Release,
and that he may deliver notification of revocation by letter or facsimile addressed to
the Vice President & General Counsel of the Company, at 2929 Allen Parkway, Suite 2100,
Houston, TX 77019, or (713) 439-8718. Executive understands that this Agreement will
not become effective and binding with respect to a claim of age discrimination until
after the expiration of the revocation period. The revocation period commences when
Executive executes this Agreement and ends at 11:59 p.m. on the seventh calendar day
after execution, not counting the date on which Executive executes this Agreement.
Executive understands that if he does not deliver a notice of revocation before the end
of the seven-day period described above, that this Agreement will become a final,
binding and enforceable release of any claim of age discrimination. This right of
revocation shall not affect the release of any claim other than a claim of age
discrimination arising under federal law.
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I.
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He understands that nothing in this Agreement shall be construed to prohibit
Executive from filing a charge or complaint, including a challenge to the validity of
this Agreement, with the Equal Employment Opportunity Commission or participating in
any investigation or proceeding conducted by the Equal Employment Opportunity
Commission.
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AGREED AND ACCEPTED, on this
day of
,
.
-2-
Exhibit 10.2
AMENDED AND RESTATED
CHANGE IN CONTROL AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT (this
Agreement
) is entered into by and between BAKER
HUGHES INCORPORATED, a Delaware corporation (the
Company
), and
(the
Executive
)
effective as of January 1, 2009.
WHEREAS, the Company considers it essential to the best interests of its stockholders to
foster the continued employment of key management personnel; and
WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the
possibility of a change in control exists and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or distraction of
management personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Company has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the Companys management, including
the Executive, to their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a change in control;
WHEREAS, effective
(the
Effective Date
) the Company and the Executive
previously entered into a Change in Control Agreement (the
Original Change in Control Agreement
);
and
WHEREAS, the Company and the Executive desire to amend and restate the Original Change in
Control Agreement to comply with section 409A of the Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained,
the Company and the Executive hereby agree as follows:
1.
Definitions and Interpretation Rules
.
1.1
Defined Terms
. For purposes of this Agreement, the following terms shall have the
meanings indicated below:
Affiliate
means any entity which is a member of (i) the same controlled group of
corporations within the meaning of section 414(b) of the Code with Baker Hughes, (ii) a trade or
business (whether or not incorporated) which is under common control (within the meaning of
section 414(c) of the Code) with Baker Hughes or (iii) an affiliated service group (within the
meaning of section 414(m) of the Code) with Baker Hughes.
Annual Incentive Plan
means the Baker Hughes Incorporated Annual Incentive Compensation
Plan, as amended and/or restated from time to time, any guidelines issued pursuant to such plan,
and any other annual incentive bonus plans adopted by the Company from time to time which are in
replacement of such plan.
1
Assets
means assets of any kind owned by Baker Hughes, including but not limited to
securities of Baker Hughes direct and indirect subsidiaries and Affiliates.
Baker Hughes
means Baker Hughes Incorporated, a Delaware corporation, and any successor by
merger or otherwise.
Base Compensation
means the Executives base salary or wages (as defined in section 3401(a)
of the Code for purposes of federal income tax withholding) from the Company, modified by
including
any portion thereof that such Executive could have received in cash in lieu of any elective
deferrals made by the Executive pursuant to the Supplemental Retirement Plan (other than deferrals
of bonuses) or pursuant to a qualified cash or deferred arrangement described in section 401(k) of
the Code and any elective contributions under a cafeteria plan described in section 125 of the
Code, and modified further by
excluding
any bonus, incentive compensation (including but not
limited to equity-based compensation), commissions, expense reimbursements or other expense
allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation (other than
elective deferrals by the Executive under a qualified cash or deferred arrangement described in
section 401(k) of the Code or the Supplemental Retirement Plan that are expressly included in
Base
Compensation
under the foregoing provisions of this definition), welfare benefits as defined in
ERISA, overtime pay, special performance compensation amounts and severance compensation.
Beneficial Owner
or
Beneficial Ownership
shall have the meaning ascribed to those terms in
Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
Board
means the Board of Directors of Baker Hughes or other governing body of Baker Hughes
or its direct or indirect parent.
Bonus Amount
means the sum of (a) the amount of the annual incentive bonus, if any, paid in
cash by the Company under the Annual Incentive Plan to or for the benefit of the Executive for
services rendered or labor performed during a fiscal year of the Company and (b) the amount of the
discretionary bonus or other bonus paid outside of the Annual Incentive Plan, if any, paid in cash
by the Company to or for the benefit of the Executive for services rendered or labor performed
during the same fiscal year of the Company. The Executives Bonus Amount shall be determined by
including any portion thereof that such Executive could have received in cash in lieu of (i) any
elective deferrals made by such Executive pursuant to the Supplemental Retirement Plan or (ii)
elective contributions made on such Executives behalf by the Company pursuant to a qualified cash
or deferred arrangement (as defined in section 401(k) of the Code) or pursuant to a plan maintained
under section 125 of the Code.
Cause
means (i) the willful and continued failure by the Executive to substantially perform
the Executives duties with the Company (other than any such failure resulting from the Executives
incapacity due to physical or mental illness) after a written demand for substantial performance is
delivered to the Executive by the Board (or by a delegate appointed by the Board), which demand
specifically identifies the manner in which the Board believes that the Executive has not
substantially performed the Executives duties, or (ii) the willful engaging by the Executive in
conduct which is demonstrably and materially injurious to the Company or any of its Affiliates,
monetarily or otherwise. For purposes of Sections (i) and (ii) of this definition, (A) no act, or
failure
2
to act, on the Executives part shall be deemed willful if done, or omitted to be done, by
the Executive in good faith and with reasonable belief that the act, or failure to act, was in the
best interest of the Company and (B) in the event of a dispute concerning the application of this
provision, no claim by the Company that Cause exists shall be given effect unless the Company
establishes to the Board by clear and convincing evidence that Cause exists.
Change in Control
means the occurrence of any of the following events:
(a) the individuals who are Incumbent Directors cease for any reason to constitute a majority
of the members of the Board;
(b) the consummation of a Merger of Baker Hughes or an Affiliate of Baker Hughes with another
Entity, unless the individuals and Entities who were the Beneficial Owners of the Voting Securities
of Baker Hughes outstanding immediately prior to such Merger own, directly or indirectly, at least
fifty percent (50%) of the combined voting power of the Voting Securities of any of Baker Hughes,
the surviving Entity or the parent of the surviving Entity outstanding immediately after such
Merger;
(c) any Person, other than a Specified Owner, becomes a Beneficial Owner, directly or
indirectly, of securities of Baker Hughes representing thirty percent (30%) or more of the combined
voting power of Baker Hughes then outstanding Voting Securities;
(d) a sale, transfer, lease or other disposition of all or substantially all of Baker Hughes
Assets is consummated (an
Asset Sale
),
unless
:
(1) the individuals and Entities who were the Beneficial Owners of the Voting
Securities of Baker Hughes immediately prior to such Asset Sale own, directly or
indirectly, 50 percent or more of the combined voting power of the Voting Securities
of the Entity that acquires such Assets in such Asset Sale or its parent immediately
after such Asset Sale in substantially the same proportions as their ownership of
Baker Hughes Voting Securities immediately prior to such Asset Sale; or
(2) the individuals who comprise the Board immediately prior to such Asset Sale
constitute a majority of the board of directors or other governing body of either
the Entity that acquired such Assets in such Asset Sale or its parent (or a majority
plus one member where such board or other governing body is comprised of an odd
number of directors); or
(e) The stockholders of Baker Hughes approve a plan of complete liquidation or dissolution of
Baker Hughes.
Code
means the Internal Revenue Code of 1986, as amended, or any successor act.
Committee
means, prior to a Change in Control or a Potential Change in Control, the
Compensation Committee of the Board. After a Change in Control or a Potential Change in Control,
Committee
means (i) the individuals (not fewer than three (3) in number) who, on the date six (6)
months prior to the Change in Control constitute the Compensation Committee of the Board, plus,
3
(ii) in the event that fewer than three (3) individuals are available from the group specified
in clause (i) above for any reason, such individuals as may be appointed by the individual or
individuals so available (including for this purpose any individual or individuals previously so
appointed under this clause (ii));
provided
,
however
, that the maximum number of individuals
constituting the Committee after a Change in Control or Potential Change in Control shall not
exceed six (6).
Company
means Baker Hughes. In the event that the Executives employer is a subsidiary of
Baker Hughes, the term Company shall include the Executives employer where appropriate and Baker
Hughes will cause the Executives employer to take any actions necessary to satisfy the obligations
of the Company under this Agreement.
Disability
means the Executives incapacity due to physical or mental illness that has
caused the Executive to be absent from full-time performance of his duties with the Company for a
period of six (6) consecutive months.
Effective Date
means the date identified in the introduction of this Agreement.
Employment Termination Date
means the date as of which the Executive incurs a Termination of
Employment determined in accordance with the provisions of Section 5.2.
Entity
means any corporation, partnership, association, joint-stock company, limited
liability company, trust, unincorporated organization or other business entity.
ERISA
means the Employee Retirement Income Security Act of 1974, as amended, or any
successor act.
Exchange Act
means the Securities Exchange Act of 1934, as amended, or any successor act.
Excise Tax
means the excise tax imposed by section 4999 of the Code or any similar tax
payable under any United States federal, state, or local statute.
Executive
means the employee identified in the introduction of this Agreement.
Expiration Date
shall have the meaning specified in Section 2.
Good Reason
for termination by the Executive of his employment means the occurrence (without
the Executives express written consent) after any Change in Control, or prior to a Change in
Control under the circumstances described in clauses (ii) and (iii) of the second paragraph of the
definition of Termination of Employment (treating all references to
Change in Control
in
paragraphs (a) through (f) below as references to a
Potential Change in Control
), of any one of
the following acts by the Company, or failures by the Company to act, unless, in the case of any
act or failure to act described in paragraph (a), (e), (f) or (g) below, such act or failure to act
is corrected prior to the effective date of the Executives termination for Good Reason:
(a) the assignment to the Executive of any duties or responsibilities which are substantially
diminished as compared to the Executives duties and responsibilities immediately
4
prior to a Change in Control or a material change in the Executives reporting
responsibilities, titles or offices as an executive and as in effect immediately prior to the
Change in Control;
(b) a reduction by the Company in the Executives annual Base Compensation as in effect on the
date hereof or as the same may be increased from time to time, except for across-the-board salary
reductions similarly affecting all individuals having a similar level of authority and
responsibility with the Company and all individuals having a similar level of authority and
responsibility with any Person in control of the Company;
(c) the relocation of the Executives principal place of employment to a location outside of a
50-mile radius from the Executives principal place of employment immediately prior to the Change
in Control or the Companys requiring the Executive to be based anywhere other than such principal
place of employment (or permitted relocation thereof) except for required travel on the Companys
business to an extent substantially consistent with the Executives business travel obligations
immediately prior to a Change in Control;
(d) the failure by the Company to pay to the Executive any portion of the Executives current
compensation except pursuant to an across-the-board compensation deferral similarly affecting all
individuals having a similar level of authority and responsibility with the Company and all
individuals having a similar level of authority and responsibility with any Person in control of
the Company, or to pay to the Executive any portion of an installment of deferred compensation
under any deferred compensation program of the Company, within seven (7) days of the date such
compensation is due;
(e) the failure by the Company to continue in effect any compensation plan in which the
Executive participates immediately prior to the Change in Control which is material to the
Executives total compensation, unless an equitable arrangement (embodied in an ongoing substitute
or alternative plan) has been made with respect to such plan, or the failure by the Company to
continue the Executives participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount or timing of payment of benefits
provided and the level of the Executives participation relative to other Baker Hughes executives,
as existed immediately prior to the Change in Control;
(f) the failure by the Company to continue to provide the Executive with benefits
substantially similar to those enjoyed by the Executive under any of the Companys pension,
savings, life insurance, medical, health and accident, or disability plans in which the Executive
was participating immediately prior to the Change in Control (except for across the board changes
similarly affecting all individuals having a similar level of authority and responsibility with the
Company and all individuals having a similar level of authority and responsibility with any Person
in control of the Company), the taking of any other action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive the Executive of any material fringe
benefit or Perquisite enjoyed by the Executive at the time of the Change in Control, or the failure
by the Company to provide the Executive with the number of paid vacation days to which the
Executive is entitled on the basis of years of service with the Company in accordance with the
Companys normal vacation policy in effect immediately prior to the time of the Change in Control;
or
5
(g) any purported termination of the Executives employment which is not effected pursuant to
a notice of termination satisfying the requirements of Section 5.1.
The Executive shall have the right to terminate his employment for Good Reason even if he
becomes incapacitated due to physical or mental illness. The Executives continued employment
shall not constitute consent to, or a waiver of any rights with respect to, any act or failure to
act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good Reason, any claim by the
Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to
the Committee by clear and convincing evidence that Good Reason does not exist. The Committees
determination regarding the existence of Good Reason shall be conclusive and binding upon all
parties unless the Committees determination is arbitrary and capricious.
Gross-Up Payment
means the additional amount paid to the Executive pursuant to Section 3.4.
Highest Base Compensation
means the Executives annualized Base Compensation in effect
immediately prior to (a) a Change in Control, (b) the first event or circumstance constituting Good
Reason, or (c) the Executives Termination of Employment, whichever is greatest.
Highest Bonus Amount
means the average of the three highest Bonus Amounts received by the
Executive with respect to the five fiscal years of the Company immediately preceding the
Executives Employment Termination Date.
