Exhibit 10.4
UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

         
UNITED STATES OF AMERICA
  :    
 
  :    
          v.
  :                          No. H-07-130
 
  :    
BAKER HUGHES INCORPORATED,
  :   DEFERRED PROSECUTION
 
  :   AGREEMENT
Defendant
  :    
 
  :    
 
       

     Defendant BAKER HUGHES INCORPORATED (“Baker Hughes”), Delaware Corporation,
by its undersigned attorneys, pursuant to authority granted by its Board of
Directors, and the United States Department of Justice, Criminal Division, Fraud
Section (“Department of Justice” or the “Department”) enter into this Deferred
Prosecution Agreement (“Agreement”) which shall apply to Baker Hughes and all
its affiliates and subsidiaries including Baker Hughes Services International,
Inc. (“BHSI”). The terms and conditions of this Agreement are as follows:
     1. Baker Hughes accepts and acknowledges that the United States will file a
three-count criminal Information in the United States District Court for the
Southern District of Texas charging Baker Hughes with conspiracy to violate the
Foreign Corrupt Practices Act of 1977 (“FCPA”), as amended, 15 U.S.C. § 78dd-1,
et. seq., in violation of 18 U.S.C. § 371 (Count One); a substantive violation
of the FCPA, 15 U.S.C. § 78dd-1(a) (Count Two); and falsification of books and
records in violation of 15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(5) and 78ff(a) (Count
Three). In so doing,

 

--------------------------------------------------------------------------------

 

Baker Hughes knowingly waives its right to indictment on these charges, as well
as all rights to a speedy trial pursuant to the Sixth Amendment to the United
States Constitution, Title 18, United States Code Section 3161, Federal Rule of
Criminal Procedure 48(b), and all applicable Local Rules of the United States
District Court for the Southern District of Texas for the period during which
this Agreement is in effect.
     2. Baker Hughes accepts and acknowledges that it is responsible for the
acts of its officers, employees and its wholly-owned subsidiary, BHSI, as set
forth in the Statement of Facts annexed hereto as “Attachment A.” Should the
Department initiate the prosecution that is deferred by this Agreement, Baker
Hughes agrees that it, will neither contest the admissibility of, nor
contradict, in any such proceeding, the facts contained in the Statement of
Facts. Baker Hughes does not endorse, ratify or condone criminal conduct and, as
set forth below, has taken and commits to continue to take significant steps to
prevent such conduct from recurring.
     3. This Agreement is agreed to by the Department based upon the fact that
Baker Hughes has voluntarily disclosed the misconduct referenced in the
Statement of Facts; conducted a thorough investigation of that misconduct and
other possible misconduct; regularly reported all its findings to the
Department; cooperated in the Department’s subsequent investigation of this
matter; agreed to implement remedial measures to ensure that this conduct will
not recur and to continue to cooperate with

2

--------------------------------------------------------------------------------

 

the Department in its ongoing investigation of the conduct of Baker Hughes,
BHSI, and the officers, directors, employees and agents thereof.
     4. During the two (2) year term of this Agreement, Baker Hughes agrees to
cooperate fully with the Department, and any other authority or agency, domestic
or foreign, designated by the Department investigating Baker Hughes, BHSI, or
any of its present and former directors, officers, employees, agents,
consultants, contractors and subcontractors, or any other party, in any and all
matters relating to corrupt payments in connection with its operations. Baker
Hughes agrees that its cooperation shall include, but is not limited to, the
following:
          a. Baker Hughes shall continue to cooperate fully with the Department,
and with all other authorities and agencies designated by the Department, and
shall truthfully disclose all information with respect to the activities of
Baker Hughes and its present and former subsidiaries and affiliates, and the
directors, officers, employees, agents, consultants, contractors and
subcontractors thereof, concerning all matters relating to corrupt payments in
connection with their operations, related false books and records, and
inadequate internal controls about which Baker Hughes has any knowledge or about
which the Department shall inquire. This obligation of truthful disclosure
includes the obligation of Baker Hughes to provide to the Department, upon
request, any document, record, or other tangible

3

--------------------------------------------------------------------------------

 

evidence relating to such corrupt payments, books and records, and internal
controls about which the Department shall inquire of Baker Hughes.
               i. The Department specifically reserves the right to request that
Baker Hughes provide the Department with access to information, documents,
records, facilities and/or employees that may be subject to a claim of
attorney-client privilege and/or the attorney work-product doctrine.
               ii. Upon written notice to the Department, Baker Hughes
specifically reserves the right to withhold access to information, documents,
records, facilities and/or employees based upon an assertion of a valid claim of
attorney-client privilege or application of the attorney work-product doctrine.
Such notice shall include a general description of the nature of the
information, documents, records, facilities and/or employees that are being
withheld, as well as the basis for the claim.
               iii. In the event that Baker Hughes withholds access to the
information, documents, records, facilities and/or employees of Baker Hughes,
the Department may consider this fact in determining whether Baker Hughes has
fully cooperated with the Department.
               iv. Except as provided in this paragraph, Baker Hughes shall not
withhold from the Department, any information, documents, records, facilities
and/or employees on the basis of an attorney-client privilege or work product
claim.

4

--------------------------------------------------------------------------------

 

          b. Upon request of the Department, with respect to any issue relevant
to its investigation of corrupt payments in connection with the operations of
Baker Hughes, or any of its former subsidiaries or affiliates, related books and
records and inadequate internal controls, Baker Hughes shall designate
knowledgeable employees, agents, or attorneys to provide to the Department the
information and materials described in Paragraph 4(a) above, on behalf of Baker
Hughes. It is further understood that Baker Hughes must at all times provide
complete, truthful, and accurate information.
     c. With respect to any issue relevant to the department’s investigation of
corrupt payments in connection with the operations of Baker Hughes, or any of
its present or former subsidiaries or affiliates, Baker Hughes shall use its
best efforts to make available for interviews or testimony, as requested by the
Department, present or former directors, officers, employees, agents and
consultants of Baker Hughes, or any of its present or former subsidiaries or
affiliates, as well as the directors, officers, employees, agents and
consultants of contractors and sub-contractors. This includes, but is not
limited to, sworn testimony before a federal grand jury or in federal trials, as
well as interviews with federal law enforcement authorities. Cooperation under
this Paragraph will include identification of witnesses who, to the knowledge of
Baker Hughes, may have material information regarding the matters under
investigation.

