Document:

exv10w1

 

Exhibit 10.1

BAKER HUGHES INCORPORATED

ANNUAL INCENTIVE COMPENSATION PLAN

(Amendment and Restatement

Adopted by the Board of

Directors on January 26, 2006)

 

 

Exhibit 10.1

BAKER HUGHES INCORPORATED

ANNUAL INCENTIVE COMPENSATION PLAN

(Amendment and Restatement

Adopted by the Board of

Directors on January 26, 2006 )

WITNESSETH:

     WHEREAS, effective October 1, 1994, Baker Hughes Incorporated (“Baker Hughes”)
previously adopted the Baker Hughes Incorporated 1995 Employee Annual Incentive Compensation
Plan (the “Plan”) for the benefit of certain employees of Baker Hughes and affiliates of Baker
Hughes;

     WHEREAS, the Plan is a bonus program exempt from coverage under the Employee Retirement Income
Security Act of 1974, as amended pursuant to Department of Labor regulation section 2510.3-2(c);

     WHEREAS, Baker Hughes desires to amend and restate the Plan on behalf of itself and on behalf
of the other adopting entities; and

WHEREAS, Baker Hughes desires to change the name of the Plan;

     NOW THEREFORE, the name of the Plan is changed to the “Baker Hughes Incorporated Annual
Incentive Compensation Plan” and the Plan is hereby amended and restated in its entirety as
follows, effective as of January 1, 2005 except insofar as a later effective date is expressly
specified.

 

 

Table of Contents

	 	 	 	 	 
	 	 	Page	 
	ARTICLE I DEFINITIONS AND CONSTRUCTION
	 	 	 	 
	 
	 	 	 	 
	1.01 Definitions
	 	 	1	 
	1.02 Number and Gender
	 	 	8	 
	1.03 Headings
	 	 	8	 
	 
	 	 	 	 
	ARTICLE II PARTICIPATION
	 	 	 	 
	 
	 	 	 	 
	2.01 Eligibility
	 	 	9	 
	2.02 Participation
	 	 	9	 
	2.03 Partial Plan Year Participation
	 	 	9	 
	2.04 Termination of Approval
	 	 	9	 
	 
	 	 	 	 
	ARTICLE III AWARD OPPORTUNITIES AND PERFORMANCE GOALS
	 	 	 	 
	 
	 	 	 	 
	3.01 Award Opportunities
	 	 	9	 
	3.02 Performance Goals
	 	 	9	 
	3.03 Time of Establishment of Award Opportunities and Performance Goals
	 	 	10	 
	3.04 Adjustment of Performance Goals
	 	 	10	 
	3.05 Individual Award Cap
	 	 	10	 
	 
	 	 	 	 
	ARTICLE IV FINAL AWARD DETERMINATIONS
	 	 	 	 
	 
	 	 	 	 
	4.01 Final Award Determinations
	 	 	10	 
	4.02 Separation From Service Due to Death, Disability, or Retirement
	 	 	11	 
	4.03 Employment Transfers
	 	 	11	 
	4.04 Disposition of Business
	 	 	11	 
	4.05 Separation From Service for Other Reasons
	 	 	12	 
	 
	 	 	 	 
	ARTICLE V BANKING OF AWARDS
	 	 	 	 
	 
	 	 	 	 
	5.01 General Banking Procedures
	 	 	12	 
	5.02 Exceptions
	 	 	12	 
	 
	 	 	 	 
	ARTICLE VI DEEMED INVESTMENT OF FUNDS
	 	 	 	 
	 
	 	 	 	 
	ARTICLE VII PAYMENT OF BENEFITS
	 	 	 	 
	 
	 	 	 	 
	7.01 Time of Payment of Unbanked Final Award
	 	 	12	 
	7.02 Time of Payment of Banked Final Award
	 	 	13	 
	7.03 Form of Payment of Benefits
	 	 	13	 
	7.04 Account Debits
	 	 	13	 
	7.05 Unclaimed Benefits
	 	 	13	 
	7.06 Statutory Benefits
	 	 	13	 
	7.07 Payment to Alternate Payee Under Domestic Relations Order
	 	 	13	 

 -i-

 

 

Table of Contents

(continued)

	 	 	 	 	 
	 	 	Page	 
	ARTICLE VIII FORFEITURE OF BENEFITS
	 	 	 	 
	 
	 	 	 	 
	ARTICLE IX DEATH
	 	 	 	 
	 
	 	 	 	 
	9.01 Payment of Unbanked Amounts
	 	 	14	 
	9.02 Payment of Banked Amounts
	 	 	14	 
	9.03 Designation of Beneficiaries
	 	 	14	 
	 
	 	 	 	 
	ARTICLE X CHANGE IN CONTROL
	 	 	 	 
	 
	 	 	 	 
	10.01 General
	 	 	15	 
	10.02 CIC Committee
	 	 	15	 
	10.03 Change in Control During a Performance Period
	 	 	15	 
	10.04 Termination of Employment Prior to Change in Control or Following Certain
Changes in Control
	 	 	15	 
	10.05 Payment of Expected Value Awards and Tax-Gross Up for Delayed Payment
	 	 	15	 
	10.06 Forfeiture Restrictions
	 	 	16	 
	 
	 	 	 	 
	ARTICLE XI ADMINISTRATION OF THE PLAN
	 	 	 	 
	 
	 	 	 	 
	11.01 Resignation and Removal
	 	 	16	 
	11.02 Records and Procedures
	 	 	16	 
	11.03 Self-Interest of Plan Administrator
	 	 	16	 
	11.04 Compensation and Bonding
	 	 	16	 
	11.05 Plan Administrator Powers and Duties
	 	 	16	 
	11.06 Reliance on Documents, Instruments, etc
	 	 	17	 
	11.07 Claims Review Procedures; Claims Appeals Procedures
	 	 	17	 
	11.08 Employer to Supply Information
	 	 	19	 
	11.09 Indemnity
	 	 	19	 
	 
	 	 	 	 
	ARTICLE XII ADOPTION OF PLAN BY AFFILIATES
	 	 	 	 
	 
	 	 	 	 
	12.01 Adoption Procedure
	 	 	19	 
	12.02 No Joint Venture Implied
	 	 	20	 
	 
	 	 	 	 
	ARTICLE XIII MISCELLANEOUS
	 	 	 	 
	 
	 	 	 	 
	13.01 Plan Not Contract of Employment
	 	 	20	 
	13.02 Funding
	 	 	21	 
	13.03 Alienation of Interest Forbidden
	 	 	21	 
	13.04 Withholding
	 	 	21	 
	13.05 Amendment and Termination
	 	 	21	 
	13.06 Severability
	 	 	21	 
	13.07 Arbitration
	 	 	21	 

 -ii-

 

 

Table of Contents

(continued)

	 	 	 	 	 
	 	 	Page	 
	13.08 Stockholder Approval
	 	 	22	 
	13.09 Compliance With Section 409A
	 	 	22	 
	13.10 Governing Law
	 	 	22	 

 -iii-

 

 

BAKER HUGHES INCORPORATED

ANNUAL INCENTIVE COMPENSATION PLAN

(As Amended and Restated

Effective January 1, 2005)

ARTICLE I

DEFINITIONS AND CONSTRUCTION

     1.01 Definitions. The words and phrases defined in this Article shall have the meaning set
out in the definition unless the context in which the word or phrase appears reasonably requires a
broader, narrower or different meaning.