Incumbent Director
means
(a) a member of the Board on the Effective Date; or
(b) an individual-
(1) who becomes a member of the Board after the Effective Date;
(2) whose appointment or election by the Board or nomination for election by
Baker Hughes stockholders is approved or recommended by a vote of at least
two-thirds of the then serving
Incumbent Directors
(as defined herein); and
(3) whose initial assumption of service on the Board is not in connection with
an actual or threatened election contest.
Interest Amount
has the meaning specified in Section 3.3(i).
Merger
means a merger, consolidation or similar transaction.
Pension Plan
means the Baker Hughes Incorporated Pension Plan, as amended from time to time.
6
Perquisites
means benefits such as any airline VIP club memberships; country club and/or
health club membership dues and expenses related to the use of the country club and/or health club;
supplemental life insurance; financial consulting; and office equipment for use in the home (e.g.,
cellular telephones, personal digital assistance, home computers and office accessories similar to
the office accessories available to the Executive in his employment office and monthly Internet
connection fees) that may be provided by the Company from time to time.
Person
shall have the meaning ascribed to the term in Section 3(a)(9) of the Exchange Act
and used in Sections 13(d) and 14(d) thereof, including a group as defined in Section 13(d)
thereof, except that the term shall not include (a) the Company or any of its Affiliates, (b) a
trustee or other fiduciary holding Company securities under an employee benefit plan of the Company
or any of its Affiliates, (c) an underwriter temporarily holding securities pursuant to an offering
of those securities or (d) a corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock of the Company.
Potential Change in Control
shall be deemed to have occurred if the event set forth in any
one of the following paragraphs shall have occurred:
(a) the Company enters into an agreement, the consummation of which would result in the
occurrence of a Change in Control;
(b) the Company or any Person publicly announces an intention to take or to consider taking
actions which, if consummated, would constitute a Change in Control;
(c) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the
Company representing 15 percent or more of either the then outstanding shares of common stock of
the Company or the combined voting power of the Companys then outstanding securities (not
including in the securities beneficially owned by such Person any securities acquired directly from
the Company or its Affiliates); or
(d) the Board adopts a resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.
Renewal Date
shall have the meaning specified in Section 2.
Section 409A
means section 409A of the Code and the regulations issued by the IRS and the
Department of Treasury thereunder.
Separation From Service
shall have the meaning specified in Section 409A.
Specified Employee
means a person who is, as of the date of the persons Separation From
Service a specified employee within the meaning of Section 409A, taking into account the
elections made and procedures established in resolutions adopted by the Administrative Committee of
Baker Hughes.
Specified Owner
means any of the following:
(a) Baker Hughes;
7
(b) an Affiliate of Baker Hughes;
(c) an employee benefit plan (or related trust) sponsored or maintained by Baker Hughes or any
Affiliate of Baker Hughes;
(d) a Person that becomes a Beneficial Owner of Baker Hughes outstanding Voting Securities
representing 30 percent or more of the combined voting power of Baker Hughes then outstanding
Voting Securities as a result of the acquisition of securities directly from Baker Hughes and/or
its Affiliates; or
(e) a Person that becomes a Beneficial Owner of Baker Hughes outstanding Voting Securities
representing 30 percent or more of the combined voting power of Baker Hughes then outstanding
Voting Securities as a result of a Merger if the individuals and Entities who were the Beneficial
Owners of the Voting Securities of Baker Hughes outstanding immediately prior to such Merger own,
directly or indirectly, at least 50 percent of the combined voting power of the Voting Securities
of any of Baker Hughes, the surviving Entity or the parent of the surviving Entity outstanding
immediately after such Merger in substantially the same proportions as their ownership of the
Voting Securities of Baker Hughes outstanding immediately prior to such Merger.
Supplemental Retirement Plan
means the Baker Hughes Incorporated Supplemental Retirement
Plan, as amended from time to time.
Termination of Employment
means the termination of the Executives employment relationship
with the Company (a) by the Company without Cause after a Change in Control occurs, or (b) by the
Executive for Good Reason after a Change in Control occurs.
For purposes of this definition, the Executives employment shall be deemed to have been
terminated after a Change in Control, if (a) the Executives employment is terminated by the
Company without Cause prior to a Change in Control (whether or not a Change in Control ever occurs)
and such termination was at the request or direction of a Person who has entered into an agreement
with the Company, the consummation of which would constitute a Change in Control; (b) the Executive
terminates his employment for Good Reason prior to a Change in Control (whether or not a Change in
Control ever occurs) and the circumstance or event which constitutes Good Reason occurs at the
request or direction of a Person who has entered into an agreement with the Company, the
consummation of which would constitute a Change in Control; or (c) the Executives employment is
terminated by the Company without Cause or by the Executive for Good Reason and such termination or
the circumstance or event which constitutes Good Reason is otherwise in connection with or in
anticipation of a Change in Control (whether or not a Change in Control ever occurs). For purposes
of any determination regarding the applicability of the immediately preceding sentence, any
position taken by the Executive shall be presumed to be correct unless the Company establishes to
the Committee by clear and convincing evidence that such position is not correct.
Termination of Employment does not include (a) a termination of employment due to the
Executives death or Disability, or (b) a termination of employment by the Executive without Good
Reason.
8
Thrift Plan
means the Baker Hughes Incorporated Thrift Plan, as amended from time to time.
Voting Securities
means the outstanding securities entitled to vote generally in the
election of directors or other governing body.
1.2
Number and Gender
. As used in this Agreement, unless the context otherwise
expressly requires to the contrary, references to the singular include the plural, and vice versa;
references to the masculine include the feminine and neuter; references to including mean
including (without limitation); and references to Sections and clauses mean the sections and
clauses of this Agreement.
2.
Term of Agreement
.
2.1 The
Term
of this Agreement shall commence on the Effective Date and end on (a) the last
day of the three-year period beginning on the Effective Date if no Change in Control shall have
occurred during that three-year period (such last day being the
Expiration Date
); or (b) if a
Change in Control shall have occurred during (i) the three-year period beginning on the Effective
Date or (ii) any period for which the Term of this Agreement shall have been automatically extended
pursuant Section 2.2, the last day of the two-year period beginning on the date on which the Change
in Control occurred.
2.2 After the expiration of the time period described in subsection (a) of Section 2.1, and in
the absence of a Change in Control (as described in subsection (b) of Section 2.1) the Term of
this Agreement shall be automatically extended for successive two-year periods beginning on the day
immediately following the Expiration Date (the beginning date of each successive two-year period
being a
Renewal Date
), unless, not later than 18 months prior to the Expiration Date or
applicable Renewal Date, the Company shall give notice to Executive that the Term of this Agreement
will not be extended.
3.
Compensation Other Than Severance Payments
.
3.1
Equity Based Compensation
. Upon the occurrence of a Change in Control, all
options to acquire Baker Hughes stock, all shares of restricted Baker Hughes stock, and all stock
appreciation rights the value of which is determined by reference to or based upon the value of
Baker Hughes stock, held by the Executive under any plan of the Company shall become immediately
vested, exercisable and nonforfeitable and all conditions thereof (including, but not limited to,
any required holding periods) shall be deemed to have been satisfied. The effect, if any, of a
Change in Control on any other equity incentives and other awards the value of which is determined
by reference to or based upon the value of Baker Hughes stock shall be determined in accordance
with the terms of the applicable award agreement and any terms and conditions issued by the
Compensation Committee of the Board that are applicable to the award.
3.2
Compensation and Benefits During Incapacity and Prior to Termination of
Employment
. Following a Change in Control and during the Term of this Agreement, for any
period during which the Executive fails to perform the Executives full-time duties with the
Company as a result of incapacity due to physical or mental illness, the Company shall pay to the
Executive, at the time specified in Section 4, the Executives full salary at the rate in effect at
the
9
commencement of any such period, together with all compensation and benefits payable to the
Executive under the terms of any compensation or benefit plan, program or arrangement maintained by
the Company during such period, until the Executives employment is terminated by the Company for
Disability.
3.3
Benefits Following Termination of Employment
. If the Executive incurs a
Termination of Employment during the Term of this Agreement, the Company shall provide the
Executive the benefits described below.
(a)
Severance Payment
. The Company will pay the Executive a cash severance benefit in
an amount equal to the product of three times the sum of (i) an amount equal to the Executives
Highest Base Compensation plus (ii) the greater of (A) the Executives Highest Bonus Amount or (B)
an amount equal to one hundred and twenty percent (120%) of the Executives Highest Base
Compensation. The Executives severance payment under this paragraph (a) will be paid in
accordance with the provisions of Section 4.
(b)
Prorated Bonus
. The Company will pay the Executive a cash severance benefit in an
amount equal to the product of (A) the Executives Highest Bonus Amount and (B) a fraction, the
numerator of which is the number of days in the Companys fiscal year in which occurs the
Executives Employment Termination Date through the Executives Employment Termination Date and the
denominator of which is three hundred sixty-five (365). However, if the Executives Employment
Termination Date occurs during the same calendar year in which a Change in Control occurs, the
pro-rata bonus payment described in the preceding sentence shall be offset by any payments received
by the Executive under the Baker Hughes Incorporated Annual Incentive Compensation Plan (as amended
and/or restated) in connection with the Change in Control. The Executives severance payment under
this paragraph (b) will be paid in accordance with the provisions of Section 4.
(c)
Outplacement
. The Company will pay the Executive a cash payment in the amount of
$30,000.00. Such cash payment will be paid in accordance with the provisions of Section 4.
(d)
Pension, Thrift and Supplemental Retirement Plans
. In addition to the retirement
benefits to which the Executive is entitled under the Thrift Plan, the Pension Plan and the
Supplemental Retirement Plan, the Company shall pay the Executive a single sum cash payment in an
amount equal to the undiscounted value of (A) the employer-provided accruals under the Pension Plan
that the Executive would have earned and (B) the employer contributions the Company would have made
to the Thrift Plan and the Supplemental Retirement Plan (including but not limited to matching and
base contributions) on behalf of the Executive had the Executive continued in the employ of the
Company for a period of three years after the Employment Termination Date, assuming for this
purpose that (i) the Executives earned compensation per year during that three year period of time
is the sum of (1) the Executives Highest Base Compensation and (2) the Executives Highest Bonus
Amount; and (ii) contribution, deferral, credit and accrual percentages made under the Pension
Plan, the Thrift Plan and the Supplemental Retirement Plan, by and on behalf of the Executive
during the three year period, are the same percentages in effect on the date of the Change in
Control or the Executives Employment Termination Date, whichever is more favorable for the
Executive. The
10
payment required under this paragraph (d) will be made in accordance with the provisions of
Section 4.
(e)
Accident and Health Insurance Benefits
. For three years following the Executives
Employment Termination Date (the
Continuation Period
), the Company shall arrange to provide the
Executive and his dependents accident and health insurance benefits, in each case, substantially
similar to those provided to the Executive and his dependents immediately prior to the Employment
Termination Date or, if more favorable to the Executive, those provided to the Executive and his
dependents immediately prior to the first occurrence of an event or circumstance constituting Good
Reason, at no greater cost to the Executive than the cost to the Executive immediately prior to
such date or occurrence. Benefits otherwise receivable by the Executive pursuant to this
Section 3.3(e) shall be reduced to the extent benefits of the same type are received by the
Executive during the Continuation Period (and any such benefits received by the Executive shall be
reported to the Company by the Executive). To the extent that the accident or health insurance
benefits specified in this Section 3.3(e) are not provided through an arrangement that is fully
insured by a third party the following provisions shall apply to the reimbursement of such
benefits. The amount of accident and health insurance expenses eligible for reimbursement during
Executives taxable year will not affect the expenses eligible for reimbursement in any other
taxable year (with the exception of applicable lifetime maximums specified in the plans). The
Executives right to reimbursement is not subject to liquidation or exchange for another benefit.
To the extent that the benefits provided to the Executive pursuant to this Section 3.3(e) are
taxable to the Executive and not otherwise exempt from Section 409A, any amounts to which the
Executive would otherwise be entitled under this Section 3.3(e) during the first six months
following the date of the Executives Separation From Service shall be accumulated and paid to the
Executive on the date that is six months following the date of his Separation From Service.
(f)
Life Insurance
. The Executive shall be entitled to a single sum cash payment in
an amount equivalent to thirty-six (36) monthly basic life insurance premiums applicable to the
Executives basic life insurance coverage on his Employment Termination Date. The single sum cash
payment will be made in accordance with the provisions of Section 4. The Executive may, at his
option, convert his basic life insurance coverage to an individual policy after his Employment
Termination Date by completing the forms required by the Company.
(g)
Perquisites
. The Executive shall be entitled to a single sum cash payment which
shall be an amount equal to the sum of (1) the cost of the Executives Perquisites in effect prior
to his Termination of Employment for the remainder of the calendar year in which the Employment
Termination Date occurs; plus (2) the cost of the Executives Perquisites in effect prior to his
Termination of Employment for an additional three years. The payment required under this paragraph
(g) will be made in accordance with the provisions of Section 4. If the aggregate fair market
value of the club memberships to be purchased does not exceed the dollar limitation under section
402(g)(1) of the Code in effect when the Executive incurs a Separation From Service, the Executive
may, at his option, purchase any of his club memberships held in the Companys name for fair market
value and on the terms mutually agreed by the Executive and the Committee.