5

--------------------------------------------------------------------------------

 

     d. With respect to any information, testimony, document, record, or other
tangible evidence provided to the Department pursuant to this Agreement, Baker
Hughes consents to any and all disclosures to other government agencies, whether
agencies of the United States or a foreign government, of such materials as the
Department, in its sole discretion, shall deem appropriate.
     5. In return for the full and truthful cooperation of Baker Hughes, and
compliance with all the terms and conditions of this Agreement, the Department
agrees not to use any information related to the conduct described in the
attached Statement of Facts against Baker Hughes in any criminal or civil case,
except in a prosecution for perjury or obstruction of justice; in a prosecution
for making a false statement after the date of this Agreement; in a prosecution
or other proceeding relating to any crime of violence; or in a prosecution or
other proceeding relating to a violation of any provision of Title 26 of the
United States Code. In addition, the Department agrees, except as provided
herein, that it will not bring any criminal or civil case against Baker Hughes,
or any subsidiary of Baker Hughes, related to the conduct of present and former
employees as described in the attached Statement of Facts, or relating to
information Baker Hughes disclosed to the Department prior to the date of this
Agreement, concerning its business affairs in Kazakhstan, Angola, Nigeria,
Indonesia, Russia, Uzbekistan, Turkmenistan and Azerbaijan, among other
countries. This Paragraph does not provide any protection against prosecution
for any

6

--------------------------------------------------------------------------------

 

corrupt payments or false accounting, if any, made in the future by Baker
Hughes, or any of its officers, directors, employees, agents or consultants,
whether or not disclosed by Baker Hughes, pursuant to the terms of this
Agreement. This paragraph also does not provide any protection against
prosecution for any corrupt payments made in the past which are not described in
the attached Statement of Facts or were not disclosed to the Department prior to
the date of this Agreement. In addition, this Paragraph does not provide any
protection against criminal prosecution of any present or former officer,
employee, director, shareholder, agent or consultant of Baker Hughes for any
violations committed by them.
     6. Baker Hughes represents that it has implemented and will continue to
implement a compliance and ethics program designed to detect and prevent
violations of the FCPA, U.S. commercial bribery laws and foreign bribery laws
throughout its operations, including those of its subsidiaries, affiliates,
joint ventures, and those of its contractors and subcontractors, with
responsibilities that include interactions with foreign officials.
Implementation of these policies and procedures shall not be construed in any
future enforcement proceeding as providing immunity or amnesty for any crimes
not disclosed to the Department as of the date of the execution of this
Agreement for which Baker Hughes would otherwise be responsible.
     7. In particular, Baker Hughes represents that, at a minimum, it has
undertaken, or agrees that it will undertake, the following steps:

7

--------------------------------------------------------------------------------

 

          a. Adopt a system of internal accounting controls and a system
designed to ensure the making and keeping of accurate books, records, and
accounts; and
          b. Adopt a rigorous anti-corruption compliance code (“Compliance
Code”), as described further below, that is designed to detect and deter
violations of the FCPA, U.S. commercial bribery laws and foreign bribery laws.
The anti-bribery Compliance Code of Baker Hughes will consist of the following
elements, at a minimum:
               i. A clearly articulated corporate policy against violations of
the FCPA, U.S. commercial bribery laws and foreign bribery laws;
               ii. Promulgation of compliance standards and procedures to be
followed by all directors, officers, employees and, where appropriate, business
partners, including, but not limited to, agents, consultants, representatives,
teaming partners, joint venture partners and other parties acting on behalf of
Baker Hughes in a foreign jurisdiction (respectively, “agents” and “business
partners”), that are reasonably capable of reducing the prospect that the FCPA,
U.S. commercial bribery laws, foreign bribery laws or the Compliance Code of
Baker Hughes will be violated;
               iii. The assignment to one or more senior corporate officials of
Baker Hughes, who shall report directly to the Audit/Ethics Committee of the
Board of Directors, of responsibility for the implementation and oversight of

8

--------------------------------------------------------------------------------

 

compliance with policies, standards, and procedures established in accordance
with the Compliance Code of Baker Hughes;
               iv. The effective communication to all directors, officers,
employees and, where appropriate, agents and business partners, of corporate and
compliance policies, standards, and procedures regarding the FCPA, U.S.
commercial bribery laws and foreign bribery laws. This shall include: (A)
training concerning the requirements of the FCPA, U.S. commercial bribery laws
and foreign bribery laws on a periodic basis to all directors, officers and
employees; and (B) periodic certifications by all directors, officers,
employees, including the head of each Baker Hughes business or division, and,
where appropriate, agents and business partners, certifying compliance
therewith;
               v. A reporting system, including a “Helpline” for directors,
officers, employees, agents and business partners to report suspected violations
of the Compliance Code or suspected criminal conduct;
               vi. Appropriate disciplinary procedures to address violations of
the FCPA, U.S. commercial bribery laws, foreign bribery laws, or the Compliance
Code;
               vii. Extensive pre-retention due diligence requirements
pertaining to, as well as post-retention oversight of, all agents and business
partners, including the maintenance of complete due diligence records at Baker
Hughes;