     “Account(s)” means all ledger accounts pertaining to a Participant or former Participant which
are maintained by the Plan Administrator to reflect the Employer’s obligation to the Participant or
former Participant under the Plan. The Plan Administrator shall establish the following
subaccounts and any additional subaccounts that the Plan Administrator considers necessary to
reflect the entire interest of the Participant or former Participant under the Plan. Each of the
subaccounts listed below and any additional subaccounts established by the Plan Administrator shall
reflect credits and debits made to such subaccounts for earnings, distributions and forfeitures:

     (a) Banked Account – the Participant’s or former Participant’s banked Final Award for a
given Performance Period.

     (b) Unbanked Account –the Participant’s or former Participant’s Final Award for a given
Performance Period that is not banked pursuant to Article V.

     “Affiliate” means any entity which is a member of the same controlled group of corporations
within the meaning of section 414(b) of the Code or which is a trade or business (whether or not
incorporated) which is under common control (within the meaning of section 414(c) of the Code),
which is a member of an affiliated service group (within the meaning of section 414(m) of the Code)
with Baker Hughes.

     “Applicable Interest Rate” means the 10-year U.S. Treasury rate plus 25 basis points (0.25%).

     “Award Opportunity” has the meaning specified in Section 3.01 of the Plan.

     “Baker Hughes” means Baker Hughes Incorporated, a Delaware corporation.

     “Baker Value Added” and “BVA” mean, with respect to a Performance Period, the amount
calculated under the following formula:

[[(a) + (b) + (c)] x (1 – (d))] – (e)

where (a) is the Operating Profit Before Tax of the Company for the Performance Period, (b) is the
net interest expense of the Company for the Performance Period, (c) is the goodwill and non-

1

 

compete amortization of the Company for the Performance Period, (d) is the Tax Rate for the
Performance Period and (e) is the Capital Charge determined for the Company for the Performance
Period. For this purpose, “Adjusted Net Capital Employed” means the Average Monthly Net Capital
Employed for the Performance Period plus accumulated goodwill amortization plus the value of
significant operating leases; “Average Monthly Net Capital Employed” means the sum of the capital
employed by the Company during each month of the Performance Period to operate the business of the
Company divided by 12; “Capital Charge” means Adjusted Net Capital Employed multiplied by the Cost
of Capital; “Company” means Baker Hughes and all of its Affiliates in which Baker Hughes directly
or indirectly has a capital investment, or one or more business units of Baker Hughes and its
Affiliates, as specified in the written Award Opportunities; “Cost of Capital” means the weighted
average after-tax cost of debt and cost of equity for the Company for the Performance Period; “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; “Operating Expenses” means costs
incurred in non-manufacturing areas to provide products and services to customers (e.g., finance
and administrative support) during the Performance Period; “Operating Profit Before Tax” means the
revenue of the Company for the Performance Period minus the Cost of Sales of the Company for the
Performance Period minus the Operating Expenses of the Company for the Performance Period; and “Tax
Rate” means the effective tax rate for the Company determined in a manner consistent with Baker
Hughes tax policies and practices in effect on the date hereof.

     “Beneficial Owner” or “Beneficial Ownership” shall have the meaning ascribed to the term in
Rule 13d-3 of the General Rules and Regulations under the Exchange Act.

     “Beneficiary” means the person or persons, or the trust or trusts created for the benefit of a
natural person or persons or the Participant’s estate, designated by the Participant to receive the
benefits payable under the Plan upon his death in accordance with the beneficiary designation
procedures specified in Section 9.03.

     “Board” means the Board of Directors of Baker Hughes.

     “Cause” means (i) the willful and continued failure by the Participant to substantially
perform the Participant’s duties with the Employer (other than any such failure resulting from the
Participant’s incapacity due to physical or mental illness) after a written demand for substantial
performance is delivered to the Participant by the Committee, which demand specifically identifies
the manner in which the Committee believes that the Participant has not substantially performed the
Participant’s duties, or (ii) the willful engaging by the Participant in conduct which is
demonstrably and materially injurious to Baker Hughes or any of the Affiliates, monetarily or
otherwise. For purposes of clauses (i) and (ii) of this definition, (A) no act, or failure to act,
on the Participant’s part shall be deemed “willful” if done, or omitted to be done, by the
Participant in good faith and with reasonable belief that the act, or failure to act, was in the
best interest of the Employer and (B) in the event of a dispute concerning the application of this
provision, no claim by the Employer that Cause exists shall be given effect unless the Employer
establishes to the Committee by clear and convincing evidence that Cause exists. The Committee’s
determination regarding the existence of Cause shall be conclusive and binding upon all parties.

2

 

     “Change in Control” means the occurrence of any of the following events:

          (a) the individuals who are Incumbent Directors cease for any reason to constitute a
majority of the members of the Board;

          (b) the consummation of a Merger of Baker Hughes or an Affiliate with another Entity,
unless the individuals and Entities who were the Beneficial Owners of the Voting Securities
of Baker Hughes outstanding immediately prior to such Merger own, directly or indirectly, at
least 50 percent of the combined voting power of the Voting Securities of any of Baker
Hughes, the surviving Entity or the parent of the surviving Entity outstanding immediately
after such Merger;

          (c) any Person, other than a Specified Owner, becomes a Beneficial Owner, directly or
indirectly, of securities of Baker Hughes representing 30 percent or more of the combined
voting power of Baker Hughes’ then outstanding Voting Securities;

          (d) a sale, transfer, lease or other disposition of all or substantially all of Baker
Hughes’ Assets is consummated (an “Asset Sale”), unless:

(1) the individuals and Entities who were the Beneficial Owners of the Voting
Securities of Baker Hughes immediately prior to such Asset Sale own, directly or
indirectly, 50 percent or more of the combined voting power of the Voting
Securities of the Entity that acquires such Assets in such Asset Sale or its parent
immediately after such Asset Sale in substantially the same proportions as their
ownership of Baker Hughes’ Voting Securities immediately prior to such Asset Sale;
or

(2) the individuals who comprise the Board immediately prior to such Asset Sale
constitute a majority of the board of directors or other governing body of either
the Entity that acquired such Assets in such Asset Sale or its parent (or a
majority plus one member where such board or other governing body is comprised of
an odd number of directors); or

          (e) The stockholders of Baker Hughes approve a plan of complete liquidation or
dissolution of Baker Hughes.

     “CIC Committee” means (i) the individuals (not fewer than three in number) who, on the date
six months before a Change in Control or a Potential Change in Control, constitute the Committee,
plus (ii) in the event that fewer than three individuals are available from the group specified in
clause (i) above for any reason, such individuals as may be appointed by the individual or
individuals so available (including for this purpose any individual or individuals previously so
appointed under this clause (ii)); provided, however, that the maximum number of individuals
constituting the CIC Committee shall not exceed six (6).

     “Code” means the Internal Revenue Code of 1986, as amended from time to time.

     “Committee” means the Compensation Committee of the Board.

3

 

     “Covered Employee” has the meaning ascribed to that term in Section 162(m).

     “Disability” means the inability of a Participant 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. The Committee’s determination regarding the existence of Disability shall be conclusive
and binding upon all parties.

     “Domestic Relations Order” has the meaning ascribed to that term in section 414(p) of the
Code.

     “Employer” means Baker Hughes and any Affiliate that adopts the Plan pursuant to the
provisions of Article XII.