11
(h)
Retiree Medical
. If the Executive would have become entitled to benefits under
the Companys post-retirement health care insurance plans, as in effect immediately prior to the
Employment Termination Date or, if more favorable to the Executive as in effect immediately prior
to the first occurrence of an event or circumstance constituting Good Reason, had the Executives
employment terminated at any time during the period of thirty-six (36) months after the Employment
Termination Date, the Company shall provide such post-retirement health care insurance benefits to
the Executive and the Executives dependents commencing on the later of (i) the date on which such
coverage would have first become available and (ii) the date on which the applicable benefits
described in paragraph (e) of this Section 3.3 terminate. Except for any reimbursements under the
applicable group health plan that are subject to a limitation on reimbursements during a specified
period, the amount of expenses eligible for reimbursement under this Section 3.3(h), or in-kind
benefits provided, during the Executives taxable year shall not affect the expenses eligible for
reimbursement, or in-kind benefits to be provided, in any other taxable year of the Executive. The
Executives right to reimbursement or in-kind benefits pursuant to this Section 3.3(h) shall not be
subject to liquidation or exchange for another benefit. To the extent that the benefits provided
to the Executive pursuant to this Section 3.3(h) are taxable to the Executive and are not otherwise
exempt from Section 409A, any amounts to which the Executive would otherwise be entitled under this
Section 3.3(h) during the first six months following the date of the Executives Separation From
Service shall be accumulated and paid to the Executive on the date that is six months following the
date of his Separation From Service.
(i)
Interest Amount
. If the Executive is a Specified Employee, the Company shall pay
to the Executive, on the date that is six (6) months following the Executives Separation From
Service, an amount equal to the amount of interest that would be earned on the amounts specified in
Sections 3.3(a), 3.3(b), 3.3(c), 3.3(d), 3.3(f) and 3.3(g) and, to the extent subject to a
mandatory six-month delay in payment, the amounts specified in Sections 3(e), 3(h), 3.4(c) and 3.5,
for the period commencing on the date of the Executives Separation From Service until the date of
payment of such amounts, calculated using an interest rate equal to the six month London Interbank
Offered Rate in effect on the date of the Executives Separation From Service plus two percentage
points (the
Interest Amount
).
3.4
Gross-Up Payments
. If any payments or benefits received or to be received by the
Executive (whether pursuant to the terms of this Agreement, or any other plan or agreement with the
Company, any Person whose actions result in a Change in Control or any Person affiliated with the
Company or such Person) (such payments or benefits, excluding the Gross-Up Payment, being
hereinafter referred to as the
Total Payments
) will be subject to the Excise Tax, the Company
shall pay the Executive an additional amount (the
Gross-Up Payment
) such that the net amount
retained by the Executive after the deduction of any Excise Tax on the Total Payments and any
federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment shall
be equal to the Total Payments. The purpose of this Section 3.4 is to place the Executive in the
same economic position such Executive would have been in had no Excise Tax been imposed with
respect to the Total Payments.
(a) For purposes of determining whether any of the Total Payments will be subject to the
Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as
parachute payments (within the meaning of section 280G(b)(2) of the Code)
12
unless, in the opinion of tax counsel (the
Tax Counsel
) reasonably acceptable to the
Executive and selected by the accounting firm which was, immediately prior to the Change in
Control, the Companys independent auditor (the
Auditor
), such payments or benefits (in whole or
in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the
Code, (ii) all excess parachute payments within the meaning of section 280G(b)(l) of the Code
shall be treated as subject to the Excise Tax unless, in the opinion of the Tax Counsel, such
excess parachute payments (in whole or in part) represent reasonable compensation for services
actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the base
amount (within the meaning of section 280G(b)(3) of the Code) allocable to such reasonable
compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with
the principles of sections 280G(d)(3) and (4) of the Code.
(b) For purposes of determining the amount of the Gross-Up Payment, the Executive shall be
deemed to pay federal income tax at the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the Executives residence on the
Employment Termination Date (or if there is no Employment Termination Date, then the date on which
the Gross-Up Payment is calculated for purposes of this Section), net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and local taxes.
(c) In the event that the Excise Tax is determined to exceed the amount taken into account
hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the payment of the Gross-Up Payment), the
Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest,
penalties or additions payable by the Executive with respect to such excess) within five (5)
business days following the time that the amount of such excess is finally determined. The
Executive and the Company shall each reasonably cooperate with the other relative to any
administrative or judicial proceedings concerning the existence or amount of liability for the
Excise Tax. The parties intend and agree that the five (5) business day deadline specified above
in this Section 3.4(c) is not to be extended as a result of the following sentence which is
included solely for the purpose of complying with Section 409A. The Company shall make a payment
to reimburse the Executive in an amount equal to all federal, state and local taxes imposed upon
the Executive that are described in this Section 3.4, including the amount of additional taxes
imposed upon the Executive due to the Companys payment of the initial taxes on such amounts, by
the end of the Executives taxable year next following the Executives taxable year in which the
Executive remits the related taxes to the taxing authority. Notwithstanding any provision of this
Agreement to the contrary, if the Executive is a Specified Employee, any amounts to which the
Executive would otherwise be entitled under this Section 3.4 during the first six months following
the date of the Executives Separation From Service shall be accumulated and paid to the Executive
on the date that is six months following the date of his Separation From Service.
3.5
Legal Fees
. The Company shall pay, on a fully grossed up, after tax basis, all
legal fees and expenses incurred by the Executive (i) in disputing in good faith any issue relating
to the Executives termination of employment, or (ii) in seeking in good faith to obtain or
13
enforce any benefit or right provided under this Agreement in accordance with Section 11.5.
Such payments shall be made within ten (10) business days after the delivery of the Executives
written request for the payment accompanied by such evidence of fees and expenses incurred as the
Company may reasonably require. The Company shall pay the Executive, on a fully grossed up, after
tax basis, all legal fees and expenses incurred by the Executive in connection with any tax audit
or proceeding to the extent attributable to the application of section 4999 of the Code to any
payment or benefit under this Agreement. Such payments shall be made within ten (10) business days
after delivery of the Executives written request for payment accompanied with such evidence of
fees and expenses incurred as the Company may reasonably require. The parties intend and agree
that the foregoing ten (10) business day deadline is not to be extended as a result of the
following sentence which is included solely for the purpose of complying with Section 409A. The
Company shall make a payment to reimburse the Executive in an amount equal to all legal fees and
expenses incurred due to a tax audit or litigation relating to the application of section 4999 of
the Code to any payment or benefit under this Agreement by the end of the Executives taxable year
following the Executives taxable year in which the taxes that are the subject of the audit or
litigation are remitted to the taxing authority, or where as a result of such audit or litigation
no taxes are remitted, by the end of the Executives taxable year following the Executives taxable
year in which the audit is completed or there is a final and nonappealable settlement or other
resolution of the litigation. The legal fees or expenses that are subject to reimbursement
pursuant to this Section 3.5 shall not be limited as a result of when the fees or expenses are
incurred. The amount of legal fees or expenses that is eligible for reimbursement pursuant to this
Section 3.5 during a given taxable year of the Executive shall not affect the amount of expenses
eligible for reimbursement in any other taxable year of the Executive. The right to reimbursement
pursuant to this Section 3.5 is not subject to liquidation or exchange for another benefit.
Notwithstanding any provision of this Agreement to the contrary, if the Executive is a Specified
Employee, any amount to which the Executive would otherwise be entitled under this Section 3.5
during the first six months following the date of the Executives Separation From Service shall be
accumulated and paid to the Executive on the date that is six months following the date of his
Separation From Service.
4.
Time of Benefits Payments
. The Company shall pay the Executive any cash benefits
described in paragraphs (a), (b), (c), (d), (f) and (g) of Section 3.3 in a single sum cash payment
on the date that is six (6) months following the date of the Executives Separation From Service
if he is a Specified Employee or ten (10) days following his Separation From Service if he is not a
Specified Employee. Any salary or compensation described in Section 3.2 or 5.4 for periods prior
to the Executives Separation From Service shall be paid to the Executive by the Company on the
regularly scheduled payroll dates or on the dates specified in the applicable benefit programs.
Any unpaid salary described in Section 3.2 or Section 5.4 for periods following the Executives
Separation From Service shall be paid to the Executive by the Company in a single sum cash payment
on the date that is six (6) months following the date of the Executives Separation From Service if
he is a Specified Employee or ten (10) days following his Separation From Service if he is not a
Specified Employee.
5.
Termination Procedures And Compensation During Dispute
.
5.1
Notice of Termination
. After a Change in Control and during the Term of this
Agreement, any purported termination of the Executives employment by the Company shall be
14
communicated by the Company by a written Notice of Termination to the Executive in accordance
with Section 11.8. For purposes of this Agreement, a
Notice of Termination
shall mean a notice
which shall indicate the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a basis for termination
of the Executives employment under the provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board
which was called and held for the purpose of considering such termination (after reasonable notice
to the Executive and an opportunity for the Executive, together with the Executives counsel, to be
heard before the Board) finding that, in the good faith opinion of the Board, the Executive was
guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying
the particulars thereof in detail. No purported termination of the Executives employment by the
Company after a Change in Control and during the Term of this Agreement shall be effective unless
the Company complies with the procedures set forth in this Section.
5.2
Employment Termination Date
.
Employment Termination Date
, with respect to any
purported termination of the Executives employment after a Change in Control and during the Term
of this Agreement, shall mean (i) if the Executives employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of the Executives duties during such thirty (30) day
period), and (ii) if the Executives employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a termination by the Company, shall
not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case
of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty
(60) days, respectively, from the date such Notice of Termination is given).
5.3
Dispute Concerning Termination
. If within fifteen (15) days after any Notice of
Termination is given, or, if later, prior to the Employment Termination Date (as determined without
regard to this Section), the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Employment Termination Date shall be extended
until the earlier of (i) the date on which the Term of this Agreement ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the parties or by a
final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not
appealable or with respect to which the time for appeal therefrom has expired and no appeal has
been perfected); provided, however, that the Employment Termination Date shall be extended by a
notice of dispute given by the Executive only if such notice is given in good faith and the
Executive pursues the resolution of such dispute with reasonable diligence.
5.4
Compensation During Dispute
. If a purported termination of employment occurs
following a Change in Control and during the Term of this Agreement and the Employment Termination
Date is extended in accordance with Section 5.3, the Company shall pay the Executive, at the time
specified in Section 4, the full compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, salary) and continue the Executive as a participant in
all compensation, benefit and insurance plans in which the Executive was participating when the
notice giving rise to the dispute was given or those plans in which the Executive was participating
immediately prior to the first occurrence of an event or
15
circumstance giving rise to the Notice of Termination, if more favorable to the Executive,
until the Employment Termination Date, as determined in accordance with Section 5.3. Amounts paid
under this Section are in addition to all other amounts due under this Agreement (other than those
due under Section 3.2) and shall not be offset against or reduce any other amounts due under this
Agreement.
6.
Withholding
. Subject to the provisions of Section 3.4, the Company may withhold
from any benefits paid under this Agreement all income, employment, and other taxes required to be
withheld under applicable law.
7.
Death of the Executive
. If the Executive dies after his Employment Termination
Date but before the Executive receives full payment of the benefits to which he is entitled, any
unpaid benefits will be paid to the Executives surviving spouse, or if the Executive does not have
a surviving spouse, to the Executives estate.
8.
Amendment
. This Agreement may not be amended except pursuant to a written
instrument that is authorized by the Committee and agreed to in writing and signed by the
Executive.
9.
Disputed Payments And Failures To Pay
. If the Company fails to make a payment in
whole or in part as of the payment deadline specified in this Agreement, either intentionally or
unintentionally, other than with the consent of the Executive, the Executive shall make prompt and
reasonable good faith efforts to collect the remaining portion of the payment. The Company shall
pay any such unpaid benefits due to the Executive, together with interest on the unpaid benefits
from the date of the payment deadline specified in this Agreement at the annual rate of 120 percent
of the rate specified in section 1274(b)(2)(B) of the Code within ten (10) business days of
discovering that the additional monies are due and payable.
The Company shall hold harmless and indemnify the Executive on a fully grossed-up after tax
basis from and against (i) any and all taxes imposed under Section 409A by any taxing authority as
a result of the Companys failure to timely pay payments and benefits under this Agreement when
due, and (ii) all expenses (including reasonable attorneys, accountants, and experts fees and
expenses) incurred by the Executive due to a tax audit or litigation addressing the existence or
amount of a tax liability described in clause (i); and (iii) the amount of additional taxes imposed
upon the Executive due to the Companys payment of the initial taxes and expenses described in
clauses (i) and (ii).
The Company shall make a payment to reimburse the Executive in an amount equal to all federal,
state and local taxes imposed upon the Executive that are described in clauses (i) and (iii) of the
foregoing paragraph of this Section 9, including the amount of additional taxes imposed upon the
Executive due to the Companys payment of the initial taxes on such amounts, within ten (10)
business days after the delivery of the Executives written request for the payment. The parties
intend and agree that such ten (10) business day deadline is not to be extended as a result of the
following sentence which is included solely for the purpose of complying with Section 409A. The
Company shall make a payment to reimburse the Executive in an amount equal to all federal, state
and local taxes imposed upon the Executive that are described in clauses (i) and (iii) of the
foregoing paragraph of this Section 9, including the amount of additional taxes imposed
16
upon the Executive due to the Companys payment of the initial taxes on such amounts, by the
end of the Executives taxable year next following the Executives taxable year in which the
Executive remits the related taxes to the taxing authority. The Company shall make a payment to
reimburse the Executive in an amount equal to all expenses and other amounts incurred due to a tax
audit or litigation addressing the existence or amount of a tax liability pursuant to clause (ii)
of the foregoing paragraph of this Section 9, within ten (10) business days after the delivery of
the Executives written request for the payment. The parties intend and agree that such ten (10)
business day deadline is not to be extended as a result of the following sentence which is included
solely for the purpose of complying with Section 409A. The Company shall make a payment to
reimburse the Executive in an amount equal to all expenses and other amounts incurred due to a tax
audit or litigation addressing the existence or amount of a tax liability pursuant to clause (ii)
of the foregoing paragraph of this Section 9, by the end of Executives taxable year following the
Executives taxable year in which the taxes that are the subject of the audit or litigation are
remitted to the taxing authority, or where as a result of such audit or litigation no taxes are
remitted, the end of the Executives taxable year following the Executives taxable year in which
the audit is completed or there is a final and nonappealable settlement or other resolution of the
litigation.