9

--------------------------------------------------------------------------------

 

               viii. Clearly articulated corporate procedures designed to ensure
that Baker Hughes exercises due care to assure that substantial discretionary
authority is not delegated to individuals whom Baker Hughes knows, or should
know through the exercise of due diligence, have a propensity to engage in
illegal or improper activities;
               ix. A committee consisting of senior officials of Baker Hughes
and each Baker Hughes business or division to review and to record, in writing,
actions relating to: (A) the retention of any agent or subagents thereof; and
(B) all contracts and payments related thereto;
               x. The inclusion in all agreements, contracts, and renewals
thereof with all agents and business partners provisions that are reasonably
calculated to prevent violations of the FCPA, U.S. commercial bribery laws,
foreign bribery laws and other relevant laws, which may, depending upon the
circumstances, include: (A) setting forth anti-corruption representations and
undertakings relating to compliance with the FCPA, U.S. commercial bribery laws,
foreign bribery laws and other relevant laws; (B) allowing for internal and
independent audits of the books and records of the agent or business partner to
ensure compliance with the foregoing; and (C) providing for termination of the
agent or business partner as a result of any breach of anti-corruption laws and
regulations or representations and undertakings related thereto;

10

--------------------------------------------------------------------------------

 

               xi. Financial and accounting procedures designed to ensure that
Baker Hughes maintains a system of internal accounting controls and makes and
keeps accurate books, records, and accounts; and
               xii. Independent audits by outside counsel and auditors, at no
longer than three-year intervals beginning after the completion of the term of
the Monitor, as discussed below, to ensure that the Compliance Code, including
its anti-corruption provisions, are implemented in an effective manner.
     8. Baker Hughes agrees to engage an independent monitor (“Monitor”) within
sixty (60) calendar days of the signing of this Agreement, to monitor the
Company’s compliance program with respect to the FCPA, U.S. commercial bribery
laws, and foreign bribery laws for a period of three (3) years from the
execution of this Agreement, subject to the provisions of paragraphs 9 through
15 below. For thirty (30) calendar days after the signing of this Agreement, the
Company and the Department shall use mutual best efforts to identify a mutually
acceptable person to serve as the Monitor. If, after that period, the parties
have been unable to identify a mutually acceptable person then the Department in
its sole discretion shall select a person to serve as the Monitor. The Monitor
will review and evaluate the effectiveness of Baker Hughes’s internal controls,
record-keeping, and financial reporting policies and procedures as they relate
to Baker Hughes’s compliance with the books and records, internal accounting
controls, and anti-bribery provisions of the

11

--------------------------------------------------------------------------------

 

FCPA, U.S. commercial bribery laws, and foreign bribery laws. This review and
evaluation shall include an assessment of those policies and procedures as
actually implemented.
     9. Baker Hughes shall cooperate fully with the Monitor and the Monitor
shall have the authority to take such reasonable steps, in his or her view, as
may be necessary to be fully informed about the operations of Baker Hughes
within the scope of his or her responsibilities under this Agreement. To that
end, Baker Hughes shall provide the Monitor with access to all information,
documents, records, facilities and/or employees that fall within the scope of
responsibilities of the Monitor under this Agreement. Any such disclosure to the
Monitor retained by Baker Hughes concerning corrupt payments, related books and
records and internal controls, shall not relieve Baker Hughes of its obligation
to truthfully disclose such matters to the Department.
          a. The parties agree that no attorney-client relationship shall be
formed between Baker Hughes and the Monitor.
          b. In the event that Baker Hughes seeks to withhold from the Monitor
access to information, documents, records, facilities and/or employees of Baker
Hughes which may be subject to a claim of attorney-client privilege or to the
attorney work-product doctrine, Baker Hughes shall promptly provide written
notice of this determination to the Monitor and the Department. Such notice
shall include a

12

--------------------------------------------------------------------------------

 

general description of the nature of the information, documents, records,
facilities and/or employees that are being withheld, as well as the basis for
the claim. The Department may then consider whether to make a further request
for access to such information, documents, records, facilities and/or employees,
as provided in Paragraph 4(a) of this Agreement.
          c. Except as provided in this paragraph, Baker Hughes shall not
withhold from the Monitor any information, documents, records, facilities and/or
employees on the basis of an attorney client privilege or work product claim.
     10. Baker Hughes agrees that the Monitor shall assess whether these
entities’ policies and procedures are reasonably designed to detect and prevent
violations of the FCPA, U.S. commercial bribery laws, and foreign bribery laws,
and, during the three (3) year period, shall conduct an initial review and
prepare an initial report, followed by two (2) follow-up reviews and follow-up
reports as described below. With respect to each of the three (3) reviews, after
initial consultations with Baker Hughes and the Department, the Monitor shall
prepare a written work plan for each of the reviews, which shall be submitted in
advance to Baker Hughes and the Department for comment. In order to conduct an
effective initial review and to fully understand any existing deficiencies in
controls, policies and procedures related to the FCPA, U.S. commercial bribery
laws, and foreign bribery laws, the Monitor’s initial work plan shall include
such steps as are necessary to develop an understanding of the

13

--------------------------------------------------------------------------------

 

facts and circumstances surrounding any violation that may have occurred. Any
disputes between Baker Hughes and the Monitor with respect to the work plan
shall be decided by the Department in its sole discretion.
     11. In connection with the initial review, the Monitor shall issue a
written report within one hundred twenty (120) calendar days of his or her
retention setting forth the Monitor’s assessment and making recommendations
reasonably designed to improve the policies and procedures of Baker Hughes for
ensuring compliance with the FCPA, U.S. commercial bribery laws, and foreign
bribery laws. The Monitor shall provide the report to the Board of Directors of
Baker Hughes and contemporaneously transmit copies to Mark F. Mendelsohn, (or
his successor), Deputy Chief, Fraud Section, Criminal Division, U.S. Department
of Justice, 10th and Constitution Ave., N.W., Bond Building, Fourth Floor,
Washington, D.C. 20530. The Monitor may extend the time period for issuance of
the report with prior written approval of the Department.
     12. Within sixty (60) calendar days after receiving the Monitor’s report,
Baker Hughes shall adopt all recommendations in the report; provided, however,
that within thirty (30) calendar days after receiving the report, Baker Hughes
shall advise the Monitor and the Department in writing of any recommendations
that Baker Hughes considers unduly burdensome, impractical, or costly. With
respect to any recommendation that Baker Hughes considers unduly burdensome,
impractical, or

