Baker Hughes 2009 Annual Report Download - page 42

32 Baker Hughes Incorporated
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 fel-
ony; (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 employment
agreement dealing with conflicts of interest, competition,
solicitation and disclosure of confidential information; or
(iv) a material breach by Mr. Deaton of our Standards of Ethi-
cal 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.
Mr. Deaton’s “Highest Bonus Amount” is the average of his
three highest bonus amounts received by him for each of our
five fiscal years immediately preceding his employment termina-
tion date. “Bonus amount” means the sum of (a) the amount
of the annual incentive bonus, if any, paid in cash by us under
the Annual Incentive Plan to or for the benefit of Mr. Deaton
for services rendered during one of our fiscal years and (b) the
amount of the discretionary bonus or other bonus, if any, paid
in cash by us outside of the Annual Incentive Plan, to or for the
benefit of Mr. Deaton for services rendered during the same fis-
cal year. Mr. Deaton’s bonus amount is determined by including
any portion thereof that he could have received in cash in lieu
of any elective deferrals under the Supplemental Retirement
Plan, our Thrift Plan or our section 125 cafeteria plan.
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, 2009, we estimate that the value of
the payments and benefits described in clauses (a) through
(g) above he would have been eligible to receive is as follows:
(a) $2,310,000, (b) $1,841,884, (c) $45,833, (d) $20,823,
(e) $8,436, (f) $730,023 and (g) $119,949 with an aggregate
value of $5,076,948.
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 partic-
ipant as of the date of termination and a lump sum amount in
cash equal to the sum of his base salary through the date of
termination and any accrued vacation pay, 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 Senior Executives provide for payment of
certain benefits to them as a result of their terminations
of employment following, 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, 2009, whether or
not the Senior Executive incurred a termination of employ-
ment in connection with the Change in Control, all of the
Senior Executive’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 Senior Executive 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 Control. The gross-up payment would make the
Senior Executive 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 Senior Executive
for any legal fees and expenses incurred by him in seeking in
good faith to enforce the Change in Control Agreement or
in connection with any tax audit or proceeding relating to the
application 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
310,284 of our shares, with a value of $40.48 per share,
would have become fully exercisable on December 31, 2009,
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 $14,361,481 to purchase these shares.
Mr. Deaton’s options with respect to 217,524 of our shares
were in-the-money (per share stock value greater than per
share exercise price) as of December 31, 2009. The maximum
value of the accelerated vesting of these in-the-money options
would have been $1,345,613 ($40.48 per share value on
December 31, 2009 multiplied by 217,524 of our shares sub-
ject to the options minus $7,459,759, the aggregate exercise
price for the options).