10.
Funding
. The Executive shall have no right, title, or interest whatsoever in or
to any assets of the Company or any investments which the Company may make to aid it in meeting its
obligations under this Agreement. The Executives right to receive payments under this Agreement
shall be no greater than the right of an unsecured general creditor of the Company. Immediately
prior to a Change in Control, the Company shall create an irrevocable grantor trust (the
Rabbi
Trust
) which shall be subject to the claims of creditors of the Company. In the event that the
Executive is a Specified Employee at the time he incurs a Separation From Service or at the time
the Company determines that it is reasonably likely that the Executive will incur a Separation From
Service in connection with a Change in Control, then immediately upon the Executives Separation
From Service or, if earlier, the date on which the Company makes a determination that the Executive
is reasonably likely to incur a Separation From Service in connection with a Change in Control, the
Company shall transfer to the Rabbi Trust cash sufficient (on an undiscounted basis) to pay the
cash amounts specified in Section 3.3, the estimated amount of the Gross-Up Payment to be made
under Section 3.4 and the Interest Amount. The cash amounts specified in Section 3.3, the Gross-Up
Payment and the Interest Amount shall be paid from the Rabbi Trust on the dates specified in
Sections 3.3(i), 3.4 and 4 herein, provided that the Company shall remain liable to pay any such
amounts which for any reason are not paid from the Rabbi Trust. The trustee of the Rabbi Trust
shall be a bank or trust company selected by the Company prior to the Change in Control.
11.
Miscellaneous
.
11.1
Agreement Not an Employment Contract
. This Agreement is not an employment
contract between the Company and Executive and gives Executive no right to retain his employment.
This Agreement is not intended to interfere with the rights of the Company to terminate the
Executives employment at any time with or without notice and with or without cause or to interfere
with the Executives right to terminate his employment at any time.
17
11.2
Alienation Prohibited
. No benefits hereunder shall be subject to anticipation or
assignment by the Executive, to attachment by, interference with, or control of any creditor of the
Executive, or to being taken or reached by any legal or equitable process in satisfaction of any
debt or liability of the Executive prior to its actual receipt by the Executive. Any attempted
conveyance, transfer, assignment, mortgage, pledge, or encumbrance of the benefits hereunder prior
to payment thereof shall be void.
11.3
Severability
. Each provision of this Agreement may be severed. If any provision
is determined to be invalid or unenforceable, that determination shall not affect the validity or
enforceability of any other provision.
11.4
Binding Effect
. This Agreement shall be binding upon any successor of the
Company. Further, the Board shall not authorize a Change in Control that is a merger or a sale
transaction unless the purchaser or the Companys successor agrees to take such actions as are
necessary to cause the Executive to be paid or provided all benefits due under the terms of this
Agreement as in effect immediately prior to the Change in Control.
11.5
Settlement of Disputes Concerning Benefits Under this Agreement; Arbitration
.
All claims by Executive for benefits under this Agreement shall be directed to and determined by
the Committee and shall be in writing. Any denial by the Committee of a claim for benefits under
this Agreement shall be delivered to the Executive in writing within thirty (30) days after written
notice of the claim is provided to the Company in accordance with Section 11.8 and shall set forth
the specific reasons for the denial and the specific provisions of this Agreement relied upon. The
Committee shall afford a reasonable opportunity to the Executive for a review of the decision
denying a claim and shall further allow the Executive to appeal to the Committee a decision of the
Committee within sixty (60) days after notification by the Committee that the Executives claim has
been denied. Any further dispute or controversy arising out of or relating to this Agreement,
including without limitation, any and all disputes, claims (whether in tort, contract, statutory or
otherwise) or disagreements concerning the interpretation or application of the provisions of this
Agreement shall be resolved by arbitration in accordance with the rules of the American Arbitration
Association (the
AAA
) then in effect. Within ten (10) business days of the initiation of an
arbitration hereunder, the Company and the Executive will each separately designate an arbitrator,
and within twenty (20) business days of selection, the appointed arbitrators will appoint a neutral
arbitrator from the AAA Panel of Commercial Arbitrators. The arbitrators shall issue their
written decision (including a statement of finding of facts) within thirty (30) days from the date
of the close of the arbitration hearing. The decision of the arbitrators selected hereunder will
be final and binding on both parties. This arbitration provision is expressly made pursuant to and
shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16 (or replacement or
successor statute). Pursuant to Section 9 of the Federal Arbitration Act, the Company and the
Executive agree that a judgment of the United States District Court for the District in which the
headquarters of Baker Hughes is located at the time of initiation of an arbitration hereunder may
be entered upon the award made pursuant to the arbitration.
11.6
No Mitigation
. The Company agrees that if the Executives employment with the
Company terminates during the Term of this Agreement, the Executive is not required to seek other
employment or to attempt in any way to reduce any amounts payable to the Executive by
18
the Company pursuant to this Agreement. Further, except as expressly provided otherwise
herein, the amount of any payment or benefit provided for in this Agreement (other than
Section 3.3(e)) shall not be reduced by any compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
11.7
Other Amounts Due
. Except as expressly provided otherwise herein, the payments
and benefits provided for in this Agreement are in addition to and not in lieu of amounts and
benefits that are earned by the Executive prior to his Termination of Employment. The Company
shall pay the Executive any compensation earned through the Employment Termination Date but not
previously paid the Executive. Further the Executive shall be entitled to any other amounts or
benefits due the Executive in accordance with any contract, plan, program or policy of the Company
or any of its Affiliates. Amounts that the Executive is entitled to receive under any plan,
program, contract or policy of the Company or any of its Affiliates at or subsequent to the
Executives Termination of Employment shall be payable or otherwise provided in accordance with
such plan, program, contract or policy, except as expressly modified herein. For the avoidance of
doubt, the Executives benefits under the Baker Hughes Incorporated Pension Plan and the Baker
Hughes Incorporated Thrift Plan shall not be subject to a mandatory six-month delay in payment
pursuant to Section 409A as such plans are exempt from Section 409A.
11.8
Notices
. For the purpose of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be given in person or by United States
registered mail, return receipt requested (with evidence of receipt by the party to whom the notice
is given), postage prepaid, addressed, if to the Executive, to the address listed on the signature
page of this Agreement and, if to the Company, to 2929 Allen Parkway, Suite 2100; Houston, Texas
77019; Attention: General Counsel, or to such other address as either party may have furnished to
the other in writing in accordance herewith. For purposes of this agreement notice to a party
shall be effective only upon actual receipt of the notice by the party with written evidence of
receipt by the party to whom the notice is given.
11.9
Governing Law
. All provisions of this Agreement shall be construed in accordance
with the laws of Texas, except to the extent preempted by federal law and except to the extent that
the conflicts of laws provisions of the State of Texas would require the application of the
relevant law of another jurisdiction, in which event the relevant law of the State of Texas will
nonetheless apply, with venue for litigation being in Houston, Texas.
11.10
Entire Agreement
. Effective January 1, 2009, this Agreement supersedes the
Original Change in Control Agreement.
11.11
Compliance With Section 409A
.
It is intended that this Agreement shall comply
with Section 409A. The provisions of this Agreement shall be interpreted and administered in a
manner that complies with Section 409A. The provisions of this Agreement dealing with Section 409A
reflect the manner in which this Agreement has been operated in good faith compliance with Section
409A since January 1, 2005.
19
IN WITNESS WHEREOF
, the parties hereto have executed this Agreement effective as of the date
above first written.
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BAKER HUGHES INCORPORATED
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By:
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Date:
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EXECUTIVE
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By:
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Address:
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, ___
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Date:
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20
Exhibit 10.3
BAKER HUGHES INCORPORATED
CHANGE IN CONTROL SEVERANCE PLAN
(Amendment and Restatement Effective January 1, 2009)
BAKER HUGHES INCORPORATED
CHANGE IN CONTROL SEVERANCE PLAN
(Amendment and Restatement Effective January 1, 2009)
WHEREAS,
Baker Hughes Incorporated, a corporation organized and existing under the laws of the
State of Delaware (the
Company
), recognizes that one of its most valuable assets is its key
management executives;
WHEREAS
, the Company would like to provide severance benefits in the event that the employment
of a key management executive is involuntarily terminated in conjunction with a change in control;
WHEREAS
, the Company previously established the Baker Hughes Incorporated Change in Control
Severance Plan (the
Plan
); and
WHEREAS
, the Company desires to amend the Plan to comply with section 409A of the Internal
Revenue Code of 1986, as amended.
NOW, THEREFORE
, the Company adopts the amendment and restatement of the Plan, effective
January 1, 2009.
TABLE OF CONTENTS
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Page
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1. ESTABLISHMENT AND OBJECTIVE
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1
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1.1 Establishment
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1.2 Objective
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2. DEFINITIONS
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2.1 Capitalized Terms
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2.2 Number and Gender
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2.3 Headings
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3. ELIGIBILITY
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4. BENEFITS
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4.1 Equity Based Compensation
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4.2 Compensation and Benefits During Incapacity and Prior to Termination of
Employment
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4.3 Benefits Following Termination of Employment
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4.4 Tax Gross-Up Payments
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4.5 Legal Fees
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5. TIME OF BENEFITS PAYMENTS
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6. TERMINATION PROCEDURES AND COMPENSATION DURING DISPUTE
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6.1 Notice of Termination
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6.2 Employment Termination Date
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6.3 Dispute Concerning Termination
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6.4 Compensation During Dispute
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7. WITHHOLDING
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8. DEATH OF PARTICIPANT
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9. AMENDMENT AND TERMINATION
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10. ADOPTION OF PLAN BY OTHER EMPLOYERS
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11. DISPUTED PAYMENTS AND FAILURES TO PAY
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12. FUNDING
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13. MISCELLANEOUS
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13.1 Plan Not an Employment Contract
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13.2 Alienation Prohibited
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-i-
TABLE OF CONTENTS
(continued)
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13.3 Severability
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13.4 Binding Effect
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13.5 Settlement of Disputes Concerning Benefits Under the Plan; Arbitration
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13.6 Guaranty of Payment, Performance, and Observance by Baker Hughes
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13.7 No Mitigation
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13.8 Other Amounts Due
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13.9 Notices
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13.10 Governing Law
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13.11 Compliance With Section 409A
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-ii-
BAKER HUGHES INCORPORATED
CHANGE IN CONTROL SEVERANCE PLAN
1. ESTABLISHMENT AND OBJECTIVE
1.1 Establishment.
Baker Hughes Incorporated, a Delaware corporation, hereby establishes a
plan for certain designated employees to be known as the Baker Hughes Incorporated Change in
Control Severance Plan (the
Plan
).
1.2 Objective.
The Plan is designed to attract and retain certain designated employees of the
Company (defined below) and to reward such employees of the Company by providing replacement income
and certain benefits in conjunction with a Change in Control (defined below).
2. DEFINITIONS
2.1 Capitalized Terms.
Whenever used in the Plan, the following capitalized terms in this
Section 2.1 shall have the meanings set forth below:
Affiliate
means any entity which is a member of (i) the same controlled group of
corporations within the meaning of section 414(b) of the Code with Baker Hughes, (ii) a
trade or business (whether or not incorporated) which is under common control (within the
meaning of section 414(c) of the Code) with Baker Hughes or (iii) an affiliated service
group (within the meaning of section 414(m) of the Code) with Baker Hughes.
Annual Incentive Plan
means the Baker Hughes Incorporated Annual Incentive
Compensation Plan, as amended from time to time, any guidelines issued pursuant to such
plan, and any other annual incentive bonus plans adopted by the Company from time to time
which are in replacement of such plan.
Applicable Multiple
means, with respect to any Participant, the applicable multiple
specified in
Exhibit A
.
Assets
means assets of any kind owned by Baker Hughes, including but not limited to
securities of Baker Hughes direct and indirect subsidiaries and Affiliates.
Baker Hughes
means Baker Hughes Incorporated, a Delaware corporation, and any
successor by merger or otherwise.
Base Compensation
means a Participants base salary or wages (as defined in section
3401(a) of the Code for purposes of federal income tax withholding) from the Company,
modified by
including
any portion thereof that such Participant could have received in cash
in lieu of any elective deferrals made by the Participant pursuant to the Supplemental
Retirement Plan (other than deferrals of bonuses) or pursuant to a qualified cash or
deferred arrangement described in section 401(k) of the Code and any elective contributions
under a cafeteria plan described in section 125, and modified further by
excluding
any
bonus, incentive compensation (including but not limited to equity-based compensation),
commissions, expense reimbursements or other expense allowances,
1
fringe benefits (cash and noncash), moving expenses, deferred compensation (other than
elective deferrals by the Participant under a qualified cash or deferred arrangement
described in section 401(k) of the Code or the Supplemental Retirement Plan that are
expressly included in
Base Compensation
under the foregoing provisions of this
definition), welfare benefits as defined in ERISA, overtime pay, special performance
compensation amounts and severance compensation.
Beneficial Owner
or
Beneficial Ownership
shall have the meaning ascribed to those
terms in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
Board
means the Board of Directors of Baker Hughes or other governing body of Baker
Hughes or its direct or indirect parent.
