Exhibit 10.42
BAKER HUGHES INCORPORATED
PERFORMANCE UNIT AWARD AGREEMENT
Name
Awardee

     
Date of Award:
   
 
   
Number of Performance Units Awarded:
                      

AWARD OF PERFORMANCE UNITS
     The Compensation Committee (the “Committee”) of the Board of Directors of
Baker Hughes Incorporated, a Delaware corporation (the “Company”), pursuant to
the Baker Hughes Incorporated 2002 Director & Officer Long-Term Incentive Plan
(the “Plan”), hereby awards to you, the above-named awardee, effective as of the
Date of Award set forth above, that number of Performance Units set forth above
(each, a “Performance Unit”, and collectively, the “Performance Units”), on the
terms and conditions set forth in this Performance Unit Award Agreement (this
“Agreement”).
     Each Performance Unit provides you an opportunity to earn a cash payment
based upon the cumulative Baker Value Added (as that term has been defined by
the Committee) achieved by the Company for the three-year period beginning
January 1, ___, and ending December 31, ___(the “Performance Period”) as
compared with the Entry Level Baker Value Added, Expected Value Baker Value
Added and Over Achievement Baker Value Added established by the Committee for
the Performance Period. The Committee may not increase the amount payable under
this Agreement.
     If the cumulative Baker Value Added for the Performance Period is less than
the Entry Level Baker Value Added and a Change in Control of the Company has not
occurred on or before the last day of the Performance Period, then the award
pursuant to this Agreement shall lapse and be forfeited as of December 31, ___.
     The Committee’s determination of Baker Value Added and the cumulative Baker
Value Added for the Performance Period for purposes of this Agreement shall be
binding upon all persons.
     Any amount payable to you pursuant to this Agreement will be paid to you by
the Employer on March ___, ___, unless otherwise provided under the Terms and
Conditions. Such payment will be made to you in exchange for the Performance
Units and thereafter you shall have no further rights with respect to such
Performance Units or the Agreement.
     If a Change in Control of the Company occurs or your employment with the
Company and Affiliates terminates on or before the last day of the Performance
Period, your rights to the Performance Units and a payment under this Agreement
will be determined as provided in the attached Terms and Conditions of Award
Agreements (dated January 23, 2008) (the “Terms and Conditions”).

 

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     The Performance Units that are awarded hereby to you shall be subject to
the prohibitions and restrictions set forth herein with respect to the sale or
other disposition of such Performance Units and the obligation to forfeit and
surrender such Performance Units.
     The Performance Units and your rights under this Agreement may not be sold,
assigned, pledged, exchanged, hypothecated or otherwise transferred, encumbered
or disposed of (other than by will or the applicable laws of descent and
distribution). Any such attempted sale, assignment, pledge, exchange,
hypothecation, transfer, encumbrance or disposition in violation of this
Agreement shall be void and the Company Group shall not be bound thereby.
     Capitalized terms that are not defined herein shall have the meaning
ascribed to such terms in the Plan or the Terms and Conditions.
     In accepting the award of Performance Units set forth in this Agreement you
accept and agree to be bound by all the terms and conditions of the Plan, this
Agreement and the Terms and Conditions.

            BAKER HUGHES INCORPORATED
            Chad C. Deaton — Chairman & CEO         

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BAKER HUGHES INCORPORATED
TERMS AND CONDITIONS
OF
PERFORMANCE UNIT AWARD AGREEMENTS
(January 23, 2008)

1.   CHANGE IN CONTROL/TERMINATION OF EMPLOYMENT. The following provisions will
apply in the event a Change in Control of the Company occurs, or your employment
with the Company and all Affiliates (collectively, the “Company Group”)
terminates, before the last day of the Performance Period (as that term is
defined in the Performance Unit Agreement awarded to you (the “Agreement”)).