     “Entity” means any corporation, partnership, association, joint-stock company, limited
liability company, trust, unincorporated organization or other business entity.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any
successor act.

     “Final Award” means the actual award earned for a Plan Year by a Participant as determined by
the Committee.

     “Good Reason” for termination by the Participant of his employment means the occurrence
(without the Participant’s express written consent) after any Change in Control, or prior to a
Change in Control under the circumstances described in clauses (ii) and (iii) of Section 10.04
(treating all references to “Change in Control” in paragraphs (a) through (f) below as references
to a “Potential Change in Control”), of any one of the following acts by the Employer, or failures
by the Employer to act, unless, in the case of any act or failure to act described in paragraph
(a), (e), (f) or (g) below, such act or failure to act is corrected prior to the effective date of
the Participant’s termination for Good Reason:

     (a) the assignment to the Participant of any duties or responsibilities which are
substantially diminished as compared to the Participant’s duties and responsibilities
immediately prior to the Change in Control;

     (b) a reduction by the Employer in the Participant’s annual base salary as in effect on
the date hereof or as the same may be increased from time to time, except for
across-the-board salary reductions similarly affecting all individuals having a similar
level of authority and responsibility with the Employer and all individuals having a similar
level of authority and responsibility with any Person in control of the Employer;

     (c) the relocation of the Participant’s principal place of employment to a location
outside of a 50-mile radius from the Participant’s principal place of employment immediately
prior to the Change in Control or the Employer’s requiring the Participant to be based
anywhere other than such principal place of employment (or permitted relocation thereof)
except for required travel on the Employer’s business to an extent

4

 

substantially consistent with the Participant’s business travel obligations immediately
prior to the Change in Control;

     (d) the failure by the Employer to pay to the Participant any portion of the
Participant’s current compensation except pursuant to an across-the-board compensation
deferral similarly affecting all individuals having a similar level of authority and
responsibility with the Employer and all individuals having a similar level of authority and
responsibility with any Person in control of the Employer, or to pay to the Participant any
portion of an installment of deferred compensation under any deferred compensation program
of the Employer, within seven (7) days of the date such compensation is due;

     (e) the failure by the Employer to continue in effect any compensation plan in which
the Participant participates immediately prior to the Change in Control which is material to
the Participant’s total compensation, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to such plan, or the
failure by the Employer to continue the Participant’s participation therein (or in such
substitute or alternative plan) on a basis not materially less favorable, both in terms of
the amount or timing of payment of benefits provided and the level of the Participant’s
participation relative to other Baker Hughes Participants, as existed immediately prior to
the Change in Control;

     (f) the failure by the Employer to continue to provide the Participant with benefits
substantially similar to those enjoyed by the Participant under any of the Employer’s
pension, savings, life insurance, medical, health and accident, or disability plans in which
the Participant was participating immediately prior to the Change in Control (except for
across the board changes similarly affecting all individuals having a similar level of
authority and responsibility with the Employer and all individuals having a similar level of
authority and responsibility with any Person in control of the Employer), the taking of any
other action by the Employer which would directly or indirectly materially reduce any of
such benefits or deprive the Participant of any material fringe benefit or perquisite
enjoyed by the Participant at the time of the Change in Control, or the failure by the
Employer to provide the Participant with the number of paid vacation days to which the
Participant is entitled on the basis of years of service with the Employer in accordance
with the Employer’s normal vacation policy in effect immediately prior to the time of the
Change in Control; or

     (g) if the Participant is party to an individual employment, severance or other similar
agreement with the Employer, any purported termination of the Participant’s employment which
is not effected pursuant to the notice of termination or other procedures specified therein.

     The Participant shall have the right to terminate his employment for Good Reason even
if he becomes incapacitated due to physical or mental illness. The Participant’s continued
employment shall not constitute consent to, or a waiver of any rights with respect to, any
act or failure to act constituting Good Reason hereunder.

5

 

     For purposes of any determination regarding the existence of Good Reason, any claim by
the Participant that Good Reason exists shall be presumed to be correct unless the Employer
establishes to the Committee by clear and convincing evidence that Good Reason does not
exist. The Committee’s determination regarding the existence of Good Reason shall be
conclusive and binding upon all parties.

     “Incumbent Director” means –

          (a) a member of the Board on January 25, 2006 or

          (b) an individual-

     (1) who becomes a member of the Board after January 25, 2006;

     (2) whose appointment or election by the Board or nomination for election by Baker
Hughes’ stockholders is approved or recommended by a vote of at least two-thirds of the then
serving Incumbent Directors (as defined herein); and

     (3) whose initial assumption of service on the Board is not in connection with an
actual or threatened election contest.

     “Initial Payment Date” has the meaning ascribed to that term in Section 7.01.

     “Involuntary Separation From Service” means a Participant’s Separation From Service as a
result of the elimination of his job or a reduction in force.

     “Key Employee” means a key employee of Baker Hughes or an Affiliate who, in the opinion of the
Chief Executive Officer of Baker Hughes, is in a position to significantly contribute to the growth
and profitability of Baker Hughes and the Affiliates.

     “Merger” means a merger, consolidation or similar transaction.

     “OA Level” means the over achievement level of performance applicable to the Award.

     “Participant” means an individual who is or was a Key Employee who has been granted an Award
Opportunity or who has unpaid Accounts.

     “Performance Goals” means one or more of the criteria described in Section 3.02 on which the
performance goals applicable to an Award Opportunity are based.

     “Performance Period” means the 12-month period to which the Performance Goals apply. A
Performance Period shall coincide with a Plan Year.

     “Person” shall have the meaning ascribed to the term in section 3(a)(9) of the Exchange Act
and used in sections 13(d) and 14(d) thereof, including a “group” as defined in section 13(d)
thereof, except that the term shall not include (a) Baker Hughes or any of the Affiliates, (b) a
trustee or other fiduciary holding Baker Hughes securities under an employee benefit plan of Baker
Hughes or any of the Affiliates, (c) an underwriter temporarily holding securities pursuant

6

 

to an offering of those securities or (d) a corporation owned, directly or indirectly, by the
stockholders of Baker Hughes in substantially the same proportions as their ownership of stock of
Baker Hughes.

     “Plan” means the Baker Hughes Incorporated Annual Incentive Compensation Plan, as amended from
time to time.

     “Plan Administrator” means Baker Hughes, acting through its delegates. Such delegates shall
include the Administrative Committee, the Investment Committee and any individual Plan
Administrator appointed by the Board with respect to the employee benefit plans of Baker Hughes and
its Affiliates, each of which shall have the duties and responsibilities assigned to it from time
to time by the Board. As used in the Plan, the term “Plan Administrator” shall refer to the
applicable delegate of Baker Hughes as determined pursuant to the actions of the Board.

     “Plan Year” means the twelve-consecutive month period commencing January 1 of each year.

     “Potential Change in Control” means the occurrence of any of the following events:

     (a) the Employer enters into an agreement, the consummation of which would result in
the occurrence of a Change in Control;

     (b) the Employer or any Person publicly announces an intention to take or to consider
taking actions which, if consummated, would constitute a Change in Control;

     (c) any Person becomes the Beneficial Owner, directly or indirectly, of securities of
Baker Hughes representing 15 percent or more of either the then outstanding shares of common
stock of Baker Hughes’ or the combined voting power of Baker Hughes’ then outstanding
securities (not including in the securities beneficially owned by such Person any securities
acquired directly from Baker Hughes or the Affiliates); or

     (d) the Board adopts a resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.