Bonus
means the sum of (a) the amount of the annual incentive bonus, if any, paid in
cash by the Company under the Annual Incentive Plan to or for the benefit of an Employee for
services rendered or labor performed during a fiscal year of the Company and (b) the amount
of the discretionary cash bonus or other cash bonus paid outside the Annual Incentive Plan,
if any, paid in cash by the Company to or for the benefit of an Employee for services
rendered or labor performed during the same fiscal year of the Company. An Employees Bonus
shall be determined by including any portion thereof that such Participant could have
received in cash in lieu of (i) any elective deferrals made by such Participant pursuant to
the Supplemental Retirement Plan or (ii) elective contributions made on such Participants
behalf by the Company pursuant to a qualified cash or deferred arrangement (as defined in
section 401(k) of the Code) or pursuant to a plan maintained under section 125 of the Code.
Cause
means (i) the willful and continued failure by the Employee to substantially
perform the Employees duties with the Company (other than any such failure resulting from
the Employees incapacity due to physical or mental illness) after a written demand for
substantial performance is delivered to the Employee by the Board (or by a delegate
appointed by the Board), which demand specifically identifies the manner in which the Board
believes that the Employee has not substantially performed the Employees duties, or
(ii) the willful engaging by the Employee in conduct which is demonstrably and materially
injurious to the Company or any of its Affiliates, monetarily or otherwise. For purposes of
Sections (i) and (ii) of this definition, (A) no act, or failure to act, on the Employees
part shall be deemed willful if done, or omitted to be done, by the Employee in good faith
and with reasonable belief that the act, or failure to act, was in the best interest of the
Company and (B) in the event of a dispute concerning the application of this provision, no
claim by the Company that Cause exists shall be given effect unless the Company establishes
to the Board by clear and convincing evidence that Cause exists.
Change in Control
means the occurrence of any of the following events:
(a) the individuals who are Incumbent Directors cease for any reason to constitute a
majority of the members of the Board;
2
(b) the consummation of a Merger of Baker Hughes or an Affiliate of Baker Hughes with
another Entity,
unless
the individuals and Entities who were the Beneficial Owners of the
Voting Securities of Baker Hughes outstanding immediately prior to such Merger own, directly
or indirectly, at least 50 percent of the combined voting power of the Voting Securities of
any of Baker Hughes, the surviving Entity or the parent of the surviving Entity outstanding
immediately after such Merger;
(c) any Person, other than a Specified Owner, becomes a Beneficial Owner, directly or
indirectly, of securities of Baker Hughes representing 30 percent or more of the combined
voting power of Baker Hughes then outstanding Voting Securities;
(d) a sale, transfer, lease or other disposition of all or substantially all of Baker
Hughes Assets is consummated (an
Asset Sale
),
unless
:
(1) the individuals and Entities who were the Beneficial Owners of the Voting
Securities of Baker Hughes immediately prior to such Asset Sale own, directly or
indirectly, 50 percent or more of the combined voting power of the Voting Securities
of the Entity that acquires such Assets in such Asset Sale or its parent immediately
after such Asset Sale in substantially the same proportions as their ownership of
Baker Hughes Voting Securities immediately prior to such Asset Sale; or
(2) the individuals who comprise the Board immediately prior to such Asset Sale
constitute a majority of the board of directors or other governing body of either
the Entity that acquired such Assets in such Asset Sale or its parent (or a majority
plus one member where such board or other governing body is comprised of an odd
number of directors); or
(e) The stockholders of Baker Hughes approve a plan of complete liquidation or
dissolution of Baker Hughes.
Code
means the Internal Revenue Code of 1986, as amended, or any successor act.
Committee
means, prior to a Change in Control or a Potential Change in Control, the
Compensation Committee of the Board. After a Change in Control or a Potential Change in
Control,
Committee
means (i) the individuals (not fewer than three (3) in number) who, on
the date six months prior to the Change in Control constitute the Compensation Committee of
the Board, plus, (ii) in the event that fewer than three (3) individuals are available from
the group specified in clause (i) above for any reason, such individuals as may be appointed
by the individual or individuals so available (including for this purpose any individual or
individuals previously so appointed under this clause (ii));
provided
,
however,
that the
maximum number of individuals constituting the Committee after a Change in Control or
Potential Change in Control shall not exceed six (6).
Company
means Baker Hughes or an Employer.
3
Disability
means the Participants incapacity due to physical or mental illness that
has caused the Participant to be absent from full-time performance of his duties with the
Company for a period of six (6) consecutive months.
Effective Date
means December 3, 2003, the date on which the Plan was adopted.
Employee
means an individual (i) who is employed in the services of the Company on
the Companys active payroll, and (ii) who is also a United States-based executive salary
grade system employee (under the Companys then current payroll system categories), or any
comparable executive designations in any system that replaces the United States-based salary
grade system. Notwithstanding the foregoing, the Committee may from time to time designate
other individuals who may be selected for participation in the Plan.
Employer
means any Affiliate that adopts the Plan pursuant to the provisions of
Section 10.
Employment Termination Date
means the date as of which a Participant incurs a
Termination of Employment determined in accordance with the provisions of Section 6.2.
Entity
means any corporation, partnership, association, joint-stock company, limited
liability company, trust, unincorporated organization or other business entity.
ERISA
means the Employee Retirement Income Security Act of 1974, as amended, or any
successor act.
Exchange Act
means the Securities Exchange Act of 1934, as amended, or any successor
act.
Excise Tax
means the excise tax imposed by section 4999 of the Code or any similar
tax payable under any United States federal, state, or local statute.
Expiration Date
shall have the meaning specified in the definition of the
Term of
the
Plan.
Good Reason
for termination by the Employee of his employment means the occurrence
(without the Employees express written consent) after any Change in Control, or prior to a
Change in Control under the circumstances described in clauses (ii) and (iii) of the second
paragraph of the definition of Termination of Employment (treating all references to
Change
in Control
in paragraphs (a) through (f) below as references to a
Potential Change in
Control
), of any one of the following acts by the Company, or failures by the Company to
act, unless, in the case of any act or failure to act described in paragraph (a), (e), (f)
or (g) below, such act or failure to act is corrected prior to the effective date of the
Employees termination for Good Reason:
4
the assignment to the Employee of any duties or responsibilities which are substantially diminished
as compared to the Employees duties and responsibilities immediately prior to a Change in Control
or a material change in the Employees reporting responsibilities, titles or offices as an Employee
and as in effect immediately prior to the Change in Control.
(a) a reduction by the Company in the Employees annual Base Compensation as in effect
on the date hereof or as the same may be increased from time to time, except for
across-the-board salary reductions similarly affecting all individuals having a similar
level of authority and responsibility with the Company and all individuals having a similar
level of authority and responsibility with any Person in control of the Company;
(b) the relocation of the Employees principal place of employment to a location
outside of a 50-mile radius from the Employees principal place of employment immediately
prior to the Change in Control or the Companys requiring the Employee to be based anywhere
other than such principal place of employment (or permitted relocation thereof) except for
required travel on the Companys business to an extent substantially consistent with the
Employees business travel obligations immediately prior to a Change in Control;
(c) the failure by the Company to pay to the Employee any portion of the Employees
current compensation except pursuant to an across-the-board compensation deferral similarly
affecting all individuals having a similar level of authority and responsibility with the
Company and all individuals having a similar level of authority and responsibility with any
Person in control of the Company, or to pay to the Employee any portion of an installment of
deferred compensation under any deferred compensation program of the Company, within seven
(7) days of the date such compensation is due;
(d) the failure by the Company to continue in effect any compensation plan in which the
Employee participates immediately prior to the Change in Control which is material to the
Employees total compensation, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan, or the failure by
the Company to continue the Employees participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in terms of the amount or
timing of payment of benefits provided and the level of the Employees participation
relative to other participants, as existed immediately prior to the Change in Control;
(e) the failure by the Company to continue to provide the Employee with benefits
substantially similar to those enjoyed by the Employee under any of the Companys pension,
savings, life insurance, medical, health and accident, or disability plans in which the
Employee was participating immediately prior to the Change in Control (except for across the
board changes similarly affecting all individuals having a similar level of authority and
responsibility with the Company and all individuals having a similar level of authority and
responsibility with any Person in control of the Company), the taking of any other action by
the Company which would directly or indirectly materially reduce any of such benefits or
deprive the Employee of any material fringe benefit or Perquisite enjoyed by the Employee at
the time of the Change in
5
Control, or the failure by the Company to provide the Employee with the number of paid
vacation days to which the Employee is entitled on the basis of years of service with the
Company in accordance with the Companys normal vacation policy in effect immediately prior
to the time of the Change in Control; or
(f) any purported termination of the Employees employment which is not effected
pursuant to a notice of termination satisfying the requirements of Section 6.1 hereof.
The Employees right to terminate his employment for Good Reason shall not be affected
by the Employees incapacity due to physical or mental illness. The Employees continued
employment shall not constitute consent to, or a waiver of any rights with respect to, any
act or failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good Reason, any claim by
the Employee that Good Reason exists shall be presumed to be correct unless the Company
establishes to the Committee by clear and convincing evidence that Good Reason does not
exist. The Committees determination regarding the existence of Good Reason shall be
conclusive and binding upon all parties unless the Committees determination is arbitrary
and capricious.
Gross-Up Payment
means the additional amount paid to a Participant pursuant to
Section 4.4.
Highest Base Compensation
means the Participants annualized Base Compensation in
effect immediately prior to (1) a Change in Control, (2) the first event or circumstance
constituting Good Reason, or (3) the Participants Termination of Employment, whichever is
greatest.
Incumbent Director
means
(a) a member of the Board on the Effective Date; or
(b) an individual-
(1) who becomes a member of the Board after the Effective Date;
(2) whose appointment or election by the Board or nomination for election by
Baker Hughes stockholders is approved or recommended by a vote of at least
two-thirds of the then serving
Incumbent Directors
(as defined herein); and
(3) whose initial assumption of service on the Board is not in connection with
an actual or threatened election contest.
Interest Amount
has the meaning specified in Section 4.3(i).
Merger
means a merger, consolidation or similar transaction.
6
Participant
means an individual who is eligible to participate in the Plan under the
provisions of Section 3.
Pension Plan
means the Baker Hughes Incorporated Pension Plan, as amended from time
to time.
Perquisites
means benefits such as any airline VIP club memberships; country club
and/ or health club membership dues and expenses related to the use of the country club and/
or health club; supplemental life insurance; financial consulting; and office equipment for
use in the home (
e.g.,
cellular telephones, personal digital assistance, home computers and
office accessories similar to the office accessories available to the Employee in his
employment office and monthly Internet connection fees) that may be provided by the Company
from time to time.
Person
shall have the meaning ascribed to the term in Section 3(a)(9) of the Exchange
Act and used in Sections 13(d) and 14(d) thereof, including a group as defined in Section
13(d) thereof, except that the term shall not include (a) the Company or any of its
Affiliates, (b) a trustee or other fiduciary holding Company securities under an employee
benefit plan of the Company or any of its Affiliates, (c) an underwriter temporarily holding
securities pursuant to an offering of those securities or (d) a corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company.
Plan
means the Baker Hughes Incorporated Change in Control Severance Plan, as it may
be amended from time to time.
Potential Change in Control
shall be deemed to have occurred if the event set forth
in any one of the following paragraphs shall have occurred:
(a) the Company enters into an agreement, the consummation of which would
result in the occurrence of a Change in Control;
(b) the Company or any Person publicly announces an intention to take or to
consider taking actions which, if consummated, would constitute a Change in Control;
(c) any Person becomes the Beneficial Owner, directly or indirectly, of
securities of the Company representing 15 percent or more of either the then
outstanding shares of common stock of the Company or the combined voting power of
the Companys then outstanding securities (not including in the securities
beneficially owned by such Person any securities acquired directly from the Company
or its Affiliates); or
(d) the Board adopts a resolution to the effect that, for purposes of the Plan,
a Potential Change in Control has occurred.
Renewal Date
shall have the meaning specified in the definition of the
Term of the
Plan
.
7
Section 409A
means section 409A of the Code and the Department of Treasury rules and
regulations issued thereunder.
Separation From Service
has the meaning ascribed to that term in Section 409A.
Specified Employee
means a person who is, as of the date of the persons Separation
From Service, a specified employee within the meaning of Section 409A, taking into account
the elections made and procedures established in resolutions adopted by the Administrative
Committee of Baker Hughes.
Specified Owner
means any of the following:
Baker Hughes;
(a) an Affiliate of Baker Hughes;
(b) an employee benefit plan (or related trust) sponsored or maintained by Baker Hughes
or any Affiliate of Baker Hughes;
(c) a Person that becomes a Beneficial Owner of Baker Hughes outstanding Voting
Securities representing 30 percent or more of the combined voting power of Baker Hughes
then outstanding Voting Securities as a result of the acquisition of securities directly
from Baker Hughes and/or its Affiliates; or
(d) a Person that becomes a Beneficial Owner of Baker Hughes outstanding Voting
Securities representing 30 percent or more of the combined voting power of Baker Hughes
then outstanding Voting Securities as a result of a Merger if the individuals and Entities
who were the Beneficial Owners of the Voting Securities of Baker Hughes outstanding
immediately prior to such Merger own, directly or indirectly, at least 50 percent of the
combined voting power of the Voting Securities of any of Baker Hughes, the surviving Entity
or the parent of the surviving Entity outstanding immediately after such Merger in
substantially the same proportions as their ownership of the Voting Securities of Baker
Hughes outstanding immediately prior to such Merger.
Supplemental Retirement Plan
means the Baker Hughes Incorporated Supplemental
Retirement Plan, as amended from time to time.