14

--------------------------------------------------------------------------------

 

costly, Baker Hughes need not adopt that recommendation within that time but
shall propose in writing an alternative policy, procedure or system designed to
achieve the same objective or purpose. As to any recommendation on which Baker
Hughes and the Monitor do not agree, such parties shall attempt in good faith to
reach an agreement within thirty (30) calendar days after Baker Hughes serves
the written advice. In the event Baker Hughes and the Monitor are unable to
agree on an alternative proposal, Baker Hughes shall abide by the determination
of the Monitor. With respect to any recommendation that the Monitor determines
cannot reasonably be implemented within sixty (60) calendar days after receiving
the report, the Monitor may extend the time period for implementation with prior
written approval of the Department.
     13. The Monitor shall undertake two (2) follow-up reviews to further
monitor and assess whether the policies and procedures of Baker Hughes are
reasonably designed to detect and prevent violations of the FCPA, U.S.
commercial bribery laws, and foreign bribery laws. Within sixty (60) calendar
days of initiating each follow-up review, the Monitor shall: (a) complete the
review; (b) certify whether the anti-bribery compliance program of Baker Hughes,
including its policies and procedures, is appropriately designed and implemented
to ensure compliance with the FCPA, U.S. commercial bribery laws, and foreign
bribery laws; and (c) report on the Monitor’s findings in the same fashion as
set forth in Paragraph 11 with respect to the

15

--------------------------------------------------------------------------------

 

initial review. The first follow-up review shall commence one year after
appointment of the Monitor under this Agreement. The second follow-up review
shall commence at least one year after completion of the first review. The
Monitor may extend the time period for these follow-up reviews with prior
written approval of the Department.
     14. In undertaking tale assessments and reviews described in Paragraphs 10
through 13 of this Agreement, the Monitor shall formulate conclusions based on,
among other things: (a) inspection of documents, including all the policies and
procedures relating to the anti-bribery compliance program of Baker Hughes and
all its affiliates and subsidiaries; (b) onsite observation of the systems and
procedures of Baker Hughes, including its internal controls and its
recordkeeping and internal audit procedures; (c) meetings with and interviews of
employees, officers, and directors of Baker Hughes and all its affiliates and
subsidiaries, and any other relevant persons; and, (d) analyses, studies and
testing of the anti-bribery compliance program of Baker Hughes and all its
affiliates and subsidiaries.
     15. The charge of the Monitor, as described above, is to review the
controls, policies and procedures of Baker Hughes and all its affiliates and
subsidiaries related to compliance with the FCPA, U.S. commercial bribery laws
and foreign bribery laws. Should the Monitor during the course of his or her
engagement discover that questionable or corrupt payments or questionable or
corrupt transfers of

16

--------------------------------------------------------------------------------

 

property or interests may have been offered, promised, paid, or authorized by
any Baker Hughes entity or person, or any entity or person working directly or
indirectly for Baker Hughes, or that related false books and records have been
maintained, the Monitor shall promptly report such payments to Baker Hughes for
further investigations, unless the Monitor believes, in the exercise of his or
her discretion, that such disclosure should be made directly to the Department.
If the Monitor refers the matter only to Baker Hughes, Baker Hughes shall
promptly report the same to the Department. If Baker Hughes fails to make such
disclosure within ten (10) calendar days of the report of such payments to Baker
Hughes, the Monitor shall independently disclose his or her findings to the
Department at the address listed above in Paragraph 11. Further, in the event
that Baker Hughes, or any entity or person working directly or indirectly for
Baker Hughes, refuses to provide information necessary for the performance of
the Monitor’s responsibilities, the Monitor shall disclose that fact to the
Department. Baker Hughes and its shareholders shall not take any action to
retaliate against the Monitor for any such disclosures or for any other reason.
The Monitor may report other criminal or regulatory violations discovered in the
course of performing its duties, in the same manner as described above.
     16. In consideration of the action of Baker Hughes in voluntarily
disclosing and conducting an investigation by outside legal counsel regarding
the matter set out in the attached Statement of Facts and other matters
disclosed to the Department, and

17

--------------------------------------------------------------------------------

 

the cooperation of Baker Hughes with the investigation conducted by the
Department; and the willingness of Baker Hughes to: (a) acknowledge
responsibility for its behavior and that of its subsidiaries and affiliates;
(b) continue its cooperation with the Department; (c) adopt and maintain
remedial measures and independently review and audit such measures; and
(d) cause its subsidiary, BHSI, to enter into a plea agreement and plead guilty
to the charges set forth in a separate criminal Information, the Department
agrees that any prosecution of Baker Hughes for the conduct set forth in the
attached Statement of Facts, and for the conduct relating to information Baker
Hughes disclosed to the Department prior to the date of this Agreement
concerning its business affairs in Kazakhstan, Angola, Nigeria, Indonesia,
Russia, Uzbekistan, Turkmenistan and Azerbaijan, among other countries, be and
hereby is deferred for a period of two (2) years from the date of this
Agreement.
     17. The Department further agrees that if Baker Hughes is in full
compliance with all of its obligations under this Agreement, including its
obligation to adopt the recommendations of the Monitor in accordance with the
terms of Paragraph 12, the Department will not continue the criminal prosecution
against Baker Hughes described in Paragraph 1 and, after two (2) years, this
Agreement shall expire.
     18. If the Department determines, in its sole discretion, that Baker Hughes
at any time during the two-year term of this Agreement, has committed any
federal