     “Profit After Tax” means revenues minus cost of sales (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) minus operating expenses (costs incurred in non-manufacturing areas to provide products
and services to customers (e.g., finance and administrative support)) minus income taxes.

     “Retirement” means a Participant’s voluntary Separation From Service when he has attained at
least 55 years of age and has at least ten (10) years of service with Baker Hughes and the
Affiliates. For this purpose, “year of service” means a year of service for vesting purposes under
the Baker Hughes Incorporated Thrift Plan, whether or not the Participant is a participant in such
plan.

     “Section 162(m)” means section 162(m) of the Code and the Department of Treasury

7

 

rules and regulations issued thereunder.

     “Section 409A” means section 409A of the Code and the Department of Treasury rules and
regulations issued thereunder.

     “Separation From Service” has the meaning ascribed to that term in Section 409A.

     “Specified Employee” means as of any date, a person who is a “specified employee” within the
meaning of Section 409A.

     “Specified Owner” means any of the following:

     (a) Baker Hughes;

     (b) an Affiliate of Baker Hughes;

     (c) an employee benefit plan (or related trust) sponsored or maintained by Baker Hughes
or any Affiliate of Baker Hughes;

     (d) a Person that becomes a Beneficial Owner of Baker Hughes’ outstanding Voting
Securities representing 30 percent or more of the combined voting power of Baker Hughes’
then outstanding Voting Securities as a result of the acquisition of securities directly
from Baker Hughes and/or its Affiliates; or

     (e) a Person that becomes a Beneficial Owner of Baker Hughes’ outstanding Voting
Securities representing 30 percent or more of the combined voting power of Baker Hughes’
then outstanding Voting Securities as a result of a Merger if the individuals and Entities
who were the Beneficial Owners of the Voting Securities of Baker Hughes outstanding
immediately prior to such Merger own, directly or indirectly, at least 50 percent of the
combined voting power of the Voting Securities of any of Baker Hughes, the surviving Entity
or the parent of the surviving Entity outstanding immediately after such Merger in
substantially the same proportions as their ownership of the Voting Securities of Baker
Hughes outstanding immediately prior to such Merger.

     “Voting Securities” means the outstanding securities entitled to vote generally in the
election of directors or other governing body.

     1.02 Number and Gender. Wherever appropriate herein, words used in the singular shall be
considered to include the plural and words used in the plural shall be considered to include the
singular. The masculine gender, where appearing in the Plan, shall be deemed to include the
feminine gender.

     1.03 Headings. The headings of Articles and Sections herein are included solely for
convenience, and if there is any conflict between such headings and the text of the Plan, the text
shall control.

8

 

ARTICLE II

PARTICIPATION

     2.01 Eligibility. Eligibility for participation in the Plan shall be limited to those Key
Employees who, by the nature and scope of their position, contribute to the overall results or
success of the Employers.

     2.02 Participation. Participation in the Plan shall be determined annually based upon the
recommendation of the Chief Executive Officer of Baker Hughes and the approval of the Committee.
Employees approved for participation shall be notified in writing of their selection, and of their
Performance Goals and related Award Opportunities, as soon after approval as is practicable.

     2.03 Partial Plan Year Participation. The Committee may, upon recommendation of the Chief
Executive Officer of Baker Hughes, allow an individual who becomes eligible after the beginning of
a Plan Year to participate in the Plan for that year. In such case, the Participant’s Final Award
normally shall be prorated based on the number of full months of participation. However, the
Committee may, based upon the recommendation of the Chief Executive Officer of Baker Hughes,
authorize an unreduced Final Award.

     2.04 Termination of Approval. The Committee may withdraw its approval for participation in
the Plan for a Participant at any time. In the event of such withdrawal, the individual concerned
shall cease to be a Participant as of the date designated by the Committee and he shall be notified
of such withdrawal as soon as practicable following such action. Further, such individual shall
cease to have any right to a Final Award for the Plan Year in which such withdrawal is effective;
provided, however, that the Committee may, in its sole discretion, authorize a prorated award based
on the number of full months of participation prior to the effective date of such withdrawal.
Notwithstanding the foregoing, the Committee may not withdraw its approval for participation in the
Plan during the pendency of a Potential Change in Control and for a period of six (6) months after
the cessation thereof.

ARTICLE III

AWARD OPPORTUNITIES AND

PERFORMANCE GOALS

     3.01 Award Opportunities. The Committee shall establish, in writing, over achievement,
expected value, and entry value incentive award levels (the “Award Opportunities”) for each
Participant who is eligible to participate in the Plan for the Performance Period. The established
Award Opportunities may vary in relation to the responsibility level of the Participant. Except in
the case of a Covered Employee, if a Participant changes job levels or salary grades during the
Plan Year, the Award Opportunities may be adjusted by the Committee, in its sole discretion, to
reflect the amount of time at each job level and/or in each salary grade.

     3.02 Performance Goals. The Committee shall establish, in writing, Performance Goals for each
Participant for a Plan Year. A Performance Goal may be based on one or more business criteria that
apply to the Participant, one or more business units of Baker Hughes and the Affiliates, or Baker
Hughes and the Affiliates as a whole, with reference to one or more of

9

 

the following: earnings per share, total shareholder return, cash return on capitalization,
increased revenue, revenue ratios, net income, stock price, market share, return on equity, return
on assets, return on capital, return on capital compared to cost of capital, return on capital
employed, return on invested capital, shareholder value, net cash flow, operating income, earnings
before interest and taxes, cash flow, cash flow from operations, cost reductions, cost ratios,
Profit After Tax and Baker Value Added. Performance Goals may also be based on performance
relative to a peer group of companies. Unless otherwise stated, a Performance Goal need not be
based upon an increase or positive result under a particular business criterion and could include,
for example, maintaining the status quo or limiting economic losses (measured, in each case, by
reference to specific business criteria). All items of gain, loss or expense for the Performance
Period determined to be extraordinary, unusual in nature, infrequent in occurrence, related to the
acquisition or disposal of a segment of a business, or related to a change in accounting principle,
all as determined in accordance with standards established by Opinion No. 30 of the Accounting
Principles Board (APB Opinion No. 30), other applicable accounting rules, or consistent with Baker
Hughes accounting policies and practices on the date the Committee establishes the Performance
Goals may be included or excluded in calculating whether a Performance Goal has been achieved. In
the case of a Participant other than a Participant who is or during the Performance Period may
become a Covered Employee, nonfinancial objectives may also be included in a Participant’s
Performance Goals but may not represent more than 20 percent of the Participant’s expected value
Award Opportunity. No Participant who is a Covered Employee, or who the Committee expects may
become a Covered Employee during the next three Plan Years, may have any portion of his Final Award
based on nonfinancial, subjective Performance Goals.

     3.03 Time of Establishment of Award Opportunities and Performance Goals. Performance Goals
and Award Opportunities for a Participant for a Plan Year must be established by the Committee
prior to the earlier to occur of (a) 90 days after the commencement of the period of service to
which the Performance Goal relates or (b) the lapse of 25 percent of the period of service, and in
any event while the outcome is substantially uncertain.