Term of the Plan
means the period commencing on the Effective Date and ending on:
(a) the last day of the three-year period beginning on the Effective Date if no Change
in Control shall have occurred during that three-year period (such last day being the
Expiration Date
); or
(b) if a Change in Control shall have occurred during (i) the three-year period
beginning on the Effective Date or (ii) any period for which the Term of the Plan shall
8
have been automatically extended pursuant to the second sentence of this definition,
the two-year period beginning on the date on which the Change in Control occurred.
After the expiration of the time period described in subsection (a) of this definition
and in the absence of a Change in Control (as described in subsection (b) of this
definition) the Term of the Plan shall be automatically extended for successive two-year
periods beginning on the day immediately following the Expiration Date (the beginning date
of each successive two-year period being a
Renewal Date
), unless, not later than 18 months
prior to the Expiration Date or applicable Renewal Date, the Company shall give notice to
Participants that the Term of the Plan will not be extended.
Termination of Employment
means the termination of an individuals employment
relationship with the Company (i) by the Company without Cause after a Change in Control
occurs, or (ii) by the individual for Good Reason after a Change in Control occurs.
For purposes of this definition, an individuals employment shall be deemed to have
been terminated after a Change in Control, if (i) the individuals employment is terminated
by the Company without Cause prior to a Change in Control (whether or not a Change in
Control ever occurs) and such termination was at the request or direction of a Person who
has entered into an agreement with the Company, the consummation of which would constitute a
Change in Control; (ii) the individual terminates his employment for Good Reason prior to a
Change in Control (whether or not a Change in Control ever occurs) and the circumstance or
event which constitutes Good Reason occurs at the request or direction of a Person who has
entered into an agreement with the Company, the consummation of which would constitute a
Change in Control; or (iii) the individuals employment is terminated by the Company without
Cause or by the individual for Good Reason and such termination or the circumstance or event
which constitutes Good Reason is otherwise in connection with or in anticipation of a Change
in Control (whether or not a Change in Control ever occurs). For purposes of any
determination regarding the applicability of the immediately preceding sentence, any
position taken by the Participant shall be presumed to be correct unless the Company
establishes to the Committee by clear and convincing evidence that such position is not
correct.
Termination of Employment does not include (i) a termination of employment due to the
individuals death or Disability, or (ii) a termination of employment by the individual
without Good Reason.
Thrift Plan
means the Baker Hughes Incorporated Thrift Plan, as amended from time to
time.
Voting Securities
means the outstanding securities entitled to vote generally in the
election of directors or other governing body.
2.2 Number and Gender.
As used in the Plan, unless the context otherwise expressly requires
to the contrary, references to the singular include the plural, and vice versa;
9
references to the masculine include the feminine and neuter; references to including mean
including (without limitation); and references to Sections and clauses mean the sections and
clauses of the Plan.
2.3 Headings.
The headings of Sections herein are included solely for convenience, and if
there is any conflict between such headings and the text of the Plan, the text shall control.
3. ELIGIBILITY
The individuals who shall be eligible to participate in the Plan shall be those Employees who
are selected by the Committee. The Committee shall notify an Employee who has been selected for
participation of his eligibility to participate in the Plan by furnishing him a written
notification of participation that specifies whether he is a Level 1 or Level 2 executive for
purposes of the Plan.
Notwithstanding any other provision of the Plan, an Employee shall not be eligible to
participate in the Plan if there is in effect an individual severance agreement (including an
employment agreement that provides for severance benefits) or change in control agreement between
the Employee and the Company.
Notwithstanding any other provision of the Plan, the Board may discontinue an individuals
eligibility to participate in the Plan by providing him written advance notice (the
Notice
), no
later than 18 months prior to the Expiration Date or a Renewal Date (as defined in the definition
of
Term of the Plan
in Section 2.1), that he shall no longer participate in the Plan;
provided
,
however
, that should a Change in Control occur during such 18-month advance notification period,
the Notice shall be void and of no effect, and the Participant shall be eligible to participate in
the Plan as if the Notice were never given.
4. BENEFITS
4.1 Equity Based Compensation.
Upon the occurrence of a Change in Control, all options to
acquire Baker Hughes stock, all shares of restricted Baker Hughes stock, and all stock appreciation
rights, the value of which is determined by reference to or based upon the value of Baker Hughes
stock, held by the Participant under any plan of the Company shall become immediately vested,
exercisable and nonforfeitable and all conditions thereof (including, but not limited to, any
required holding periods) shall be deemed to have been satisfied. This effect, if any, of a Change
in Control on any other equity incentives and other awards the value of which is determined by
reference to or based upon the value of Baker Hughes stock shall be determined in accordance with
the terms of the applicable award agreement and any terms and conditions issued by the Compensation
Committee of the Board are applicable to the award.
4.2 Compensation and Benefits During Incapacity and Prior to Termination of Employment.
Following a Change in Control and during the Term of the Plan, during any period in which the
Participant fails to perform the Participants full-time duties with the Company as a result of
incapacity due to physical or mental illness, the Company shall pay the Participants full salary
to the Participant at the rate in effect at the commencement of any such period, together with all
compensation and benefits payable to the Participant under the terms of
10
any compensation or benefit plan, program or arrangement maintained by the Company during such
period, until the Participants employment is terminated by the Company for Disability.
4.3 Benefits Following Termination of Employment.
If a Participant incurs a Termination of
Employment during the Term of the Plan, the Company shall provide the Participant the benefits
described below. Further details of the benefits described in this Section 4.3 are provided in
Exhibit A
.
(a)
Severance Payment Based Upon Base Compensation
. The Company will
pay the Participant a cash severance benefit in an amount equal to the Participants
Applicable Multiple multiplied by the Employees Highest Base Compensation. A
Participants severance payment under this paragraph (a) will be paid in accordance
with the provisions of Section 5.
(b)
Severance Payment Based Upon Bonuses
. The Company will pay the
Participant a cash severance benefit in an amount equal to the sum of (1) and (2)
where (1) is an amount equal to the product of (A) the expected value target
percentage under the Participants Bonus for Baker Hughes fiscal year in which the
Participants Termination of Employment occurs, (B) the Participants Highest Base
Compensation and (C) a fraction, the numerator of which is the number of days in the
Companys fiscal year in which occurs the Participants Employment Termination Date
through the Participants Employment Termination Date and the denominator of which
is 365 and (2) is an amount equal to the product of (A) the Participants expected
value target percentage under the Participants Bonus for Baker Hughes fiscal year
in which the Participants Termination of Employment occurs, and (B) the
Participants Applicable Multiple. However, if the Participants Employment
Termination Date occurs during the same calendar year in which a Change in Control
occurs, the pro-rata bonus payment described in clause (1) of the preceding sentence
shall be offset by any payments received by the Participant under the Annual
Incentive Compensation Plan in connection with the Change in Control. A
Participants severance payment under this paragraph (b) will be paid in accordance
with the provisions of Section 5.
(c)
Outplacement Payment
. The Company will provide the Participant a
cash payment in the amount specified in the relevant provisions of
Exhibit
A
.
Any such cash payment will be paid in accordance with the provisions of
Section 5.
(d)
Pension, Thrift and Supplemental Retirement Plans
. In addition to
the retirement benefits to which the Participant is entitled under the Thrift Plan,
the Pension Plan and the Supplemental Retirement Plan, the Company shall pay the
Participant a single sum cash payment in an amount equal to the undiscounted value
of (A) the employer-provided accruals under the Pension Plan that the Participant
would have earned and (B) the employer contributions the Company would have made to
the Thrift Plan and the Supplemental Retirement Plan (including but not limited to
matching and base contributions) on behalf of the
11
Participant had the Participant continued in the employ of the Company for a
period of time determined in accordance with the relevant provisions of
Exhibit
A
, assuming for this purpose that (i) the Participants earned compensation per
year during the relevant period of time provided in
Exhibit A
is the sum of
(1) the Participants Highest Base Compensation and (2) the product of (A) the
expected value target percentage under the Participants Bonus for the Baker Hughes
fiscal year in which the Participants Termination of Employment occurs, (B) the
Participants Highest Base Compensation, and (C) the Applicable Multiple; and (ii)
contribution, deferral, credit and accrual percentages made under the Pension Plan,
the Thrift Plan and the Supplemental Retirement Plan, by and on behalf of the
Participant during the relevant period of time provided in
Exhibit A
,
are
the same percentages in effect on the date of the Change in Control or the
Participants Employment Termination Date, whichever is more favorable for the
Participant. The payment required under this paragraph (d) will be made in
accordance with the provisions of Section 5.
(e)
Accident and Health Insurance Benefits
. For the period of time
following the Participants Employment Termination Date specified in
Exhibit
A
(the
Continuation Period
), the Company shall arrange to provide the
Participant and his dependents accident and health insurance benefits, in each case,
substantially similar to those provided to the Participant and his dependents
immediately prior to the Employment Termination Date or, if more favorable to the
Participant, those provided to the Participant and his dependents immediately prior
to the first occurrence of an event or circumstance constituting Good Reason, at no
greater cost to the Participant than the cost to the Participant immediately prior
to such date or occurrence. Benefits otherwise receivable by the Participant
pursuant to this Section 4.3(e) shall be reduced to the extent benefits of the same
type are received by the Participant during the Continuation Period (and any such
benefits received by the Participant shall be reported to the Company by the
Participant).
Except for any reimbursements under the applicable group health plan that are
subject to a limitation on reimbursements during a specified period, the amount of
expenses eligible for reimbursement under this Section 4.3(e), or in-kind benefits
provided, during the Participants taxable year shall not affect the expenses
eligible for reimbursement, or in-kind benefits to be provided, in any other taxable
year of the Participant. Any reimbursement of an expense described in this Section
4.3(e) shall be made on or before the last day of the Participants taxable year
following the Participants taxable year in which the expense was incurred. The
Participants right to reimbursement or in-kind benefits pursuant to this Section
4.3(e) shall not be subject to liquidation or exchange for another benefit. To the
extent that the benefits provided to the Participant pursuant to this Section 4.3(e)
are taxable to the Participant and are not otherwise exempt from Section 409A, any
amounts to which the Participant would otherwise be entitled under this Section
4.3(e) during the first six months following the date of the Participants
Separation From Service shall be accumulated and paid to the
12
Participant on the date that is six months following the date of his Separation
From Service.
(f)
Life Insurance
. A Participant shall be entitled to a single sum
cash payment in an amount equivalent to the product of (1) the monthly basic life
insurance premium applicable to the Participants basic life insurance coverage on
his Employment Termination Date and (2) the period of time determined in accordance
with the relevant provisions of
Exhibit A
. The single sum cash payment will
be made in accordance with the provisions of Section 5. A Participant may, at his
option, convert his basic life insurance coverage to an individual policy after his
Employment Termination Date by completing the forms required by the Company.
(g)
Perquisites
. A Participant shall be entitled to a single sum cash
payment which shall be an amount equal to the sum of (1) the cost of the
Participants Perquisites in effect prior to his Termination of Employment for the
remainder of the calendar year in which the Employment Termination Date occurs; plus
(2) the cost of the Participants Perquisites in effect prior to his Termination of
Employment for an additional period of time determined in accordance with the
relevant provisions of
Exhibit A
. The payment required under this paragraph
(g) will be made in accordance with the provisions of Section 5. If the aggregate
fair market value of the club memberships to be purchased does not exceed the amount
of the dollar limitation under section 402(g)(1) of the Code in effect when the
Participant incurs a Separation From Service, a Participant may, at his option,
purchase any of his club memberships held in the Companys name on the terms
mutually agreed by the Participant and the Committee.
(h)
Retiree Medical
. If the Participant would have become entitled to
benefits under the Companys post-retirement health care insurance plans, as in
effect immediately prior to the Employment Termination Date or, if more favorable to
the Participant as in effect immediately prior to the first occurrence of an event
or circumstance constituting Good Reason, had the Participants employment
terminated at any time during the period of thirty-six (36) months after the
Employment Termination Date, the Company shall provide such post-retirement health
care insurance benefits to the Participant and the Participants dependents
commencing on the later of (i) the date on which such coverage would have first
become available and (ii) the date on which the applicable benefits described in
paragraph (e) of this Section 4.3 terminate.
Except for any reimbursements under the applicable group health plan that are
subject to a limitation on reimbursements during a specified period, the amount of
expenses eligible for reimbursement under this Section 4.3(h), or in-kind benefits
provided, during the Participants taxable year shall not affect the expenses
eligible for reimbursement, or in-kind benefits to be provided, in any other taxable
year of the Participant. Any reimbursement of an expense described in this Section
4.3(h) shall be made on or before the last day of the Participants
13
taxable year following the Participants taxable year in which the expense was
incurred. The Participants right to reimbursement or in-kind benefits pursuant to
this Section 4.3(h) shall not be subject to liquidation or exchange for another
benefit. To the extent that the benefits provided to the Participant pursuant to
this Section 4.3(h) are taxable to the Participant and are not otherwise exempt from
Section 409A, any amounts to which the Participant would otherwise be entitled under
this Section 4.3(h) during the first six months following the date of the
Participants Separation From Service shall be accumulated and paid to the
Participant on the date that is six months following the date of his Separation From
Service.
(i)
Interest Amount
. If the Participant is a Specified Employee, the
Company shall pay to the Participant, on the date that is six months following the
Participants Separation From Service, an amount equal to the amount of interest
that would be earned on the amounts specified in Sections 4.3(a), 4.3(b), 4.3(c),
4.3(d), 4.3(f), and 4.3(g) and, to the extent subject to a mandatory six-month delay
in payment, the amounts specified in Sections 4.3(e), 4.3(h), 4.4 and 4.5, for the
period commencing on the date of the Participants Separation From Service until the
date of payment of such amounts, calculated using an interest rate equal to the six
month London Interbank Offered Rate in effect on the date of the Participants
Separation From Service plus two percentage points (the
Interest Amount
).
