Baker Hughes 2007 Annual Report Download - page 99

16 Baker Hughes Incorporated
violations of the FCPA’s antibribery provisions related to our
operations in Kazakhstan, the FCPA’s books-and-records and
internal-controls provisions related to our operations in Nigeria,
Angola, Kazakhstan, Indonesia, Russia, and Uzbekistan, and
the SEC’s cease and desist order of September 12, 2001. The
SEC Order became effective on May 1, 2007, which is the
date it was confirmed by the Court. The SEC order enjoins us
from violating the FCPA’s antibribery, books-and-records, and
internal-controls provisions. As in the DPA, it requires that we
retain the independent monitor to assess our FCPA compliance
policies and procedures for the three-year period.
Under the terms of the settlements with the DOJ and the
SEC, the Company and BHSII paid, in the second quarter of
2007, $44.1 million ($11 million in criminal penalties, $10 mil-
lion in civil penalties, $19.9 million in disgorgement of profits
and $3.2 million in pre-judgment interest) to settle these inves-
tigations. In the fourth quarter of 2006, we recorded a financial
charge for the potential settlement. We previously disclosed
copies of these agreements and settlements and the same are
incorporated by reference in this annual report as Exhibits 10.54,
10.55 and 99.2 through 99.7.
We have retained, and the SEC and DOJ have approved, an
independent monitor to assess our FCPA compliance policies
and procedures for the specified three-year period.
On May 4, 2007 and May 15, 2007, The Sheetmetal
Workers’ National Pension Fund and Chris Larson, respectively,
instituted shareholder derivative lawsuits for and on the Com-
pany’s behalf against certain current and former members of
the Board of Directors and certain officers, and the Company
as a nominal defendant, following the Company’s settlement
with the DOJ and SEC in April 2007. On August 17, 2007,
The Alaska Plumbing and Pipefitting Industry Pension Trust also
instituted a shareholder derivative lawsuit for and on the Com-
pany’s behalf against certain current and former members of
the Board of Directors and certain officers, and the Company
as a nominal defendant. The complaints in all three lawsuits
allege, among other things, that the individual defendants
failed to implement adequate controls and compliance proce-
dures to prevent the events addressed by the settlement with
the DOJ and SEC. The relief sought in the lawsuits includes a
declaration that the defendants breached their fiduciary duties,
an award of damages sustained by the Company as a result of
the alleged breach and monetary and injunctive relief, as well
as attorneys’ and experts’ fees. The lawsuits brought by the
Sheetmetal Workers’ National Pension Fund and The Alaska
Plumbing and Pipefitting Industry Pension Trust are pending
in the Houston Division of the United States District Court for
the Southern District of Texas. These lawsuits have been consol-
idated and an amended complaint in the consolidated action
was filed on October 15, 2007. The lawsuit brought by Chris
Larson is pending in the 215th District Court of Harris County,
Texas. We do not expect these lawsuits to have a material
adverse effect on our consolidated financial statements.
On May 12, 2006, Baker Hughes Oilfield Operations, Inc.
(“BHOO”), a subsidiary of the Company, was named as a
defendant in a lawsuit in the United States District Court, East-
ern District of Texas brought by Reed Hycalog against BHOO
and other third parties arising out of alleged patent infringe-
ment relating to the sale of certain diamond drill bits utilizing
certain types of polycrystalline diamond cutters sold by our
Hughes Christensen division. Reed Hycalog seeks compensa-
tory damages and injunctive relief against the defendants, as
well as attorneys’ fees and other costs. On September 11,
2007, the court issued a ruling regarding the scope of Reed
Hycalog’s patent infringement claims. On January 18, 2008,
Reed Hycalog filed with the court a report claiming an amount
of compensatory damages due from Baker Hughes ranging
from approximately $51 million to approximately $226 million.
Reed Hycalog has also claimed they are entitled to enhanced
damages and attorney fees. The Company and BHOO believe
they have reasonable defenses to these claims and have
asserted counter-claims for infringement by Reed Hycalog of
certain of our drill bit patents in the lawsuit. We are not able
to predict the outcome of this litigation or its impact on our
consolidated financial statements.
Further information is contained in the “Environmental
Matters” section of Item 1 herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
None.