     3.04 Adjustment of Performance Goals. The Committee shall have the right to adjust the
Performance Goals (either up or down) during the Plan Year if it determines that external changes
or other unanticipated business conditions have materially affected the fairness of the goals and
unduly influenced the ability to meet them. Notwithstanding the foregoing, no such adjustment shall
be made with respect to an individual who is a Covered Employee to the extent the same is
considered an upward discretionary increase in the amount of the Final Award for such individual
(within the meaning of Section 162(m)).

     3.05 Individual Award Cap. Effective for Final Awards earned for Performance Periods
commencing on and after January 1, 2006, the maximum annual Final Award any individual may receive
under the Plan is $4,000,000.

ARTICLE IV

FINAL AWARD DETERMINATIONS

     4.01 Final Award Determinations. As soon as practicable after the end of each Plan Year,
Final Awards shall be computed for each Participant as determined by the Committee. The

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Committee shall certify in writing the extent to which the Performance Goals established
pursuant to Section 3.02 and any other material terms of an award were in fact satisfied.

     In determining the Final Award, the Committee, in its sole discretion, may increase or
decrease calculated amounts to reflect factors regarding performance during the Plan Year which
were not, in the sole opinion of the Committee, appropriately reflected in the Final Award
calculation. Notwithstanding the foregoing, the Final Award to an individual who is a Covered
Employee will not be subject to upward discretionary adjustment by the Committee. Downward
discretionary adjustment for Covered Employees will be permitted.

     4.02 Separation From Service Due to Death, Disability, or Retirement. If a Participant incurs
a Separation From Service by reason of death, Disability, or Retirement, the Final Award,
determined in accordance with Section 4.01, shall be reduced so that it reflects only participation
prior to the Separation From Service. This reduction shall be determined by multiplying the Final
Award by a fraction, the numerator of which is the months of participation through the date of the
Separation From Service rounded up to whole months, and the denominator of which is twelve (12).

     4.03 Employment Transfers. If a Participant transfers from one division to another division
within Baker Hughes and the Affiliates, the Final Award for the Participant’s time at the
Participant’s former division will be prorated for the number of whole months rounded to the
nearest whole month of the Plan Year the Participant was at that division. The Final Award will be
determined as soon as practicable after the end of the Plan Year and will be based on the financial
results at the close of the Plan Year. The Final Award will be paid at the same time the other
Final Awards for that division are paid. If a Participant is eligible for a Final Award in his new
position, the Final Award will be based on the months left in the Plan Year, on his new base salary
level and Award Opportunities, as determined by the Committee based upon the recommendation of the
Chief Executive Officer of Baker Hughes.

     4.04 Disposition of Business. If the Participant’s Employer or division is disposed of during
the Plan Year and such disposition does not qualify as a Change in Control, payment of the
Participant’s Final Award shall be determined in accordance with the following alternatives:

     (a) If the acquirer offers employment to the Participant and assumes the obligations
under the Plan, either directly or indirectly, and the Participant accepts such offer of
employment, the Participant’s Final Award will not be forfeited but the Employer shall not
be obligated to pay the Final Award and such obligation shall be that of the acquiring party
in accordance with the Final Award parameters.

     (b) If the acquirer does not assume the obligations under the Plan, whether or not the
Participant is offered and accepts employment, then the Participant’s Final Award will not
be forfeited and the Participant will receive a prorated Final Award for the portion of the
Plan Year that the Participant was employed by the Employer prior to the date of the
consummation of the sale of the Employer or division, to be paid at the same time other
Final Awards are paid under the Plan. The computation shall be made on the basis of the
number of whole months rounded to the nearest whole month of the Plan Year that the
Participant was in active service with the Employer.

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     (c) If the acquirer offers employment to the Participant and assumes the obligations
under the Plan, either directly or indirectly, and the Participant rejects such employment,
the Participant shall forfeit his Final Award for the Performance Period then in progress
pursuant to Section 4.05.

     4.05 Separation From Service for Other Reasons. Except as specified in Article X or Section
4.04, if a Participant incurs a Separation From Service for any reason other than Retirement,
Disability or death, all of the Participant’s rights to any unpaid Final Award shall be forfeited.

ARTICLE V

BANKING OF AWARDS

     5.01 General Banking Procedures. Except as specified in Section 5.02, if Performance Goals
applicable to a Final Award that are designated by the Committee as company Performance Goals are
achieved at a level in excess of the OA Level, the amount of the Final Award that is attributable
to exceeding the OA Level will be banked and paid at the times specified in Section 7.02. To the
extent that a Final Award for a Performance Period is banked, it shall be credited to the
Participant’s Banked Account for the Performance Period effective as of the Initial Payment Date.

     5.02 Exceptions. No portion of a Final Award will be banked pursuant to Section 5.01 if (a)
the amount that would be banked is $2,000 or less, (b) the Participant incurs a Separation From
Service and the Participant is described in clause (b) of Section 4.04, (c) a Change in Control
occurs during the Performance Period, (c) applicable local laws prohibit banking of the Final Award
or (d) written procedures adopted by the Committee prior to the Performance Period specify that the
Final Award will not be banked.

ARTICLE VI

DEEMED INVESTMENT OF FUNDS

     Amounts deemed credited to a Participant’s Banked Account for a Performance Period shall be
deemed to be credited with interest at the annual rate equal to the Applicable Interest Rate
commencing as of the Initial Payment Date. For the period commencing on the Initial Payment Date
and ending on the day before the first anniversary of the Initial Payment Date the Applicable
Interest Rate will be based on the rate in effect as of the Initial Payment Date. For the period
commencing on the first anniversary of the Initial Payment Date and ending on the second
anniversary of the Initial Payment Date the Applicable Interest rate will be based on the rate in
effect as of the first anniversary of the Initial Payment Date.

ARTICLE VII

PAYMENT OF BENEFITS

     7.01 Time of Payment of Unbanked Final Award. Except to the extent that a Final Award is
banked pursuant to Article V, or except as specified in Article X, a Participant’s Final Award, to
the extent not forfeited pursuant to Article VIII, shall be paid to him on March 15 following the
Performance Period (the “Initial Payment Date”).

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     7.02 Time of Payment of Banked Final Award. To the extent that a Participant’s Final Award is
banked pursuant to this Article V, fifty percent (50%) of the amount then credited to the
Participant’s Banked Account for the Performance Period, to the extent not forfeited pursuant to
Article VIII, shall be distributed to the Participant on the first anniversary of the Initial
Payment Date of the Final Award. The remaining portion of the amount credited to the Participant’s
Banked Account for the Performance Period, to the extent not forfeited pursuant to Article VIII,
shall be distributed to the Participant on the second anniversary of the Initial Payment Date.
Notwithstanding the foregoing, (a) if a Participant incurs an Involuntary Separation From Service
or if he incurs a Separation From Service due to Retirement, any amounts credited to his Banked
Account(s) shall be paid to him on the earlier of (1) the date of the Participant’s Separation From
Service if the Participant is not a Specified Employee or the date that is six months following his
Separation From Service if the Participant is a Specified Employee, or (2) the date the amount
would otherwise be paid under this Section 7.02; (b) if the Participant incurs a Disability, any
amounts credited to his Banked Accounts will be paid to him on the date the date of the
Participant’s Disability; or (c) if the Participant dies, any amounts credited to his Banked
Accounts will be paid as specified in Section 9.02. Further, notwithstanding the foregoing, (a)
upon the occurrence of a Change in Control all amounts that are credited to the Participant’s
Banked Accounts that are not deferred compensation within the meaning of Section 409A shall be paid
to the Participant; (b) upon the occurrence of a Change in control that constitutes a “Change in
Control” within the meaning of Section 409A all amounts that are credited to the Participant’
Banked Accounts shall be paid to the Participant.

