Baker Hughes 2007 Annual Report Download - page 46

28 Baker Hughes Incorporated
employment to a location more than fifty (50) miles from his
principal place of employment on October 25, 2004; or (iii) a
material breach by us of any provision of the employment
agreement.
“Cause” as defined in the employment agreement
includes: (i) the conviction of Mr. Deaton of an act of fraud,
embezzlement, theft or other criminal act constituting a
felony; (ii) a material breach by Mr. Deaton of any provision
of the employment agreement; (iii) the failure by Mr. Deaton
to perform any and all covenants contained in the employ-
ment agreement dealing with conflicts of interest, competi-
tion, solicitation and disclosure of confidential information;
or (iv) a material breach by Mr. Deaton of our Standards of
Ethical Conduct. Cause shall not exist unless and until we have
delivered to Mr. Deaton a copy of a resolution duly adopted
by the affirmative vote of not less than two-thirds (2⁄3) of the
entire membership of our Board of Directors at a meeting of
the Board called and held for such purpose (after reasonable
notice to Mr. Deaton and an opportunity for Mr. Deaton,
together with his counsel, to be heard before the Board), find-
ing that in the good faith opinion of the Board, Mr. Deaton
was guilty of the conduct set forth above and specifying the
particulars thereof in detail.
If Mr. Deaton’s employment were to have been terminated
by him for good reason or by us (or our successor) without
cause on December 31, 2007, we estimate that the value of
the payments and benefits described in clauses (a) through
(f) above he would have been eligible to receive is as follows:
(a) $2,200,000, (b) $1,100,000, (c) $45,833, (d) $13,827,
(e) 7,304 and (f) $519,409, with an aggregate value of
$3,886,373.
Termination of Employment by Mr. Deaton Without
Good Reason or by Us for Cause
If Mr. Deaton’s employment is terminated by him for any
reason other than a good reason or by us for cause, he is to
receive only those vested benefits to which he is entitled under
the terms of the employee benefit plans in which he is a par-
ticipant as of the date of termination and a lump sum amount
in cash equal to the sum of (i) his base salary through the date
of termination; (ii) any compensation previously deferred by
him (together with any accrued interest or earnings thereon)
and any accrued vacation pay and (iii) any other amounts due
him as of the date of termination, in each case to the extent
not theretofore paid.
Change in Control Agreements
The Change in Control Agreements we have entered into
with each of the NEOs provide for payment of certain benefits
to them as a result of their terminations of employment fol-
lowing, or in connection with, a Change in Control.
Payments in the Event of a Change in Control
The Change in Control Agreements provide for full vesting
of all stock options and other equity incentive awards upon
the occurrence of a Change in Control. If a Change in Control
were to have occurred on December 31, 2007, whether or not
the NEO incurred a termination of employment in connection
with the Change in Control, all of the NEO’s then outstanding
options to acquire our stock would have become immediately
exercisable, and all of his then outstanding restricted stock
awards and equity based compensatory performance awards
would have become fully vested and nonforfeitable.
We (or our successor) must pay the NEO an amount
(a “gross-up” payment) in respect of excise taxes that may
be imposed under the “golden parachute” rules on payments
and benefits received in connection with the Change in Con-
trol. The gross-up payment would make the NEO whole for
excise taxes (and for all taxes on the gross-up payment) in
respect of payments and benefits received pursuant to all the
Company’s plans, agreements and arrangements (including
for example, acceleration of vesting of equity awards).
We (or our successor) must reimburse the NEO for any
legal fees and expenses incurred by him in seeking in good
faith to enforce the Change in Control Agreement or in con-
nection with any tax audit or proceeding relating to the appli-
cation of parachute payment excise taxes to any payment or
benefit under the Change in Control Agreement.
Chad C. Deaton
Mr. Deaton’s options to purchase an aggregate of 218,776
of our shares, with a value of $81.10 per share, would have
become fully exercisable on December 31, 2007, if a Change
of Control were to have occurred on that date. Under the
terms of Mr. Deaton’s stock options, he would have to pay an
aggregate of $15,174,884 to purchase these shares. Accord-
ingly, the maximum value of the accelerated vesting of the
options would have been $2,567,850 ($81.10 per share value
on December 31, 2007, multiplied by 218,776 of our shares
subject to the options minus $15,174,884, the aggregate
exercise price for the options).
The substantial risk of forfeiture restrictions applicable to
100,317 shares of our stock granted to Mr. Deaton would
have lapsed on December 31, 2007, if a Change of Control
were to have occurred on that date. The maximum value of
this accelerated vesting of Mr. Deaton’s restricted stock awards
would have been $8,135,709 ($81.10 per share value on
December 31, 2007, multiplied by 100,317 of our shares
subject to Mr. Deaton’s unvested restricted stock awards).
If a Change in Control had occurred on December 31, 2007
prior to Mr. Deaton’s termination of employment with us, we
would have paid Mr. Deaton, in cash, the aggregate sum of
$2,645,540 in complete settlement of his performance award
granted by us under the 2002 D&O Plan on January 1, 2005.
We estimate that if a Change in Control were to have
occurred on December 31, 2007, but Mr. Deaton had not
incurred a termination of employment, the value of the para-
chute payment tax gross-up payment that would be due by
us (or our successor) to Mr. Deaton would be $2,261,552.2
Peter A. Ragauss
Mr. Ragauss’ options to purchase an aggregate of 68,330
of our shares, with a value of $81.10 per share, would have
become fully exercisable on December 31, 2007, if a Change
2 The estimated value of all parachute payment tax gross-up payments was
calculated by utilizing the highest marginal tax rates.