1.1 Termination Generally. If your employment with the Company Group terminates
on or before the last day of the Performance Period for any reason other than
one of the reasons described in Sections 1.2 through 1.5 below, all of your
rights in the Agreement, including all rights to the Performance Units granted
to you, will lapse and be completely forfeited on the date your employment
terminates.
1.2 Potential or Actual Change in Control.
(i) Termination Without Cause or for Good Reason in Connection With a Potential
Change in Control on or Before the Last Day of the Performance Period. If (a)
the Company Group terminates your employment without Cause on or before the last
day of the Performance Period prior to a Change in Control of the Company
(whether or not a Change in Control ever occurs) and such termination is at the
request or direction of a Person who has entered into an agreement with the
Company the consummation of which would constitute a Change in Control of the
Company or is otherwise in connection with or in anticipation of a Change in
Control of the Company (whether or not a Change in Control ever occurs) or
(b) you terminate your employment with the Company Group for Good Reason on or
before the last day of the Performance Period prior to a Change in Control of
the Company (whether or not a Change in Control ever occurs) and such
termination or the circumstance or event which constitutes Good Reason occurs at
the request or direction of a Person who has entered into an agreement with the
Company the consummation of which would constitute a Change in Control of the
Company or is otherwise in connection with or in anticipation of a Change in
Control of the Company (whether or not a Change in Control ever occurs), then
the Company will pay to you in cash an amount determined under the following
formula in lieu of any other amounts under the Agreement:
(1) multiplied by (2) multiplied by (3) divided by (4)
where (1) is $100, (2) is the number of Performance Units that were awarded to
you under the Agreement, (3) is the number of days from (and including) the
first day of the Performance Period to (and including) the day before the date
your employment relationship with the Company Group terminates as described in
this Section 1.2(i), and (4) is the number of days during the Performance
Period. Any amount payable to you pursuant to this Section 1.2(i) will be paid
by the

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Company to you ten (10) business days after the date of your Separation From
Service if you are not a Specified Employee or on the date that is six months
following your Separation From Service if you are a Specified Employee. Such
payment will be made to you in exchange for the Performance Units and thereafter
you shall have no further rights with respect to such Performance Units or the
Agreement and the Company Group will have no further obligations to you pursuant
to the Performance Units or the Agreement. For purposes of these Terms and
Conditions, “Separation From Service” has the meaning ascribed to that term in
Section 409A and “Specified Employee” means a person who is, as of the date of
the person’s Separation From Service, a “specified employee” within the meaning
of Section 409A, taking into account the elections made and procedures
established in resolutions adopted by the Administrative Committee of Baker
Hughes. For purposes of these Terms and Conditions, “Section 409A” means section
409A of the Internal Revenue Code of 1986, as amended and the Department of
Treasury rules and regulations issued thereunder.
(ii) Employment Not Terminated Before a Change in Control on or Before the Last
Day of the Performance Period. If a Change in Control of the Company occurs on
or before the last day of the Performance Period and your employment with the
Company Group does not terminate before the date the Change in Control of the
Company occurs, then the Company will pay to you in cash an amount determined
under the following formula in lieu of any other amounts under the Agreement:
(1) multiplied by (2) multiplied by (3) divided by (4)
where (1) is $100, (2) is the number of Performance Units that were awarded to
you under the Agreement, (3) is the number of days from (and including) the
first day of the Performance Period to (and including) the day before the date
the Change in Control of the Company occurs, and (4) is the number of days
during the Performance Period. Any amount payable to you pursuant to this
Section 1.2(ii) will be paid by the Company to you (a) ten (10) business days
after the date the Change in Control of the Company occurs if the Change in
Control of the Company qualifies as a change in the ownership or effective
control of the corporation, or in the ownership of a substantial portion of the
assets of the corporation, within the meaning of Section 409A, or (b) on
March 11, 2011, if the Change in Control of the Company does not so qualify.
Such payment will be made to you in exchange for the Performance Units and
thereafter you shall have no further rights with respect to such Performance
Units or the Agreement and the Company Group will have no further obligations to
you pursuant to the Performance Units or the Agreement.
1.3 Disability. Notwithstanding any other provision of the Agreement or these
Terms and Conditions to the contrary, if you become permanently disabled before
the last day of the Performance Period and while in the active employ of one or
more members of the Company Group, then the Employer will pay to you in cash an
amount determined under the following formula in lieu of any other amounts under
the Agreement:
(1) multiplied by (2) multiplied by (3) divided by (4)