     7.03 Form of Payment of Benefits. All benefit payments shall be made in cash.

     7.04 Account Debits. Any benefit payments made to a Participant, or former Participant, or
for his benefit pursuant to any provision of the Plan shall be debited to such Participant’s or
former Participant’s Accounts.

     7.05 Unclaimed Benefits. In the case of a benefit payable on behalf of a Participant or
former Participant, if the Plan Administrator is unable, after reasonable efforts, to locate the
Participant, the former Participant or the beneficiary to whom such benefit is payable, upon the
Plan Administrator’s determination thereof, such benefit shall be forfeited to the Employer.
Notwithstanding the foregoing, if subsequent to any such forfeiture the Participant, the former
Participant or beneficiary to whom such benefit is payable makes a valid claim for such benefit,
such forfeited benefit (without any adjustment for earnings or loss) shall be restored to the Plan
by the Employer and paid in accordance with the Plan.

     7.06 Statutory Benefits. If any benefit obligations are required to be paid under the Plan to
a Participant or former Participant in conjunction with severance of employment under the laws of
the country where the Participant or former Participant is employed or under federal, state or
local law, the benefits paid to a Participant or former Participant pursuant to the provisions of
the Plan will be deemed to be in satisfaction of any statutorily required benefit obligations.

     7.07 Payment to Alternate Payee Under Domestic Relations Order. Plan benefits that are
awarded to an Alternate Payee in a Domestic Relations Order shall be paid to the Alternate Payee at
the time and in the form directed in the Domestic Relations Order. The

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Domestic Relations Order may provide for an immediate lump sum payment to an Alternate Payee.
A Domestic Relations Order may not otherwise provide for a time or form of payment that is not
permitted under the Plan. A Domestic Relations Order will be disregarded to the extent it awards
an Alternate Payee benefits in excess of the applicable Participant’s or former Participant’s
Account balance under the Plan.

ARTICLE VIII

FORFEITURE OF BENEFITS

     Except as specified in Section 4.04 or Article X, if a Participant incurs a Separation From
Service for any reason other than Retirement, death, Disability or Involuntary Separation from
Service before the time a payment to him is to be made under Article VII, he shall forfeit the
payment and all amounts then deemed credited to his Accounts.

ARTICLE IX

DEATH

     9.01 Payment of Unbanked Amounts. In the event of a death of a Participant prior to the
Initial Payment Date of a Final Award, the Participant’s Final Award will be paid to the
Participant’s Beneficiary on the Initial Payment Date.

     9.02 Payment of Banked Amounts. Upon the death of a Participant any amounts deemed credited
to the Participant’s Banked Accounts will be paid to his Beneficiary as soon as administratively
practicable.

     9.03 Designation of Beneficiaries.

     (a) Each Participant or former Participant shall have the right to designate the
beneficiary or beneficiaries to receive payment of his benefit in the event of his death.
Each such designation shall be made by executing the beneficiary designation form prescribed
by the Plan Administrator and filing same with the Plan Administrator. Any such designation
may be changed at any time by execution of a new designation in accordance with this Section
9.03.

     (b) If no such designation is on file with the Plan Administrator at the time of the
death of the Participant or former Participant or such designation is not effective for any
reason as determined by the Plan Administrator, then the designated beneficiary or
beneficiaries to receive such benefit shall be as follows:

     (i) If a Participant or former Participant leaves a surviving spouse, his
benefit shall be paid to such surviving spouse;

     (ii) If a Participant or former Participant leaves no surviving spouse, his
benefit shall be paid to such Participant’s or former Participant’s executor or
administrator, or to his heirs at law if there is no administration of such
Participant’s or former Participant’s estate.

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ARTICLE X

CHANGE IN CONTROL

     10.01 General. The provisions of this Article X shall apply and supersede any contrary
provisions of the Plan in the event of a Change in Control.

     10.02 CIC Committee. If a Change in Control or Potential Change in Control occurs, all
references in the Plan to “Committee” shall at that point be deemed to be references to the CIC
Committee.

     10.03 Change in Control During a Performance Period. Notwithstanding any provision of the
Plan to the contrary, upon the occurrence of a Change in Control during a Performance Period, (i)
Final Awards for the Performance Period shall be computed for each Participant pursuant to Section
4.01 (assuming for this purpose that the Performance Goals established pursuant to Section 3.02
herein have been achieved to the extent required to earn the expected value Award Opportunity), and
(ii) the Employer shall pay to each Participant an amount equal to the Final Award so determined
multiplied by a fraction, the numerator of which is the number of the Participant’s months of
participation during the Performance Period through the date of Change of Control (rounded up to
the nearest whole month), and the denominator of which is twelve (12).

     10.04 Termination of Employment Prior to Change in Control or Following Certain Changes in
Control. Notwithstanding any provision of the Plan to the contrary, a Participant shall be
entitled to receive the payment described in Section 10.03 for a Performance Period if (i) such
Participant’s employment is terminated by Baker Hughes or an Affiliate during the Performance
Period without Cause prior to a Change in Control (whether or not a Change in Control ever occurs)
and such termination was at the request or direction of a Person who has entered into an agreement
with Baker Hughes or an Affiliate the consummation of which would constitute a Change in Control,
(ii) such Participant resigns during the Performance Period for Good Reason prior to a Change in
Control (whether or not a Change in Control ever occurs) and the circumstance or event which
constitutes Good Reason occurs at the request or direction of the Person described in clause (i),
or (iii) such Participant’s employment is terminated by Baker Hughes or an Affiliate during the
Performance Period without Cause or by the Participant for Good Reason and such termination or the
circumstance or event which constitutes Good Reason is otherwise in connection with or in
anticipation of a Change in Control (whether or not a Change in Control ever occurs).

     10.05 Payment of Expected Value Awards and Tax-Gross Up for Delayed Payment. If a Participant
is entitled to a Final Award payment pursuant to Section 10.03, the Employer shall pay the
Participant such Final Award within five days following the date of the Change in Control. If a
Participant is entitled to a Final Award payment pursuant to Section 10.04, the Employer shall pay
the Participant such Final Award within five days following the date of the Participant’s
termination of employment. If for any reason the Employer fails to timely pay a Participant the
amounts due him pursuant to this Article X, the Employer shall pay the Participant additional
compensation in such amount as is necessary to put the Participant in the same federal income tax
position he would have been in had the payment not been subject to

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Section 409A. Such additional compensation shall be paid to the Participant at the same time
as the delinquent Final Award payment is paid to the Participant.

     10.06 Forfeiture Restrictions. Notwithstanding any other provision of the Plan, upon the
occurrence of a Change in Control during a Performance Period or upon a Participant’s termination
of employment during a Performance Period in a circumstance described in Section 10.04, the amount
of the Participant’s Final Award for the Performance Period, calculated in accordance with Section
10.03, shall not be forfeited, and any amounts then credited to the Participant’s Accounts shall
not be forfeited.