4.4 Tax Gross-Up Payments
. If any payments or benefits received or to be received by the
Participant (whether pursuant to the terms of the Plan, or any other plan or agreement with the
Company, any Person whose actions result in a Change in Control or any Person affiliated with the
Company or such Person) (such payments or benefits, excluding the Gross-Up Payment, being
hereinafter referred to as the
Total Payments
) will be subject to the Excise Tax, the Company
shall pay the Participant an additional amount (the
Gross-Up Payment
) such that the net amount
retained by the Participant after the deduction of any Excise Tax on the Total Payments and any
federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment shall
be equal to the Total Payments. The purpose of this Section is to place the Participant in the
same economic position such Participant would have been in had no Excise Tax been imposed with
respect to the Total Payments.
For purposes of determining whether any of the Total Payments will be subject to the Excise
Tax and the amount of such Excise Tax,
(i) all of the Total Payments shall be treated as parachute payments (within
the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel
(the
Tax Counsel
) reasonably acceptable to the Participant and selected by the
accounting firm which was, immediately prior to the Change in Control, the Companys
independent auditor (the
Auditor
), such payments or benefits (in whole or in part)
do not constitute parachute payments, including by reason of section 280G(b)(4)(A)
of the Code,
(ii) all excess parachute payments within the meaning of section 280G(b)(l)
of the Code shall be treated as subject to the Excise Tax unless, in the
14
opinion of the Tax Counsel, such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered (within the
meaning of section 280G(b)(4)(B) of the Code) in excess of the base amount (within
the meaning of section 280G(b)(3) of the Code) allocable to such reasonable
compensation, or are otherwise not subject to the Excise Tax, and
(iii) the value of any noncash benefits or any deferred payment or benefit
shall be determined by the Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Participant shall be
deemed to pay federal income tax at the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the Participants residence on the
Employment Termination Date (or if there is no Employment Termination Date, then the date on which
the Gross-Up Payment is calculated for purposes of this Section 4.4), net of the maximum reduction
in federal income taxes which could be obtained from deduction of such state and local taxes.
In the event that the Excise Tax is determined to exceed the amount taken into account
hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the payment of the Gross-Up Payment), the
Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest,
penalties or additions payable by the Participant with respect to such excess) within five (5)
business days following the time that the amount of such excess is finally determined. The
Participant and the Company shall each reasonably cooperate with the other relative to any
administrative or judicial proceedings concerning the existence or amount of liability for the
Excise Tax. The parties intend and agree that the five (5) business day deadline specified above
in this Section 4.4 is not to be extended as a result of the following sentence which is included
solely for the purpose of complying with Section 409A. The Company shall make a payment to
reimburse the Participant in an amount equal to all federal, state and local taxes imposed upon the
Participant that are described in this Section 4.4, including the amount of additional taxes
imposed upon the Participant due to the Companys payment of the initial taxes on such amounts, by
the end of the Participants taxable year next following the Participants taxable year in which
the Participant remits the related taxes to the taxing authority. Notwithstanding any provision of
this Agreement to the contrary, if the Participant is a Specified Employee, any amounts to which
the Participant would otherwise be entitled under this Section 4.4 during the first six months
following the date of the Participants Separation From Service shall be accumulated and paid to
the Participant on the date that is six months following the date of his Separation From Service.
4.5 Legal Fees
. The Company shall pay, on a fully grossed up, after tax basis, all legal fees
and expenses incurred by the Participant (i) in disputing in good faith any issue relating to the
Participants termination of employment, or (ii) in seeking in good faith to obtain or enforce any
benefit or right provided under the Plan in accordance with Section 13.5. Such payments shall be
made within ten (10) business days after the delivery of the Participants written request for the
payment accompanied by such evidence of fees and expenses incurred as
15
the Company may reasonably require. In any event the Company shall pay the Participant such
legal fees and expenses by the last day of the Participants taxable year following the taxable
year in which the Participant incurred such legal fees and expenses. The Company shall pay the
Participant, on a fully grossed up, after tax basis, all legal fees and expenses incurred by the
Participant in connection with any tax audit or proceeding to the extent attributable to the
application of section 4999 of the Code to any payment or benefit under the Plan. Such payments
shall be made within ten (10) business days after delivery of the Participants written request for
payment accompanied with such evidence of fees and expenses incurred as the Company may reasonably
require. The parties intend and agree that the foregoing ten (10) business day deadline is not to
be extended as a result of the following sentence which is included solely for the purpose of
complying with Section 409A. The Company shall make a payment to reimburse the Participant in an
amount equal to all legal fees and expenses incurred due to a tax audit or litigation relating to
the application of section 4999 of the Code to any payment or benefit under this Agreement by the
end of the Participants taxable year following the Participants taxable year in which the taxes
that are the subject of the audit or litigation are remitted to the taxing authority, or where as a
result of such audit or litigation no taxes are remitted, by the end of the Participants taxable
year following the Participants taxable year in which the audit is completed or there is a final
and nonappealable settlement or other resolution of the litigation. The legal fees or expenses
that are subject to reimbursement pursuant to this Section 4.5 shall not be limited as a result of
when the fees or expenses are incurred. The amount of legal fees or expenses that is eligible for
reimbursement pursuant to this Section 4.5 during a given taxable year of the Participant shall not
affect the amount of expenses eligible for reimbursement in any other taxable year of the
Participant. The right to reimbursement pursuant to this Section 4.5 is not subject to liquidation
or exchange for another benefit. Notwithstanding any provision of this Agreement to the contrary,
if the Participant is a Specified Employee, any amount to which the Participant would otherwise be
entitled under this Section 4.5 during the first six months following the date of the Participants
Separation From Service shall be accumulated and paid to the Participant on the date that is six
months following the date of his Separation From Service.
5. TIME OF BENEFITS PAYMENTS
The Company shall pay the Participant any cash benefits described in paragraphs (a), (b), (c),
(d), (e) and (f) of Section 4.3 in a single sum cash payment within thirty (30) days after the
Participants Separation From Service if the Participant is not a Specified Employee or on the date
that is six months following the Participants Separation From Service if the Participant is a
Specified Employee.
6. TERMINATION PROCEDURES AND COMPENSATION DURING DISPUTE
6.1 Notice of Termination.
After a Change in Control and during the Term of the Plan, any
purported termination of the Participants employment by the Company shall be communicated by the
Company by a written Notice of Termination to the Participant in accordance with Section 13.9
hereof. For purposes of the Plan, a Notice of Termination shall mean a notice which shall
indicate the specific termination provision in the Plan relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for termination of the
Participants employment under the provision so indicated. Further, a Notice
16
of Termination for Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering such termination
(after reasonable notice to the Participant and an opportunity for the Participant, together with
the Participants counsel, to be heard before the Board) finding that, in the good faith opinion of
the Board, the Participant was guilty of conduct set forth in clause (i) or (ii) of the definition
of Cause herein, and specifying the particulars thereof in detail. No purported termination of the
Participants employment by the Company after a Change in Control and during the Term of the Plan
shall be effective unless the Company complies with the procedures set forth in this Section 6.1.
6.2 Employment Termination Date.
Employment Termination Date
, with respect to any purported
termination of the Participants employment after a Change in Control and during the Term of the
Plan, shall mean (i) if the Participants employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that the Participant shall not have returned to the
full-time performance of the Participants duties during such thirty (30) day period), and (ii) if
the Participants employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a termination by the Company, shall not be less than thirty
(30) days (except in the case of a termination for Cause) and, in the case of a termination by the
Participant, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively,
from the date such Notice of Termination is given).
6.3 Dispute Concerning Termination.
If within fifteen (15) days after any Notice of
Termination is given, or, if later, prior to the Employment Termination Date (as determined without
regard to this Section 6.3), the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, the Employment Termination Date shall be
extended until the earlier of (i) the date on which the Term of the Plan ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the parties or by a
final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not
appealable or with respect to which the time for appeal therefrom has expired and no appeal has
been perfected); provided, however, that the Employment Termination Date shall be extended by a
notice of dispute given by the Participant only if such notice is given in good faith and the
Participant pursues the resolution of such dispute with reasonable diligence.
6.4 Compensation During Dispute.
If a purported termination of employment occurs following a
Change in Control and during the Term of the Plan and the Employment Termination Date is extended
in accordance with Section 6.3 hereof, the Company shall continue to owe the Participant the full
compensation in effect when the notice giving rise to the dispute was given (including, but not
limited to, salary) and continue the Participant as a participant in all compensation, benefit and
insurance plans in which the Participant was participating when the notice giving rise to the
dispute was given or those plans in which the Participant was participating immediately prior to
the first occurrence of an event or circumstance giving rise to the Notice of Termination, if more
favorable to the Participant, until the Employment Termination Date, as determined in accordance
with Section 6.3 hereof. Amounts paid under this Section 6.4 are in addition to all other amounts
due under the Plan (other than those due under Section 4.2 hereof) and shall not be offset against
or reduce any other amounts due under the Plan.
17
7. WITHHOLDING
Subject to the provisions of Section 4.4, Company may withhold from any benefits paid under
the Plan all income, employment, and other taxes required to be withheld under applicable law.
8. DEATH OF PARTICIPANT
If a Participant dies after his Employment Termination Date but before the Participant
receives full payment of the benefits to which he is entitled, any unpaid benefits will be paid to
the Participants surviving spouse, or if the Participant does not have a surviving spouse, to the
Participants estate.
9. AMENDMENT AND TERMINATION
During the Term of the Plan, the Plan may not be terminated or amended in any manner that
would negatively affect a Participants rights under the Plan. Further, no amendment or
termination of the Plan after a Participants Employment Termination Date shall affect the benefits
payable to such Participant. Subject to the foregoing restrictions, Baker Hughes may amend or
terminate the Plan by a written instrument that is authorized by the Committee.
10. ADOPTION OF PLAN BY OTHER EMPLOYERS
(a) With the written approval of the Committee, any entity that is an Affiliate may
adopt the Plan by appropriate action of its board of directors or noncorporate counterpart,
as evidenced by a written instrument executed by an authorized officer of such entity or an
executed adoption agreement (approved by the board of directors or noncorporate counterpart
of the Affiliate), agreeing to be bound by all the terms, conditions and limitations of the
Plan and providing all information required by the Committee.
(b) The provisions of the Plan shall apply separately and equally to each adopting
Affiliate and its employees in the same manner as is expressly provided for the Company and
its employees, except that the power to appoint the Committee and the power to amend or
terminate the Plan shall be exercised by Baker Hughes.
(c) For purposes of the Code and ERISA, the Plan as adopted by the Affiliates shall
constitute a single plan rather than a separate plan of each Affiliate.
11. DISPUTED PAYMENTS AND FAILURES TO PAY
If the Company fails to make a payment in whole or in part as of the payment deadline
specified in the Plan, either intentionally or unintentionally, other than with the consent of the
Participant, the Participant shall make prompt and reasonable good faith efforts to collect the
remaining portion of the payment. The Company shall pay any such unpaid benefits due to the
Participant, together with interest on the unpaid benefits from the date of the payment deadline
specified in the Plan at the annual rate of 120 percent of the rate specified in section
18
1274(b)(2)(8) of the Code within ten (10) business days of discovering that the additional
monies are due and payable.
The Company shall hold harmless and indemnify the Participant on a fully grossed-up after tax
basis from and against (i) any and all taxes imposed under Section 409A by any taxing authority as
a result of the Companys failure to comply with this Section 11, and (ii) all expenses (including
reasonable attorneys, accountants, and experts fees and expenses) incurred by the Participant
due to a tax audit or litigation addressing the existence or amount of a tax liability described in
clause (i); and (iii) the amount of additional taxes imposed upon the Participant due to the
Companys payment of the initial taxes and expenses described in clauses (i) and (ii).
The Company shall make a payment to reimburse the Participant in an amount equal to all
federal, state and local taxes imposed upon the Employee that are described in clauses (i) and
(iii) of the foregoing paragraph of this Section 11, including the amount of additional taxes
imposed upon the Participant due to the Companys payment of the initial taxes on such amounts, by
the end of the Participants taxable year next following the Participants taxable year in which
the Participant remits the related taxes to the taxing authority. The Company shall make a payment
to reimburse the Participant in an amount equal to all expenses and other amounts incurred due to a
tax audit or litigation addressing the existence or amount of a tax liability pursuant to clause
(ii) of the foregoing paragraph of this Section 11, by the end of Participants taxable year
following the Participants taxable year in which the taxes that are the subject of the audit or
litigation are remitted to the taxing authority, or where as a result of such audit or litigation
no taxes are remitted, the end of the Participants taxable year following the Participants
taxable year in which the audit is completed or there is a final and nonappealable settlement or
other resolution of the litigation.
12. FUNDING
The Participant shall have no right, title, or interest whatsoever in or to any assets of the
Company or any investments which the Company may make to aid it in meeting its obligations under
the Plan. The Participants right to receive payments under the Plan shall be no greater than the
right of an unsecured general creditor of the Company. Immediately prior to a Change in Control,
the Company shall create an irrevocable grantor trust (the
Rabbi Trust
) which shall be subject to
the claims of creditors of the Company. In the event that the Participant is a Specified Employee
at the time he incurs a Separation From Service or at the time the Company determines that it is
reasonably likely that the Participant will incur a Separation From Service in connection with a
Change in Control, then immediately upon the Participants Separation From Service or, if earlier,
the date on which the Company makes a determination that the Participant is reasonably likely to
incur a Separation From Services in connection with a Change in Control, the Company shall transfer
to the Rabbi Trust cash sufficient (on an undiscounted basis) to pay the cash amounts specified in
Section 4.3, the estimated amount of the Gross-Up Payment to be made under Section 4.4 and the
Interest Amount. The cash amounts specified in Section 4.3, the Gross-Up Payment and the Interest
Amount shall be paid from the Rabbi Trust on the dates specified in Sections 4.4 and 5 herein,
provided that the Company shall remain liable to pay any such amounts which for any reason are not
paid from the Rabbi Trust. The trustee of the Rabbi Trust shall be a bank or trust company
selected by the Company prior to the Change in Control.
