exv10w43



 





Exhibit 10.43



PERFORMANCE GOALS

FOR PERFORMANCE UNIT AWARDS GRANTED IN 2006 UNDER

THE BAKER HUGHES INCORPORATED 2002 DIRECTOR & OFFICER

LONG-TERM INCENTIVE PLAN AND

THE BAKER HUGHES INCORPORATED 2002 EMPLOYEE

LONG-TERM INCENTIVE PLAN




     1. Baker Value Added.



     For Performance Unit Award Agreements issued by Baker Hughes Incorporated (“BHI”) in 2006
under the Baker Hughes Incorporated 2002 Director & Officer Long-Term Incentive Plan and the Baker
Hughes Incorporated 2002 Employee Long-Term Incentive Plan, the terms “Baker Value Added” and “BVA”
shall mean the amount calculated for a calendar year period under the following formula:



[[(a) + (b) + (c)] x (1 – (d))] – (e)



where (a) is the Profit Before Tax of the Company for the applicable calendar year, (b) is the net
interest expense of the Company for the applicable calendar year, (c) is the goodwill and
non-compete amortization of the Company for the applicable calendar year, (d) is the Tax Rate for
the applicable calendar year and (e) is the Capital Charge determined for the Company for the
applicable calendar year. Notwithstanding the foregoing, to the extent that the inclusion of such
items would increase the amount payable under a Performance Unit Award Agreement, the Committee
shall include all gains, income and revenues for the applicable calendar year determined to be
extraordinary, unusual in nature, infrequent in occurrence, related to the disposal or acquisition
of a business, or related to a change in accounting principle, in each case, based on Opinion No.
30 of the Accounting Principles Board (APB Opinion No. 30) or other applicable accounting rules, or
consistent with BHI policies and practices for calculating BVA in effect on the date hereof
(“Unplanned Items”); provided, however, that the Committee shall have the discretion to reduce the
amount payable under the Performance Unit Award Agreement by not taking into account such items.
Notwithstanding the foregoing, Unplanned Items resulting in losses or expenses for the applicable
calendar year shall be excluded by the Committee; provided, however, that the Committee shall have
the discretion to reduce the amount payable under the Performance Unit Award Agreement by taking
into account such items.




     “Average Adjusted Net Capital Employed” means the sum of the Monthly Adjusted Net Capital
Employed during the applicable calendar year divided by 12.



     “Capital Charge” means Average Adjusted Net Capital Employed multiplied by the Cost of
Capital.



     “Committee” means the Compensation Committee of the Board of Directors of the Company.



     “Company” means BHI and all of its Affiliates in which BHI directly or indirectly has a
capital investment.



     “Cost of Capital” means ___%.



 









 





     “Cost of Sales” means the cost of products sold and the cost of providing services, including
personnel costs, repair and maintenance costs, freight/custom, depreciation, and other costs (e.g.,
commission and royalty) directly relating to the service provided.



     “Monthly Adjusted Net Capital Employed” means the capital employed by the Company during a
month of the applicable calendar year plus accumulated goodwill amortization plus the value of
significant operating leases, adjusted to reflect the effect of an Unplanned Item consistent with
BHI policies and practices for calculating Monthly Adjusted Net Capital Employed in effect on the
date hereof if such adjustment would increase the amount payable under a Performance Unit Award
Agreement; provided, however, that the Committee shall have the discretion to reduce the amount
payable under the Performance Unit Award Agreement by not making such an adjustment to reflect the
effect of an Unplanned Item.



     “Operating Expenses” means costs incurred in non-manufacturing areas to provide products and
services to customers (e.g., finance and administrative support) during the applicable calendar
year.



     “Profit Before Tax” means the revenue of the Company for the applicable calendar year minus
the Cost of Sales of the Company for the applicable calendar year minus the Operating Expenses of
the Company for the applicable calendar year minus net interest expense of the Company for the
applicable calendar year.



     “Performance Period” means the three-year period beginning January 1, 2006, and ending
December 31, 2008.



     “Tax Rate” means the effective tax rate for the Company determined in a manner consistent with
BHI tax policies and practices in effect on the date hereof.



     2. Performance Goals for the Performance Period.



     For Performance Unit Award Agreements issued by BHI in 2006 under the Baker Hughes
Incorporated 2002 Director & Officer Long-Term Incentive Plan and the Baker Hughes Incorporated
2002 Employee Long-Term Incentive Plan, the Threshold BVA, Expected BVA and Overachievement BVA
shall be $___, $___ and $___, respectively.



     3. General Performance Unit Formula.



     For Performance Units granted by BHI under the Baker Hughes Incorporated 2002 Director &
Officer Long-Term Incentive Plan and the Baker Hughes Incorporated 2002 Employee Long-Term
Incentive Plan during 2006, the aggregate amount payable to an award recipient for the Performance
Period shall be equal to the number of Performance Units granted to the award recipient multiplied
by the Final Performance Unit Award Value.




If (a) the sum of the Baker Value Added achieved by the Company for each of the
three years included in the Performance Period (the “Aggregate Realized BVA”) equals
or exceeds the Expected BVA (but does not exceed the Overachievement BVA), (b) a
Change in Control of the Company has not occurred on or before the last day of the
Performance Period, and (c) the award recipient remains in the active employ of the
Company and/or an Affiliate through the last day of the Performance Period, then the
Final Performance Unit Award Value shall be equal to:



 









 





$100 + ($100/(Overachievement BVA – Expected BVA)) x (Aggregate Realized BVA – Expected BVA)





If (a) the Aggregate Realized BVA exceeds the Overachievement BVA, (b) a Change
in Control of the Company has not occurred on or before the last day of the
Performance Period, and (c) the award recipient remains in the active employ of the
Company and/or an Affiliate through the last day of the Performance Period, then the
Final Performance Unit Award Value shall be equal to $200.00.




If (a) the Aggregate Realized BVA is less than the Expected BVA (but is not less
than the Threshold BVA, (b) a Change in Control of the Company has not occurred on
or before the last day of the Performance Period, and (c) the award recipient
remains in the active employ of the Company and/or an Affiliate through the last day
of the Performance Period, then the Final Performance Unit Award Value shall be
equal to:



$25 + ($75/(Expected BVA – Threshold BVA)) x (Aggregate Realized BVA – Threshold BVA)




     The Committee may not increase the Final Performance Unit Award Value for, or otherwise
increase the aggregate amount payable to an award recipient for the Performance Period under, a
Performance Unit Award Agreement issued by BHI in 2006 under the Baker Hughes Incorporated 2002
Director & Officer Long-Term Incentive Plan or the Baker Hughes Incorporated 2002 Employee
Long-Term Incentive Plan.



     Capitalized terms that are not defined herein shall have the meaning ascribed to such terms in
the applicable plan or the applicable Terms and Conditions of Award Agreements.