18

--------------------------------------------------------------------------------

 

crimes subsequent to the date of this Agreement, has provided deliberately
false, incomplete, or misleading information under this Agreement, or has
otherwise breached the Agreement, Baker Hughes shall, in the Department’s sole
discretion, thereafter be subject to prosecution for any federal criminal
violation of which the Department has knowledge. Any such prosecutions may be
premised on information provided by Baker Hughes. Moreover, Baker Hughes agrees
that any such prosecution that is not time-barred by the applicable statute of
limitations on the date of this Agreement may be commenced against Baker Hughes
in accordance with this Agreement, notwithstanding the expiration of the statute
of limitations between the signing of this Agreement and the termination of this
Agreement. By this Agreement, Baker Hughes expressly intends to and does waive
any rights in this respect.
     19. It is further agreed that in the event that the Department determines
that Baker Hughes has breached this Agreement: (a) all statements made by or on
behalf of Baker Hughes to the Department or to the Court, including the attached
Statement of Facts, and any testimony given by Baker Hughes before a grand jury
or any tribunal, at any legislative hearings, or to the Securities and Exchange
Commission (“SEC”), whether prior or subsequent to this Agreement, or any leads
derived from such statements or testimony, shall be admissible in evidence in
any and all criminal proceedings brought by the Department against Baker Hughes;
and (b) Baker Hughes shall not assert any claim under the United States
Constitution, Rule 11(f) of the

19

--------------------------------------------------------------------------------

 

Federal Rules of Criminal Procedure, Rule 410 of the Federal Rules of Evidence,
or any other federal rule, that statements made by or on behalf of Baker Hughes
prior to or subsequent to this Agreement, or any leads developed therefrom,
should be suppressed. The decision whether conduct or statements of any
individual will be imputed to Baker Hughes for the purpose of determining
whether Baker Hughes has violated any provision of this Agreement shall be in
the sole discretion of the Department.
     20. Baker Hughes acknowledges that the Department has made no
representations, assurances, or promises concerning what sentence may be imposed
by the Court if Baker Hughes breaches this Agreement and this matter proceeds to
judgment. Baker Hughes further acknowledges that any such sentence is solely
within the discretion of the Court and that nothing in this Agreement binds or
restricts the Court in the exercise of such discretion.
     21. Baker Hughes agrees that in the event it sells, merges, or transfers
all or substantially all of its business operations as they exist as of the date
of this Agreement, whether such sale is structured as a stock or asset sale,
merger, or transfer, they shall include in any contract for sale, merger or
transfer a provision binding the purchaser or any successor in interest thereto
to the obligations described in this Agreement.

20

--------------------------------------------------------------------------------

 

     22. Baker Hughes expressly agrees that it shall not, through present or
future attorneys, Boards of Directors, officers, or any other person authorized
to speak for Baker Hughes, make any public statement, in litigation or
otherwise, contradicting the acceptance of responsibility by Baker Hughes set
forth above or the factual statements set forth in the attached Statement of
Facts. Any such contradictory statement shall, subject to cure rights below by
Baker Hughes, constitute a breach of this Agreement and Baker Hughes thereafter
shall be subject to prosecution as set forth in Paragraphs 18 and 19 of this
Agreement. The decision, whether any public statement by any such person
contradicting a fact contained in the Statement of Facts will be imputed to
Baker Hughes for the purpose of determining whether they have breached this
Agreement shall be at the sole discretion of the Department. If the Department
determines that a public statement by any such person contradicts in whole or in
part a statement contained in the Statement of Facts, the Department shall so
notify Baker Hughes and Baker Hughes may avoid a breach of this Agreement by
publicly repudiating such statement(s) within two (2) business days after
notification. Consistent with the obligations of Baker Hughes as set forth
above, Baker Hughes shall be permitted to raise defenses and to assert
affirmative claims in civil and regulatory proceedings relating to the matters
set forth in the Statement of Facts. This Paragraph is not intended to apply to
any statement made by any employee of Baker

21

--------------------------------------------------------------------------------

 

Hughes in the course of any criminal, regulatory, or civil case initiated
against such individual, unless such individual is speaking on behalf of Baker
Hughes.
     23. In connection with this Agreement, Baker Hughes shall only issue a
press release if it first determines that the text of the release is acceptable
to the Department.
     24. It is understood that this Agreement is binding on Baker Hughes and the
Department but specifically does not bind any other federal agencies, or any
state or local law enforcement or regulatory agencies, although the Department
will bring the cooperation of Baker Hughes and its compliance with its other
obligations under this Agreement to the attention of such agencies and
authorities if requested to do so by Baker Hughes.
     25. This Agreement sets forth all the terms of the Deferred Prosecution
Agreement between Baker Hughes and the Department. No modifications or additions
to this Agreement shall be valid unless they are in writing and signed by the
Department, the attorneys for Baker Hughes, and a duly authorized representative
of Baker Hughes.
     26. Any notice to Baker Hughes under this Agreement shall be given by
personal delivery, overnight delivery by a recognized delivery service or
registered or certified mail, in each case addressed to the General Counsel,
Baker Hughes

22

--------------------------------------------------------------------------------

 

Incorporated, 2929 Allen Parkway, Suite 2100, Houston, Texas 77019. Notice shall
be effective upon actual receipt by Baker Hughes.

23

--------------------------------------------------------------------------------

 

AGREED:
     FOR BAKER HUGHES INCORPORATED:

         
 
       /s/ Reid M. Figel
 
REID M. FIGEL, ESQ.         Kellogg, Huber, Hansen, Todd, Evans          &
Figel, P.L.L.C.     Washington, D.C. 20036     Counsel for Baker Hughes
Incorporated
 
       
 
       /s/ Alan R. Crain, Jr.
 
ALAN R. CRAIN, JR.         Senior Vice-President and General Counsel     Baker
Hughes. Incorporated

     FOR THE DEPARTMENT OF JUSTICE:

                  STEVEN A. TYRRELL         Chief, Fraud Section    
 
           
 
  By:        /s/ Mark F. Mendelsohn
 
        MARK F. MENDELSOHN         Deputy Chief, Fraud Section    
 
           
 
  By:        /s/ John A. Michelich
 
        JOHN A. MICHELICH         Senior Trial Attorney, Fraud Section        
United States Department of Justice         Fraud Section, Criminal Division    
    10th & Constitution Avenue, NW         Washington, D.C. 20530        
(202) 514-7023    

Filed at Houston, Texas, on this 11 day of April, 2007.

