Baker Hughes 2010 Annual Report Download - page 69

2 0 11 P r o x y S t a t e m e n t 57
BAKER HUGHES INCORPORATED
ANNUAL INCENTIVE COMPENSATION PLAN
(Amendment and Restatement Adopted by the Board of Directors
on February 20, 2008 As Amended by the First Amendment Adopted
on December 18, 2008)
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.01 Definitions. The words and phrases defined in this
Article shall have the meaning set out in the definitions below
unless the context in which the word or phrase appears rea-
sonably requires a broader, narrower or different meaning.
These definitions shall apply solely for purposes of this Plan.
“Account(s)” means all ledger accounts pertaining to a
Participant or former Participant which are maintained by the
Plan Administrator to reflect the Company’s obligation to the
Participant or former Participant under the Plan. The Plan
Administrator shall establish the following subaccounts and
any additional subaccounts that the Plan Administrator consid-
ers necessary to reflect the entire interest of the Participant or
former Participant under the Plan. Each of the subaccounts
listed below and any additional subaccounts established by
the Plan Administrator shall reflect credits and debits made to
such subaccounts for earnings, distributions and forfeitures:
(a) Banked Account – the Participant’s or former Participant’s
banked Final Award for a given Performance Period.
(b) Unbanked Account – the Participant’s or former Partici-
pant’s Final Award for a given Performance Period that
is not banked pursuant to Article V.
“Affiliate” means any entity which is a member of the
same controlled group of corporations (within the meaning
of section 414(b) of the Code) or which is a trade or business
(whether or not incorporated) which is under common control
(within the meaning of section 414(c) of the Code), or which
is a member of an affiliated service group (within the meaning
of section 414(m) of the Code) with Baker Hughes.
“Applicable Interest Rate” means the 10-year U.S.
Treasury rate plus 25 basis points (0.25%).
“Award Opportunity” has the meaning specified in
Section 3.01 of the Plan.
“Baker Hughes” means Baker Hughes Incorporated,
a Delaware corporation.
“Baker Value Added” and “BVA” mean, with respect
to a Performance Period, the amount calculated under the
following formula:
[[(a) + (b) + (c)] x (1 - (d))] - (e)
where (a) is the Profit Before Tax of the Company for the Per-
formance Period, (b) is the interest expense of the Company
for the Performance Period, (c) is the non-compete amortiza-
tion expense of the Company for the Performance Period,
(d) is the Tax Rate for the Performance Period and (e) is the
Capital Charge determined for the Company for the Perfor-
mance Period. For this purpose, “Average Adjusted Net Capital
Employed” means the sum of the Monthly Adjusted Net Capi-
tal Employed during the Performance Period divided by 12;
“Capital Charge” means Average Adjusted Net Capital Employed
multiplied by the Cost of Capital; “Company” means Baker
Hughes and all of its Affiliates in which Baker Hughes directly
or indirectly has a capital investment, or one or more business
units of Baker Hughes and its Affiliates, as specified in the
written Award Opportunities; “Cost of Capital” means the
weighted average after-tax cost of debt and cost of equity for
the Company for the Performance Period; “Cost of Revenues”
means the cost of products sold and the cost of providing ser-
vices, including personnel costs, repair and maintenance costs,
freight/custom, depreciation, and other costs (e.g., commission
and royalty) directly relating to the sale or service provided;
“Monthly Adjusted Net Capital Employed” means the capital
employed by the Company during a month of the Performance
Period plus accumulated goodwill and non-compete amortiza-
tion plus the value of significant operating leases; “Operating
Expenses” means costs incurred in non-manufacturing areas
to provide products and services to customers (e.g., finance
and administrative support) during the Performance Period;
“Profit Before Tax” means the revenues of the Company
for the Performance Period minus the Cost of Revenues of
the Company for the Performance Period minus the Operating
Expenses of the Company for the Performance Period minus
net interest expense of the Company for the Performance
Period; and “Tax Rate” means the effective tax rate for the
Company determined in a manner consistent with Baker Hughes
tax policies and practices in effect on the date hereof.
“Beneficial Owner” or “Beneficial Ownership” shall
have the meaning ascribed to the term in Rule 13d-3 of the
General Rules and Regulations under the Exchange Act.
“Beneficiary” means the person or persons who are
eligible to receive a Participant’s benefits payable under the
Plan upon his death in accordance with the procedures spec-
ified in Section 9.03.
“Board” means the Board of Directors of Baker Hughes.
“Cause” means (i) the willful and continued failure by
the Participant to substantially perform the Participant’s duties
with the Company (other than any such failure resulting from
the Participant’s incapacity due to physical or mental illness)
after a written demand for substantial performance is deliv-
ered to the Participant by the Committee, which demand
specifically identifies the manner in which the Committee
believes that the Participant has not substantially performed
the Participant’s duties, or (ii) the willful engaging by the Par-
ticipant in conduct which is demonstrably and materially inju-
rious to Baker Hughes or any of the Affiliates, monetarily or
otherwise. For purposes of clauses (i) and (ii) of this definition,
(A) no act, or failure to act, on the Participant’s part shall be
deemed “willful” if done, or omitted to be done, by the Par-
ticipant 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