Baker Hughes 2007 Annual Report Download - page 48

30 Baker Hughes Incorporated
Payments in the Event of a Change in Control and
Termination of Employment by the Executive for
Good Reason or by the Company or its Successor
Without Cause
Pursuant to the Change in Control Agreements, the Com-
pany or its successor pays severance benefits to a NEO if the
NEO’s employment is terminated following, or in connection
with, a Change in Control and during the term unless: (i) the
NEO resigns without good reason; (ii) the Company terminates
the employment of the NEO for cause or (iii) the employment
of the NEO is terminated by reason of death or disability.
Under the Change in Control Agreements “good reason”
includes: (i) the assignment to the NEO of any duties or
responsibilities which are substantially diminished from those
in effect immediately prior to the Change in Control; (ii) a
reduction in the NEO’s base salary; (iii) the relocation of the
NEO’s principal place of employment to a location more than
50 miles from the NEO’s principal place of employment imme-
diately prior to the Change in Control or our requiring the
NEO to be based anywhere other than such principal place of
employment; (iv) our failure to pay the NEO any portion of his
current compensation or to pay him any portion of an install-
ment of deferred compensation within seven days of the date
the payment is due; (v) our failure to continue in effect any
compensation plan in which the NEO participated immediately
prior to the Change in Control which is material to his total
compensation or (vi) our failure to continue to provide the NEO
with benefits substantially similar to those enjoyed by him under
any of our pension, savings, life insurance, medical, health
and accident, or disability plans in which he was participating
immediately prior to the Change in Control, or our taking any
action that would materially reduce any of such benefits or
deprive the NEO of any material fringe benefit or perquisite
enjoyed by the NEO, or our failure to provide the NEO with
the number of paid vacation days to which he is entitled.
Under the Change in Control Agreements “cause” includes:
(i) the willful and continued failure by the NEO to substantially
perform his duties or (ii) the willful engaging by the NEO in
conduct which is materially injurious to us or our affiliates.
Under the Change in Control Agreements “disability” means
the NEO’s incapacity due to physical or mental illness that has
caused the NEO to be absent from full-time performance of
his duties with us for a period of six consecutive months.
If the NEO meets the criteria for payment of severance
benefits due to termination of employment following a
Change in Control during the term as described above, he will
receive the following benefits in addition to any benefits he is
due under the Company’s employee benefit plans and equity
and incentive compensation plans and the value of accelerated
vesting of equity based compensation and other benefits
described above under the heading “Payments in the Event of
a Change in Control Absent a Termination of Employment”:
a. a lump sum payment equal to three times the NEO’s annual
base salary in effect immediately prior to (i) the first event or
circumstance constituting Good Reason for his resignation,
(ii) the Change of Control or (iii) the NEO’s termination of
employment, whichever is greatest (his “highest base salary”);
b. a lump sum payment equal to the NEO’s expected value tar-
get percentage for his incentive bonus under the Company’s
Annual Incentive Plan for the year in which he terminates
employment multiplied by his highest base salary, prorated
based upon the number of days of his service during the
performance period (reduced by any payments received by
the NEO under the Company’s Annual Incentive Plan, as
amended, in connection with the Change in Control if the
NEO’s termination of employment occurs during the same
calendar year in which the Change in Control occurs);
c. a lump sum payment equal to NEO’s expected value target
percentage under his bonus for the year in which he termi-
nates employment multiplied by his highest base salary and
multiplied by three;
d. continuation of accident and health insurance benefits for
an additional three years3;
e. a lump sum payment equal to the sum of (i) the cost of
the NEO’s perquisites in effect prior to his termination of
employment for the remainder of the calendar year and
(ii) the cost of the NEO’s perquisites in effect prior to his
termination of employment for an additional three years;
f. a lump sum payment equal to the undiscounted value of the
benefits the NEO would have received had he continued to
participate in the Thrift Plan, the Pension Plan and the SRP for
an additional three years, assuming for this purpose that:
(1) the NEO’s compensation during that three-year period
remained at the levels used for calculating the sever-
ance payment described in paragraphs (a) and (c)
above, and
(2) the NEO’s contributions to and accruals under those
plans remained at the levels in effect as of the date
of the Change in Control or the date of termination,
whichever is greater;
g. eligibility for our retiree medical program if the NEO would
have become entitled to participate in that program had he
remained employed for an additional three years4;
h. a lump sum payment equivalent to 36 multiplied by the
monthly basic life insurance premium applicable to the NEO’s
basic life insurance coverage on the date of termination;
i. outplacement services for a period of three years or, if ear-
lier, until the NEO’s acceptance of an offer of employment
or in lieu of outplacement services, the NEO may elect to
receive a cash payment of $30,000; and
j. an additional amount (a “gross-up” payment) in respect
of excise taxes that may be imposed under the “golden
3 The value of this benefit is calculated (i) for the first 18 months of continua-
tion coverage as the aggregate premium amounts the NEO would be required
to pay for such coverage under the Company’s premium rate structure in
effect on December 31, 2007 for continuation coverage under COBRA minus
the aggregate premium amounts he would be required to pay for such cover-
age under the Change in Control Agreement and (ii) for the remaining 18
months of continuation coverage as the value of such medical benefit cover-
age utilizing the assumptions applied under Statement of Financial Account-
ing Standards No. 106, Employers’ Accounting for Postretirement Benefits
Other Than Pensions (SFAS 106).
4 The value of this benefit is the aggregate value of the medical coverage
utilizing the assumptions applied under Statement of Financial Accounting
Standards No. 106, Employers’ Accounting for Postretirement Benefits Other
Than Pensions (SFAS 106).