24

--------------------------------------------------------------------------------

 

ATTACHMENT A
STATEMENT OF FACTS
     The following Statement of Facts is incorporated by this reference as part
of the Deferred Prosecution Agreement (the “Agreement”) between the United
States Department of Justice (the “Department”) and Baker Hughes Incorporated
(“Baker Hughes”), and the parties hereby agree and stipulate that the following
information is true and accurate. As set forth in Paragraph 2 of the Agreement,
Baker Hughes accepts and acknowledges that it is responsible for the acts of its
officers and employees, and those of its wholly-owned subsidiary, defendant
Baker Hughes Services International, Inc. (“BHSI”), that are set forth below.
Should the Department initiate the prosecution that is deferred by this
Agreement, Baker Hughes agrees that it will neither contest the admissibility
of, nor contradict, this Statement of Facts in any such proceeding. If this
matter were to proceed to trial, the United States would prove beyond a
reasonable doubt, by admissible evidence, the facts alleged in the Information.
This evidence would establish the following:
Baker Hughes Incorporated
     1. Baker Hughes, headquartered in Houston, Texas, was a corporation
organized under the laws of the State of Delaware, with principal offices in
Houston, Texas. Baker Hughes was a global provider of

1

--------------------------------------------------------------------------------

 

comprehensive oil-field services and products which it provided through several
subsidiaries and operating divisions, and operated in more than 80 countries.
     2. Baker Hughes issued and maintained a class of securities registered
pursuant to Section 12(b) of the Securities Exchange Act of 1934 (15 U.S.C. §
781) and was required to file periodic reports with the United States Securities
and Exchange Commission under Section 13 of the Securities Exchange Act (15
U.S.C. § 78m). Accordingly, Baker Hughes was an “issuer” within the meaning of
the Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-1(a).
Baker Hughes Services International, Inc.
     3. From in or about 1993 to the present, Baker Hughes maintained BHSI, a
wholly owned subsidiary which was organized under the laws of the State of
Delaware and which conducted business in the Republic of Kazakhstan, the
Southern District of Texas and elsewhere. Accordingly, BHSI was a “domestic
concern” within the meaning of the FCPA, (15 U.S.C. § 78dd-2). BHSI was engaged
in the business of providing comprehensive oil-field services and products in
the Republic of Kazakhstan and elsewhere and, during the relevant period,
maintained an office in Almaty, Kazakhstan.

2

--------------------------------------------------------------------------------

 

     4. BHSI regularly sought approval for management decisions from superiors
at Baker Hughes management offices in Houston, Texas. BHSI maintained a bank
account at the Chase Bank of Texas, N.A., in Houston, Texas. For internal
accounting purposes, BHSI regularly sent invoices to the various Baker Hughes
operating divisions requesting them to remit funds directly to BHSI’s account at
Chase Bank in Houston. Accordingly, BHSI operated within the territorial
jurisdiction of the United States.
The Karachaganak Project in Kazakhstan
     5. The government of the Republic of Kazakhstan managed its national
petroleum exploration and production through Kazakhoil, its state-owned oil
company. Kazakhoil is a government instrumentality and its employees are foreign
government officials within the meaning of the Foreign Corrupt Practices Act, 15
U.S.C. § 78dd-1(f)(1)(A). From time to time, Kazakhoil would form consortiums,
in which Kazakhoil would join with several different oil companies, in order to
undertake collectively particular petroleum exploration and production projects.
     6. Karachaganak was a giant gas and oil field located in northwestern
Kazakhstan. Beginning in or about 1997, the government of Kazakhstan and
Kazakhoil entered into a Final Production Sharing Agreement with a consortium of
four international oil companies known as the

3

--------------------------------------------------------------------------------

 

Karachaganak Integrated Organization (“KIO”), for the development and operation
of the oil production facilities in Karachaganak.
     7. The four international oil companies formed the Karachaganak Petroleum
Operating Company, B.V. (“KPO”), a company organized and registered under the
laws of The Netherlands, which maintained its principal offices in the Republic
of Kazakhstan. KPO was responsible for developing and operating the Karachaganak
field on behalf of partners in the joint venture. KPO solicited bids from
outside vendors for comprehensive oil-field drilling services and products
including project management, oil drilling and engineering support. In December,
1999, Baker Hughes was invited to submit a bid to KPO for a contract to provide
a wide range of oil-field drilling and production services for the Karachaganak
project.
The Co-Conspirators
     8. BHSI Employee A (hereinafter, “Employee A”), who is named in the
Information as a co-conspirator but not as a defendant, was employed as Country
Manager and Business Development Manager of BHSI. Employee A also served as a
Business Development Manager and as the Team Leader for the Karachaganak tender.
Employee A’s duties included, among other things, the coordination of the
various Baker Hughes operating divisions relating to the Baker Hughes bid on the
Karachaganak project. As such, Employee A

4

--------------------------------------------------------------------------------

 

was an employee of a “domestic concern” within the meaning of the FCPA, 15
U.S.C. § 78dd-2.
     9. Consulting Firm A, which is named in the Information as a co-conspirator
but not as a defendant, was a consulting firm incorporated and registered as a
private limited liability company in the Isle of Man, where it maintained its
principal place of business. Consulting Firm A maintained a business office in
London, United Kingdom, and also maintained a bank account in the name of
Consulting Firm A at Barclay’s Bank in London, United Kingdom. Generally,
Consulting Firm A provided unspecified administrative and consulting services
and acted as an agent for companies doing business in the Republic of Kazakhstan
and elsewhere.
     10. Agent A, who is named in the Information as a co-conspirator but not as
a defendant, was a director of Consulting Firm A, and acted as the
representative of Consulting Firm A and as the agent for Baker Hughes regarding
its bid for Karachaganak. Agent A informed Employee A that a Kazakhoil official
demanded that BHSI pay a commission to Consulting Firm A in order for BHSI to
obtain the Karachaganak contract. Agent A is a citizen of the United Kingdom.