ARTICLE XI

ADMINISTRATION OF THE PLAN

     11.01 Resignation and Removal. The members of a Committee serving as Plan Administrator shall
serve at the pleasure of the Board; they may be officers, directors, or employees or any other
individuals. At any time during his term of office, any member of a Committee or any individual
serving as Plan Administrator may resign by giving written notice to the Board, such resignation to
become effective upon the appointment of a substitute or, if earlier, the lapse of thirty days
after such notice is given as herein provided. At any time during its term of office, and for any
reason, any member of a Committee or any individual serving as Plan Administrator may be removed by
the Board.

     11.02 Records and Procedures. The Plan Administrator shall keep appropriate records of its
proceedings and the administration of the Plan and shall make available for examination during
business hours to any Participant, former Participant or the beneficiary of any Participant or
former Participant such records as pertain to that individual’s interest in the Plan. If a
Committee is performing duties as the Plan Administrator, the Committee shall designate the
individual or individuals who shall be authorized to sign for the Plan Administrator and, upon such
designation, the signature of such individual or individuals shall bind the Plan Administrator.

     11.03 Self-Interest of Plan Administrator. Neither the members of a Committee nor any
individual Plan Administrator shall have any right to vote or decide upon any matter relating
solely to himself under the Plan or to vote in any case in which his individual right to claim any
benefit under the Plan is particularly involved. In any case in which any Committee member or
individual Plan Administrator is so disqualified to act, the other members of the Committee shall
decide the matter in which the Committee member or individual Plan Administrator is disqualified.

     11.04 Compensation and Bonding. Neither the members of a Committee nor any individual Plan
Administrator shall receive compensation with respect to their services on the Committee or as Plan
Administrator. To the extent permitted by applicable law, neither the members of a Committee nor
any individual Plan Administrator shall furnish bond or security for the performance of their
duties hereunder.

     11.05 Plan Administrator Powers and Duties. The Plan Administrator shall supervise the
administration and enforcement of the Plan according to the terms and provisions hereof and

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shall have all powers necessary to accomplish these purposes, including, but not by way of
limitation, the right, power, and authority:

     (a) to make rules, regulations, and bylaws for the administration of the Plan that are
not inconsistent with the terms and provisions hereof, and to enforce the terms of the Plan
and the rules and regulations promulgated thereunder by the Plan Administrator;

     (b) to construe in its discretion all terms, provisions, conditions, and limitations of
the Plan;

     (c) to correct any defect or to supply any omission or to reconcile any inconsistency
that may appear in the Plan in such manner and to such extent as it shall deem in its
discretion expedient to effectuate the purposes of the Plan;

     (d) to employ and compensate such accountants, attorneys, investment advisors, and
other agents, employees, and independent contractors as the Plan Administrator may deem
necessary or advisable for the proper and efficient administration of the Plan;

     (e) to determine in its discretion all questions relating to eligibility;

     (f) to determine whether and when a Participant has incurred a Separation From Service,
and the reason for such termination; and

     (g) to make a determination in its discretion as to the right of any individual to a
benefit under the Plan and to prescribe procedures to be followed by distributees in
obtaining benefits hereunder.

     11.06 Reliance on Documents, Instruments, etc. The Plan Administrator may rely on any
certificate statement or other representation made on behalf of the Employer or any Participant,
which the Plan Administrator in good faith believes to be genuine, and on any certificate,
statement, report or other representation made to it by any agent or any attorney, accountant or
other expert retained by it or Baker Hughes in connection with the operation and administration of
the Plan.

     11.07 Claims Review Procedures; Claims Appeals Procedures.

     (a) Claims Review Procedures. When a benefit is due, the Participant, or the
person entitled to benefits under the Plan, should submit a claim to the office designated
by the Plan Administrator to receive claims. Under normal circumstances, the Plan
Administrator will make a final decision as to a claim within 90 days after receipt of the
claim. If the Plan Administrator notifies the claimant in writing during the initial 90-day
period, it may extend the period up to 180 days after the initial receipt of the claim. The
written notice must contain the circumstances necessitating the extension and the
anticipated date for the final decision. If a claim is denied during the claims period, the
Plan Administrator must notify the claimant in writing, and the written notice must set
forth in a manner calculated to be understood by the claimant:

17

 

     (1) the specific reason or reasons for the denial;

     (2) specific reference to the Plan provisions on which the denial is based; and

     (3) a description of any additional material or information necessary for the
claimant to perfect the claim and an explanation of why such material or information
is necessary.

If a decision is not given to the Participant within the claims review period, the claim is treated
as if it were denied on the last day of the claims review period.

     (b) Claims Appeals Procedures. For purposes of this Section 11.07 the
Participant or the person entitled to benefits under the Plan is referred to as the
“claimant.” If a claimant’s claim made pursuant to Section 11.07(a) is denied and he wants
a review, he must apply to the Plan Administrator in writing. That application can include
any arguments, written comments, documents, records, and other information relating to the
claim for benefits. In addition, the claimant is entitled to receive on request and free of
charge reasonable access to and copies of all information relevant to the claim. For this
purpose, “relevant” means information that was relied on in making the benefit determination
or that was submitted, considered or generated in the course of making the determination,
without regard to whether it was relied on, and information that demonstrates compliance
with the Plan’s administrative procedures and safeguards for assuring and verifying that
Plan provisions are applied consistently in making benefit determinations. The Plan
Administrator must take into account all comments, documents, records, and other information
submitted by the claimant relating to the claim, without regard to whether the information
was submitted or considered in the initial benefit determination. The claimant may either
represent himself or appoint a representative, either of whom has the right to inspect all
documents pertaining to the claim and its denial. The Plan Administrator can schedule any
meeting with the claimant or his representative that it finds necessary or appropriate to
complete its review.

     The request for review must be filed within 90 days after the denial. If it is not, the
denial becomes final. If a timely request is made, the Plan Administrator must make its
decision, under normal circumstances, within 60 days of the receipt of the request for
review. However, if the Plan Administrator notifies the claimant prior to the expiration of
the initial review period, it may extend the period of review up to 120 days following the
initial receipt of the request for a review. All decisions of the Plan Administrator must be
in writing and must include the specific reasons for its action, the Plan provisions on
which its decision is based, and a statement that the claimant is entitled to receive, upon
request and free of charge, reasonable access to, and copies of, all documents, records, and
other information relevant to the claimant’s claim for benefits. If a decision is not given
to the claimant within the review period, the claim is treated as if it were denied on the
last day of the review period.

     Within 60 days of receipt by a claimant of a notice denying a claim under the preceding
paragraph, the claimant or his or her duly authorized representative may request in writing
a full and fair review of the claim by the Plan Administrator. The Plan

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Administrator may extend the 60-day period where the nature of the benefit involved or
other attendant circumstances make such extension appropriate. In connection with such
review, the claimant or his or her duly authorized representative may review pertinent
documents and may submit issues and comments in writing. The Plan Administrator shall make
a decision promptly, and not later than 60 days after the Plan’s receipt of a request for
review, unless special circumstances (such as the need to hold a hearing) require an
extension of time for processing, in which case a decision shall be rendered as soon as
possible, but not later than 120 days after receipt of a request for review. The decision
on review shall be in writing and shall include specific reasons for the decision, written
in a manner calculated to be understood by the claimant, and specific references to the
pertinent Plan provisions on which the decision is based.

     11.08 Employer to Supply Information. The Employer shall supply full and timely information
to the Plan Administrator, including, but not limited to, information relating to each
Participant’s base salary, age, Retirement, death, or other cause of Separation From Service and
such other pertinent facts as the Plan Administrator may require. When making a determination in
connection with the Plan, the Plan Administrator shall be entitled to rely upon the aforesaid
information furnished by the Employer.