19
13. MISCELLANEOUS
13.1 Plan Not an Employment Contract.
The adoption and maintenance of the Plan is not a
contract between the Company and its employees that gives any employee the right to be retained in
its employment. Likewise, it is not intended to interfere with the rights of the Company to
terminate an employees employment at any time with or without notice and with or without cause or
to interfere with an employees right to terminate his employment at any time.
13.2 Alienation Prohibited.
No benefits hereunder shall be subject to anticipation or
assignment by a Participant, to attachment by, interference with, or control of any creditor of a
Participant, or to being taken or reached by any legal or equitable process in satisfaction of any
debt or liability of a Participant prior to its actual receipt by the Participant. Any attempted
conveyance, transfer, assignment, mortgage, pledge, or encumbrance of the benefits hereunder prior
to payment thereof shall be void.
13.3 Severability.
Each provision of the Plan may be severed. If any provision is determined
to be invalid or unenforceable, that determination shall not affect the validity or enforceability
of any other provision.
13.4 Binding Effect.
The Plan shall be binding upon any successor of the Company. Further,
the Board shall not authorize a Change in Control that is a merger or a sale transaction unless the
purchaser or the Companys successor agrees to take such actions as are necessary to cause all
Participants to be paid or provided all benefits due under the terms of the Plan as in effect
immediately prior to the Change in Control.
13.5 Settlement of Disputes Concerning Benefits Under the Plan; Arbitration.
All claims by a
Participant for benefits under the Plan shall be directed to and determined by the Committee and
shall be in writing. Any denial by the Committee of a claim for benefits under the Plan shall be
delivered to the Participant in writing within thirty (30) days after written notice of the claim
is provided to the Company in accordance with Section 13.9 and shall set forth the specific reasons
for the denial and the specific provisions of the Plan relied upon. The Committee shall afford a
reasonable opportunity to the Participant for a review of the decision denying a claim and shall
further allow the Participant to appeal to the Committee a decision of the Committee within sixty
(60) days after notification by the Committee that the Participants claim has been denied. Any
further dispute or controversy arising out of or relating to the Plan, including without
limitation, any and all disputes, claims (whether in tort, contract, statutory or otherwise) or
disagreements concerning the interpretation or application of the provisions of the Plan shall be
resolved by arbitration in accordance with the rules of the American Arbitration Association (the
AAA
) then in effect. No arbitration proceeding relating to the Plan may be initiated by either
the Company or the Participant unless the claims review and appeals procedures specified in this
Section 13.5 have been exhausted. Within ten (10) business days of the initiation of an
arbitration hereunder, the Company and the Participant will each separately designate an
arbitrator, and within twenty (20) business days of selection, the appointed arbitrators will
appoint a neutral arbitrator from the AAA Panel of Commercial Arbitrators. The arbitrators shall
issue their written decision (including a statement of finding of facts) within thirty (30) days
from the date of the close of the arbitration hearing. The decision of the arbitrators selected
hereunder will be final and binding on both parties. This arbitration
20
provision is expressly made pursuant to and shall be governed by the Federal Arbitration Act,
9 U.S.C. Sections 1-16 (or replacement or successor statute). Pursuant to Section 9 of the Federal
Arbitration Act, the Company and any Participant agree that a judgment of the United States
District Court for the District in which the headquarters of Baker Hughes is located at the time of
initiation of an arbitration hereunder may be entered upon the award made pursuant to the
arbitration.
13.6 Guaranty of Payment, Performance, and Observance by Baker Hughes.
Baker Hughes hereby
unconditionally guarantees to Participant the due, prompt and punctual payment, performance and
observance by the Company, and its successors and assigns (collectively, the
Obligor
), of the
Obligors obligations under the Plan (collectively, the
Guaranteed Obligations
), including, but
not limited to, (i) the due, prompt and punctual payment of each and all amounts that the Company
shall become obligated to pay under the Plan, as and when the same shall become due and payable
hereunder, and (ii) the due, prompt and punctual performance and observance by the Company of each
term, provision and condition the Company is required to perform or observe under the Plan, as and
when the same shall be required to be performed or observed hereunder. In any case of the failure
of the Obligor to punctually pay, perform or observe any of the Guaranteed Obligations, Baker
Hughes agrees to promptly cause to be promptly paid, performed or observed such Guaranteed
Obligation as and when such Guaranteed Obligation is required to be paid, performed or observed.
Baker Hughes agrees that its obligations hereunder shall be as if it were the principal obligor and
not merely a surety, and shall be absolute and unconditional, irrespective of, and shall be
unaffected by, any invalidity, irregularity or unenforceability of any provision of the Plan, or
any waiver, modification or indulgence granted to the Obligor with respect thereto, by the
Participant, or any other circumstance that may otherwise constitute a legal or equitable discharge
of a surety or guarantor. Baker Hughes hereby waives diligence, presentment, demand, any right to
require a proceeding first against the Obligor, and all demands whatsoever, and covenants that its
obligations under the Plan will not be discharged except by payment, performance and observance in
full of all of the Guaranteed Obligations. The agreements of Baker Hughes hereunder shall inure to
the benefit of and be enforceable by Participants personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
13.7 No Mitigation.
The Company agrees that if the Participants employment with the Company
terminates during the Term of the Plan, the Participant is not required to seek other employment or
to attempt in any way to reduce any amounts payable to the Participant by the Company pursuant to
the Plan. Further, except as expressly provided otherwise herein, the amount of any payment or
benefit provided for in the Plan (other than Section 4.3(f)) shall not be reduced by any
compensation earned by the Participant as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by the Participant to the
Company, or otherwise.
13.8 Other Amounts Due.
Except as expressly provided otherwise herein, the payments and
benefits provided for in the Plan are in addition to and not in lieu of amounts and benefits that
are earned by a Participant prior to his Termination of Employment. The Company shall pay a
Participant any compensation earned through the Employment Termination Date but not previously paid
the Participant. Further the Participant shall be entitled to any other amounts or benefits due
the Participant in accordance with any contract, plan, program or policy of the
21
Company or any of its Affiliates. Amounts that the Participant is
entitled to receive under
any plan, program, contract or policy of the Company or any of its Affiliates at or subsequent to
the Participants Termination of Employment shall be payable or otherwise provided in accordance
with such plan, program, contract or policy, except as expressly modified herein.
13.9 Notices.
For the purpose of the Plan, notices and all other communications provided for
in the Plan shall be in writing and shall be deemed to have been duly given when delivered or
mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if
to the Participant, to the residential address listed on the Participants notification of
participation and, if to the Company, to 2929 Allen Parkway, Suite 2100; Houston, Texas 77019;
Attention: General Counsel, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address shall be effective
only upon actual receipt.
13.10 Governing Law.
All provisions of the Plan shall be construed in accordance with the
laws of Texas, except to the extent preempted by federal law and except to the extent that the
conflicts of laws provisions of the State of Texas would require the application of the relevant
law of another jurisdiction, in which event the relevant law of the State of Texas will nonetheless
apply, with venue for litigation being in Houston, Texas.
13.11 Compliance With Section 409A.
It is intended that the Plan shall comply with Section
409A. The provisions of the Plan shall be interpreted and administered in a manner that complies
with Section 409A. The provisions of the Plan dealing with Section 409A reflect the manner in
which the Plan has been operated in good faith compliance with Section 409A since January 1, 2005.
IN WITNESS WHEREOF
, the Company has caused this instrument to be executed by its duly
authorized officer this 18th day of December, 2008, effective as of January 1, 2009.
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BAKER HUGHES INCORPORATED
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By:
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/s/ Didier Charreton
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Title:
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Vice President, Human Resources
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22
INTERNATIONAL SUPPLEMENT
1.
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General
. The provisions of this Supplement apply to individuals who are Non-US Employees (as
defined below). The provisions of the Plan apply to Non-US Employees, except to the extent
this Supplement modifies the provisions of the Plan.
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The purpose of this Supplement is to provide for severance benefits for Non-US Employees in
the event of a Termination of Employment.
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Capitalized terms used in this Supplement which are defined in the Plan have the same
meaning in this Supplement unless such terms are defined differently for purposes of this
Supplement. The definition of terms defined in this Supplement apply only to this
Supplement and not to other parts of the Plan.
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2.
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Definitions
. Section 2.1 of the Plan is modified to add the following definitions to read as
follows:
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Non-US Employee
means an individual (i) employed in the services of the Company on the
active payroll where the operations or principal place of business of the individuals
employment is located outside of the United States and (ii) who is also an executive
salary grade system employee (under the Companys then current payroll system
categories), or any comparable executive designations in any system that replaces such
salary grade system. Notwithstanding the foregoing, the Committee may from time to time
designate other individuals who may be eligible to participate in the Plan.
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Non-US Participant
means a Non-US Employee who is eligible to participate in the Plan.
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3.
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References
. References in the Plan to
Employees
and
Participants
are deemed to be
references to
Non-US Employees
and
Non-US Participants
, respectively.
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4.
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Benefits.
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Section 4.3 shall be modified in the first paragraph to read as follows:
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Upon the occurrence of a Change in Control, the Company shall provide a Non-US Participant
who has satisfied the eligibility requirements of Section 3 such severance benefits under
the Plan as the Committee determines in accordance with the provisions of
Exhibit A
,
taking into consideration any prohibitions or restrictions and any statutorily mandated
severance benefits applicable to the Non-US Participant, with the intent of providing the
Non-US Participant benefits that are generally comparable to the benefits provided to
Participants under the Plan. It is the express intent of the Company that any benefits paid
to a Non-US Participant under this Supplement and the Plan will be in lieu of any
statutorily-mandated severance benefits (or other employment termination related benefits),
including, but not limited to, gratuity and similar benefits.
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23
Exhibit A
BAKER HUGHES INCORPORATED
CHANGE IN CONTROL SEVERANCE PLAN
SCHEDULE OF POST-TERMINATION OF EMPLOYMENT BENEFITS
The benefits described in this Schedule are summaries only. Each benefit is fully described
in the Plan. In the event of a conflict between the provisions of the Plan and this
Exhibit
A
,
the terms of the Plan shall govern.
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Benefit
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Details of Benefit
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1. Severance Payment
Based Upon Base
Compensation
Level 1
Level 2
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3 years (equivalent of 36 months) of
Highest Base Compensation
2 years (equivalent of 24 months) of
Highest Base Compensation
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2. Severance Payment
Based Upon Bonuses
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Based on the Expected Value (EV) target
percentage under the Participants Bonus
for the Termination of Employment year
prorated to the Participants Employment
Termination Date, plus an additional sum
which is the product of:
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(A) EV target percentage under the
Participants Bonus for the Termination of Employment year, multiplied by
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(B) Participants Highest Base Compensa-
tion, and multiplied by either
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Level 1
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(C) 3
|
Level 2
|
|
2
|
|
|
|
3. Outplacement
|
|
$30,000
|
Level 1
|
|
$20,000
|
Level 2
|
|
|
24
|
|
|
Benefit
|
|
Details of Benefit
|
4. Performance Awards
|
|
Equity based performance awards are
immediately vested and exercisable and
all conditions thereof are deemed
satisfied.
|
|
|
|
5. Lost Benefits Under
Pension, Thrift and
Supplemental
Retirement Plans
|
|
An amount equal to the undiscounted value
of the employer-provided accruals and
credits the Participant would have earned
under the Pension Plan, the Thrift Plan
and the Supplemental Retirement Plan for
the following period after the
Participants Employment Termination Date
had he continued to participate
thereunder:
|
|
|
|
Level 1
|
|
3 years
|
Level 2
|
|
2 years
|
|
|
|
6. Accident and Health
Insurance
|
|
Coverage for the following time period:
|
|
|
|
Level 1
|
|
36 months
|
Level 2
|
|
24 months
|
|
|
|
7. Life Insurance
|
|
An amount equal to the monthly premium
amount for the basic life insurance
coverage the Participant had at his
Employment Termination Date multiplied by
the following:
|
|
|
|
Level 1
|
|
36 months
|
Level 2
|
|
24 months
|
|
|
|
8. Perquisites
|
|
An amount equal to (i) the cost of the
Participants Perquisites for the
remainder of the calendar year in which
the Employment Termination Date occurs
and (ii) the cost of the Participants
Perquisites for the following additional
time period:
|
|
|
|
Level 1
|
|
36 months
|
Level 2
|
|
24 months
|
25
|
|
|
Benefit
|
|
Details of Benefit
|
9. Tax Gross-up Payment
|
|
An amount such that after the payment of
(i) any Excise Taxes due on the Benefits
and other benefits or payments, (ii) any
federal, state and local income and
employment taxes on the Benefits, and
(iii) any Excise Tax on the Gross-Up
Payment benefit, the net amount retained
by the Participant shall be equal to the
gross amount of the Benefits prior to
such deductions.
|
|
|
|
10. Legal Fees
|
|
Legal fees and expenses incurred by the
Participant (i) in disputing in good
faith any issue relating to the
Participants termination of employment,
(ii) in seeking in good faith to obtain
or enforce any Benefit or right provided
under the Plan, or (iii) in connection
with any tax audit or proceeding to the
extent attributable to the application of
section 4999 of the Code to the payment
of the Benefits or other benefits or
payments.
|
26