5

--------------------------------------------------------------------------------

 

The Baker Hughes Bid for Karachaganak
     11. In or about February 2000, Baker Hughes, through BHSI, submitted a
consolidated bid to KPO for various categories of work on the Karachaganak
project. The bid was submitted for work to be performed by Baker Hughes
operating divisions Baker Atlas, Baker Oil Tools and INTEQ, and was coordinated
and submitted by Baker Hughes Enterprise Services & Technology Group (“BEST”).
BEST was a team of Baker Hughes business development managers responsible for
coordinating, structuring and marketing Baker Hughes oilfield services for
significant contracts across its various operating divisions, and was not itself
a business unit.
     12. Although it was not a member of the KPO consortium, Kazakhoil wielded
considerable influence as Kazakhstan’s national oil company and, in effect, the
ultimate award of a contract by KPO to any particular bidder depended upon the
approval of Kazakhoil officials. Kazakhoil was controlled by officials of the
Government of Kazakhstan and, as such, was an “instrumentality” of a foreign
government and its officers and employees were “foreign officials,” within the
meaning of the FCPA, 15 U.S.C. § 78dd-1(f)(1)(A). Baker Hughes understood that
KPO’s approval of their bid for the contract depended heavily on a favorable
recommendation from Kazakhoil.

6

--------------------------------------------------------------------------------

 

Kazakhoil Directs BHSI to Retain an Agent
     13. In or about early September 2000, Baker Hughes managers and executives
received unofficial notification that their bid was successful and that Baker
Hughes would win the Karachaganak tender. Nevertheless, in or about
mid-September 2000, a Kazakhoil official demanded that, in order for Baker
Hughes to win the Karachaganak contract, BHSI should pay Consulting Firm A, an
agent located on the Isle of Man, a commission equal to 3.0% of the revenue
earned by Baker Hughes on the Karachaganak contract.
     14. On September 17, 2000, Employee A sent an e-mail informing his
supervisor that Kazakhoil officials were demanding that Baker Hughes retain an
agent in order to receive approval for the Karachaganak project and stated,
among other things, that “. . . Kazakhoil approached me through an agent in
London stating that to get Kazakhoil approval a 3% commission is required. This
as you know I refused and said that it is utterly outrageous to wait until a
contractor is chosen and start demanding amounts that have been suggested.”
Further, Employee A suggested that Baker Hughes should make a counter-offer to
retain the agent only for future business which “. . . keeps us clear of any
criticism (sic) for this KIO contract.” Further, Employee A stated, “. . .
unless we do something we are not going to get the Kazakhoil support . . .”

7

--------------------------------------------------------------------------------

 

and “. . . we are in the driving seat but if one our (sic) competitors comes in
with a pot of gold, it is not going to be our contract.”
     15. On September 19, 2000, Employee A sent an e-mail to Agent A, director
of Consulting Firm A, in London, stating that Employee A had the “green light”
from his corporate superiors to proceed with the agency agreement as proposed.
     16. Although Consulting Firm A had performed no services to assist Baker
Hughes or BHSI in preparing and submitting their bid for Karachaganak, BHSI
sought and obtained approval from executives of operating divisions Baker Atlas,
Baker Oil Tools, and INTEQ, to retain and pay a commission to Consulting Firm A
of 2.0% of the revenue earned by each operating division in the Karachaganak
project.
     17. On or about September 24, 2000, Employee A sent an e-mail to his
supervisor and others informing them that Kazakhoil had rejected the Baker
Hughes counter-offer to hire an agent only for future business in Kazakhstan,
and stated “unless we pay a commission relative to the KIO contract we can say
goodbye to this and future business.” Also, Employee A sent an e-mail to Agent A
of Consulting Firm A and attached a side-letter agreement retaining Consulting
Firm A as an agent for BHSI and agreeing to pay a 2.0% commission based upon
revenue earned by Baker Hughes on the

8

--------------------------------------------------------------------------------

 

Karachaganak contract and 3.0% of revenue for all future services it would
perform in Kazakhstan. In the e-mail, Employee A stated, “You will note the
consideration has been greatly increased and trust this will receive the
recognition it deserves in the necessary corners of Kazakhstan in confirming
their support to Baker Hughes.” The side-letter, dated September 1, 2000, stated
that Consulting Firm A had been retained by Baker Hughes “ . . . in recognition
of said work and assistance given by [Consulting Firm A] towards Baker Hughes in
pursuit of the Karachaganak contract. . .” and that Baker Hughes had decided to
reward Consulting Firm A by payment of consideration equal to 2.0% of the
contract revenues.
     18. On September 25-26, 2000, Employee A and his supervisor began to
canvass officers of operating divisions Baker Atlas, Baker Oil Tools and INTEQ
requesting their agreement to pay their share of the agency commission. On
September 26, 2000, Employee A received an e-mail from his supervisor directing
Employee A not to sign any agency agreement until they had discussed several
remaining issues. On September 27, 2000, Employee A received an e-mail from his
supervisor informing him that the operating divisions had approved the plan to
pay a 2.0% to 3.0% commission to Consulting Firm A for the Karachaganak
contract.