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where (1) is $100, (2) is the number of Performance Units that were awarded to
you under the Agreement, (3) is the number of days from (and including) the
first day of the Performance Period to (and including) the day you become
permanently disabled, and (4) is the number of days during the Performance
Period. Any amount payable to you pursuant to this Section 1.3 will be paid by
the Company to you ten (10) business days after the date you become permanently
disabled. Such payment will be made to you in exchange for the Performance Units
and thereafter you shall have no further rights with respect to such Performance
Units or the Agreement and the Company Group will have no further obligations to
you pursuant to the Performance Units or the Agreement. For purposes of this
Section 1.3, you will be “permanently disabled” if you (a) are unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months, or (b) are,
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or can be expected to last for a continuous
period of not less than 12 months, receiving income replacement benefits for a
period of not less than three (3) months under an accident and health plan
covering employees of the Company Group.
1.4 Death. Notwithstanding any other provision of the Agreement or these Terms
and Conditions to the contrary, if you die before the last day of the
Performance Period and while in the active employ of one or more members of the
Company Group, then the Employer will pay to your estate in cash an amount
determined under the following formula in lieu of any other amounts under the
Agreement:
(1) multiplied by (2) multiplied by (3) divided by (4)
where (1) is $100, (2) is the number of Performance Units that were awarded to
you under the Agreement, (3) is the number of days from (and including) the
first day of the Performance Period to (and including) the date of your death,
and (4) is the number of days during the Performance Period. Any amount payable
to your estate pursuant to this Section 1.4 will be paid to your estate by the
Employer ten (10) business days after the date of your death. Such payment will
be made in exchange for the Performance Units and thereafter your estate and
heirs, executors, administrators shall have no further rights with respect to
such Performance Units or the Agreement and the Company Group will have no
further obligations pursuant to the Performance Units or the Agreement.
1.5 Retirement. Notwithstanding any other provision of the Agreement or these
Terms and Conditions to the contrary, if your employment with the Company Group
terminates as a result of your Retirement before the last day of the Performance
Period, then the number of Performance Units issued to you under the Agreement
shall automatically be reduced (without further action by you and/or the
Company) on the date your employment relationship with the Company Group
terminates to that number of Performance Units determined under the following
formula (the “Retirement Adjusted Performance Units”):
(1) multiplied by (2) divided by (3)

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where (1) is the number of Performance Units that were originally awarded to you
under the Agreement, (2) is the number of days from (and including) the first
day of the Performance Period to (and including) the day before the date your
employment relationship with the Company Group terminates due to Retirement, and
(3) is the number of days during the Performance Period. The excess of the
Performance Units that were originally awarded to you under the Agreement over
the Retirement Adjusted Performance Units shall be immediately forfeited on the
date of the termination of your employment relationship with the Company Group
due to Retirement. Any amount payable to you pursuant to this Section 1.5 will
be paid on March 11, 2011. For purposes of this Section 1.5, the term
“Retirement” means the voluntary termination of your employment relationship
with the Company Group on or after the date on which the sum of your age and
years of service with the Company Group equals 65.