9

--------------------------------------------------------------------------------

 

Baker Hughes Wins the Karachaganak Contract
     19. On September 27, 2000, Employee A signed a “Sales Representation
Agreement” on behalf of BHSI with Consulting Firm A, which was backdated to
September 1, 2000. In early October 2000, officials of KPO notified BHSI and
Baker Hughes that the Baker Hughes tender was successful and the Karachaganak
contract was awarded to Baker Hughes. The Integrated Services Contract between
KPO and BHSI became effective on or about October 23, 2000. Thereafter, Baker
Hughes and operating divisions Baker Atlas, Baker Oil Tools and INTEQ, through
Baker Hughes’s subsidiary BHSI, performed services pursuant to the contract with
KPO.
Baker Hughes Divisions and BHSI Pay Commissions
     20. On approximately a monthly basis, beginning in May 2001, and continuing
through at least November 2003, BHSI would notify the three Baker Hughes
operating divisions of the amount of commission charges each division owed based
upon calculating 2.0% of that division’s revenue for the month. BHSI sent an
invoice to each operating division requesting it to send its commission payment
to the BHSI bank account at Chase Bank in Houston, Texas.
     21. Beginning in May 2001, and continuing through at least November 2003,
BHSI and Baker Hughes made commission payments to

10

--------------------------------------------------------------------------------

 

Consulting Firm A totaling $4,100,162.70, which represented 2.0% of the revenue
earned by Baker Hughes and its sub-contractors on the Karachaganak project. Each
commission payment was wire-transferred from the BHSI bank account at Chase Bank
in Houston to an account in the name of Consulting Firm A at Barclay’s Bank in
London, United Kingdom.
     22. On the dates set forth below, the following payments were made via wire
transfer from a BHSI bank account at Chase Bank in Houston, Texas, to a bank
account maintained by Consulting Firm A at Barclay’s Bank, in London, United
Kingdom:
Commission Payments to
Consulting Firm A

          Date   Amount in USD
May 24, 2001
  $ 32,540.00  
June 20, 2001
  $ 97,116.00  
August 1, 2001
  $ 117,336.00  
August 22, 2001
  $ 108,680.00  
October 26, 2001
  $ 278,999.00  
December 6, 2001
  $ 323,399.00  
December 13, 2001
  $ 34,123.00  
January 16, 2002
  $ 147,211.02  
February 21, 2002
  $ 125,367.00  

11

--------------------------------------------------------------------------------

 

          Date   Amount in USD
April 5, 2002
  $ 281,741.00  
May 15, 2002
  $ 170,950.00  
June 25, 2002
  $ 143,107.00  
August 1, 2002
  $ 380,682.47  
September 27, 2002
  $ 400,488.58  
November 27, 2002
  $ 139,819.00  
December 31, 2002
  $ 118,843.00  
January 29, 2003
  $ 122,146.93  
February 25, 2003
  $ 121,810.62  
March 3, 2003
  $ 123,737.08  
April 8, 2003
  $ 111,760.42  
May 8, 2003
  $ 96,535.78  
May 27, 2003
  $ 126,761.96  
July 1, 2003
  $ 103,600.98  
July 30, 2003
  $ 111,362.50  
September 16, 2003
  $ 105,170.33  
October 28, 2003
  $ 83,052.94  
November 25, 2003
  $ 93,821.11  
Total
  $ 4,100,162.70  

12

--------------------------------------------------------------------------------

 

     23. Baker Hughes and BHSI failed to properly account for the purported
commission payments to Consulting Firm A, and failed to describe accurately the
transactions in its books and records. Instead, Baker Hughes and BHSI improperly
characterized the payments made as legitimate payments for, among other things,
“commissions,” “fees,” or “legal services.” However, Consulting Firm A had no
office or presence in Kazakhstan and rendered no goods or ancillary agency
services to Baker Hughes or BHSI in Kazakhstan or elsewhere. In fact, the
so-called “commission” payments made to Consulting Firm A were bribes, paid and
authorized by employees of BHSI, all or part of which BHSI understood and
intended to be transferred to an undisclosed official or officials of Kazakhoil,
in exchange for which Baker Hughes and BHSI would receive the contract to
provide services in the Karachaganak oilfield project.
     24. Net revenues realized by Baker Hughes on the Karachaganak project were
$189.2 Million. After offsetting net revenues by the company’s expenses, Baker
Hughes recognized a profit of approximately $19.9 million.
Conclusion
     25. Based upon the facts as set forth above, Baker Hughes admits that it is
an “issuer” within the meaning of the Foreign Corrupt Practices Act, 15 U.S.C. §
78dd-1, et seq., and that its officers, employees and agents made

 

--------------------------------------------------------------------------------

 

use of and caused the use of the mails and means and instrumentalities of
interstate commerce corruptly in furtherance of a payment of money to Consulting
Firm A, while knowing that all or a portion of such money would be given,
directly or indirectly, to an official of Kazakhoil, an instrumentality of the
government of Kazakhstan, for the purpose of influencing acts and decisions of a
foreign official in his official capacity to secure an improper advantage for
Baker Hughes and BHSI, and to assist Baker Hughes in obtaining and retaining
business; and that Baker Hughes failed to accurately reflect in its books and
records the payment of commissions to Consulting Firm A totaling $4,100,162.70.
AGREED:
     FOR BAKER HUGHES INCORPORATED:

         
 
       /s/ Reid M. Figel
 
REID M. FIGEL, ESQ.         Kellogg, Huber, Hansen, Todd, Evans          &
Figel, P.L.L.C.     Washington, D.C. 20036     Counsel for Baker Hughes
Incorporated
 
       
 
       /s/ Alan R. Crain, Jr.
 
ALAN R. CRAIN, JR.         Senior Vice-President and General Counsel     Baker
Hughes Incorporated

 

--------------------------------------------------------------------------------

 

     FOR THE DEPARTMENT OF JUSTICE:

                  STEVEN A. TYRRELL         Chief, Fraud Section    
 
           
 
  By:        /s/ Mark F. Mendelsohn
 
MARK F. MENDELSOHN    
 
      Deputy Chief, Fraud Section    
 
           
 
  By:        /s/ John A. Michelich
 
JOHN A. MICHELICH    
 
      Senior Trial Attorney, Fraud Section    
 
      United States Department of Justice    
 
      Fraud Section, Criminal Division    
 
      10th & Constitution Avenue, NW    
 
      Washington, D.C. 20530    
 
      (202) 514-7023    

     Filed at Houston, Texas, on this ___day of April, 2007.