2.   PROHIBITED ACTIVITY. Notwithstanding any other provision of these Terms and
Conditions or the Agreement, if you engage in a “Prohibited Activity,” as
described below, while employed by one or more members of the Company Group,
during the Performance Period or within two years after the date your employment
with the Company Group terminates, then your right to receive payment under the
Agreement, to the extent still outstanding at that time, shall be completely
forfeited. A “Prohibited Activity” shall be deemed to have occurred, as
determined by the Committee in its sole and absolute discretion, if you divulge
any non-public, confidential or proprietary information of the Company or of its
past, present or future affiliates (collectively, the “Baker Hughes Group”), but
excluding information that (a) becomes generally available to the public other
than as a result of your public use, disclosure, or fault, or (b) becomes
available to you on a non-confidential basis after your employment termination
date from a source other than a member of the Baker Hughes Group prior to the
public use or disclosure by you, provided that such source is not bound by a
confidentiality agreement or otherwise prohibited from transmitting the
information by a contractual, legal or fiduciary obligation.

3.   TAX WITHHOLDING. To the extent that the receipt of the Performance Units or
any payment pursuant to the Agreement results in income, wages or other
compensation to you for any income, employment or other tax purposes with
respect to which the Company has a withholding obligation, you shall deliver to
the Company at the time of such receipt or payment, as the case may be, such
amount of money as the Company may require to meet its obligation under
applicable tax laws or regulations, and, if you fail to do so, the Company is
authorized to withhold from any payment under the Agreement or from any cash or
stock remuneration or other payment then or thereafter payable to you any tax
required to be withheld by reason of such taxable income, wages or compensation.

4.   NONTRANSFERABILITY. The Agreement is not transferable by you otherwise than
by will or by the laws of descent and distribution.

5.   CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The existence of the Performance
Units shall not affect in any way the right or power of the Company to make or
authorize any adjustment, recapitalization, reorganization or other change in
its capital structure or its business, engage in any merger or consolidation,
issue any debt or equity

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    securities, dissolve or liquidate, or sell, lease, exchange or otherwise
dispose of all or any part of its assets or business, or engage in any other
corporate act or proceeding.

6.   PERFORMANCE UNITS DO NOT AWARD ANY RIGHTS OF A SHAREHOLDER. You shall not
have the voting rights or any of the other rights, powers or privileges of a
holder of the stock of the Company with respect to the Performance Units that
are awarded hereby.

7.   EMPLOYMENT RELATIONSHIP. For purposes of the Agreement, you shall be
considered to be in the employment of the Company Group as long as you have an
employment relationship with the Company Group. The Committee shall determine
any questions as to whether and when there has been a termination of such
employment relationship, and the cause of such termination, under the Plan and
the Committee’s determination shall be final and binding on all persons.

8.   NOT AN EMPLOYMENT AGREEMENT. The Agreement is not an employment agreement,
and no provision of the Agreement shall be construed or interpreted to create an
employment relationship between you and the Company or any Affiliate or
guarantee the right to remain employed by the Company or any Affiliate for any
specified term.

9.   LIMIT OF LIABILITY. Under no circumstances will the Company or an Affiliate
be liable for any indirect, incidental, consequential or special damages
(including lost profits) of any form incurred by any person, whether or not
foreseeable and regardless of the form of the act in which such a claim may be
brought, with respect to the Plan.

10.   EMPLOYER LIABLE FOR PAYMENT. Except as specified in Section 1.2, the legal
entity that is a member of the Company Group and that is classified by the
Company Group as your employer (the “Employer”) is liable for the payment of any
amounts that become due under the Agreement.

11.   MISCELLANEOUS. The Agreement is awarded pursuant to and is subject to all
of the provisions of the Plan, including amendments to the Plan, if any. In the
event of a conflict between these Terms and Conditions and the Plan provisions,
the Plan provisions will control. The term “you” and “your” refer to the Awardee
named in the Agreement. Capitalized terms that are not defined herein shall have
the meanings ascribed to such terms in the Plan or the Agreement

12.   STOCKHOLDER APPROVAL. No compensation under performance unit awards
granted in 2008 to persons who are “covered employees” within the meaning of
section 162(m) of the Internal Revenue Code of 1986, as amended, will be paid
unless the stockholders of the Company approve the material terms of the
performance criteria for such performance unit awards.

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