     11.09 Indemnity. To the extent permitted by applicable law, Baker Hughes shall indemnify and
save harmless the Board, each member of the Committee, each delegate of the Committee or the Board
and the Plan Administrator against any and all expenses, liabilities and claims (including legal
fees incurred to investigate or defend against such liabilities and claims) arising out of their
discharge in good faith of responsibilities under or incident to the Plan. Expenses and
liabilities arising out of willful misconduct shall not be covered under this indemnity. This
indemnity shall not preclude such further indemnities as may be available under insurance purchased
by Baker Hughes or provided by Baker Hughes under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, as such indemnities are permitted under applicable law.

ARTICLE XII

ADOPTION OF PLAN BY AFFILIATES

     12.01 Adoption Procedure.

     (a) With the written approval of the Plan Administrator, any entity that is an
Affiliate may adopt the Plan by appropriate action of its board of directors or noncorporate
counterpart, as evidenced by a written instrument executed by an authorized officer of such
entity or an executed adoption agreement (approved by the board of directors or noncorporate
counterpart of the Affiliate), agreeing to be bound by all the terms, conditions and
limitations of the Plan except those, if any, specifically described in the adoption
instrument, and providing all information required by the Plan Administrator. The Plan
Administrator and the adopting Affiliate may agree to incorporate specific provisions
relating to the operation of the Plan that apply to the adopting Affiliate only and shall
become, as to such adopting Affiliate and its employees, a part of the Plan.

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     (b) The provisions of the Plan may be modified so as to increase the obligations of an
adopting Affiliate only with the consent of such Affiliate, which consent shall be
conclusively presumed to have been given by such Affiliate unless the Affiliate gives Baker
Hughes written notice of its rejection of the amendment within 30 days after the adoption of
the amendment.

     (c) The provisions of the Plan shall apply separately and equally to each adopting
Affiliate and its employees in the same manner as is expressly provided for Baker Hughes and
its employees, except that the power to appoint or otherwise affect the Plan Administrator
and the power to amend or terminate the Plan shall be exercised by Baker Hughes. The Plan
Administrator shall act as the agent for each Affiliate that adopts the Plan for all
purposes of administration thereof.

     (d) Any adopting Affiliate may, by appropriate action of its board of directors or
noncorporate counterpart, terminate its participation in the Plan. Moreover, the Plan
Administrator may, in its discretion, terminate an Affiliate’s participation in the Plan at
any time.

     (e) The Plan will terminate with respect to any Affiliate that has adopted the Plan
pursuant to this Section 12.01 if the Affiliate ceases to be an Affiliate or revokes its
adoption of the Plan by resolution of its board of directors or noncorporate counterpart
evidenced by a written instrument executed by an authorized officer of the Affiliate. If
the Plan terminates with respect to any Affiliate, the employees of that Affiliate will no
longer be eligible to be Participants in the Plan.

     (f) The Plan as adopted by the Affiliates shall constitute a single plan rather than a
separate plan of each Affiliate.

     12.02 No Joint Venture Implied. The document which evidences the adoption of the Plan by an
Affiliate shall become a part of the Plan. However, neither the adoption of the Plan by an
Affiliate nor any act performed by it in relation to the Plan shall ever create a joint venture or
partnership relation between it and any other Affiliate.

ARTICLE XIII

MISCELLANEOUS

     13.01 Plan Not Contract of Employment. The adoption and maintenance of the Plan shall not be
deemed to be a contract between the Employer and any individual or to be consideration for the
employment of any individual. Nothing herein contained shall be deemed to (a) give any individual
the right to be retained in the employ of the Employer, (b) restrict the right of the Employer to
discharge any individual at any time, (c) give the Employer the right to require any individual to
remain in the employ of the Employer, or (d) restrict any individual’s right to terminate his
employment at any time.

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     13.02 Funding. Plan benefits are a contractual obligation of the Employers which shall be
paid out of the Employers’ general assets. The Plan is unfunded and Participants are merely
unsecured creditors of the Employers with respect to their benefits under the Plan.

     13.03 Alienation of Interest Forbidden. The interest of a Participant, former Participant or
his beneficiary or beneficiaries hereunder may not be sold, transferred, assigned, or encumbered in
any manner, either voluntarily or involuntarily, and any attempt so to anticipate, alienate, sell,
transfer, assign, pledge, encumber, or charge the same shall be null and void; neither shall the
benefits hereunder be liable for or subject to the debts, contracts, liabilities, engagements or
torts of any individual to whom such benefits or funds are payable, nor shall they be an asset in
bankruptcy or subject to garnishment, attachment or other legal or equitable proceedings. The
provisions of this Section 13.03 shall not apply to a Domestic Relations Order.

     13.04 Withholding. All credits to a Participant’s or former Participant’s Accounts and
payments provided for hereunder shall be subject to applicable withholding and other deductions as
shall be required of the Employer under any applicable local, state or federal law.

     13.05 Amendment and Termination. The Board, may from time to time, in its discretion, amend,
in whole or in part, any or all of the provisions of the Plan on behalf of any Employer; provided,
however, that no amendment may be made that would impair the rights of a Participant or former
Participant with respect to amounts already credited to his Accounts. The Board may terminate the
Plan at any time. If the Plan is terminated, the amounts credited to a Participant’s or former
Participant’s Account shall be paid to such Participant, or former Participant, or his designated
beneficiary at the time(s) specified in Articles VII, IX and X, as applicable.

     13.06 Severability. If any provision of the Plan shall be held illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining provisions hereof; instead,
each provision shall be fully severable and the Plan shall be construed and enforced as if said
illegal or invalid provision had never been included herein.

     13.07 Arbitration. Any controversy arising out of or relating to the Plan, including without
limitation, any and all disputes, claims (whether in tort, contract, statutory or otherwise) or
disagreements concerning the interpretation or application of the provisions of the Plan, the
Employer’s employment of the Participant, or former Participant, and the termination of that
employment, shall be resolved by arbitration in accordance with the Employee Benefit Plan Claims
Arbitration Rules of the American Arbitration Association (the “AAA”) then in effect. No
arbitration proceeding relating to the Plan may be initiated by either the Employer or the
Participant, or former Participant, unless the claims review and appeals procedures specified in
Section 11.07 have been exhausted. Within ten (10) business days of the initiation of an
arbitration hereunder, the Employer and the Participant, or former Participant, will each
separately designate an arbitrator, and within twenty (20) business days of selection, the
appointed arbitrators will appoint a neutral arbitrator from the panel of AAA National Panel of
Employee Benefit Plan Claims Arbitrators. The arbitrators shall issue their written decision
(including a statement of finding of facts) within thirty (30) days from the date of the close of
the arbitration hearing. The decision of the arbitrators selected hereunder will be final and
binding on both parties. This arbitration provision is expressly made pursuant to and shall be
governed

21

 

by the Federal Arbitration Act, 9 U.S.C. Sections 1-16 (or replacement or successor statute).
Pursuant to Section 9 of the Federal Arbitration Act, the Employer and any Participant agrees that
any judgment of the United States District Court for the District in which the headquarters of
Baker Hughes is located at the time of initiation of an arbitration hereunder shall be entered upon
the award made pursuant to the arbitration. Nothing in this Section 13.07 shall be construed to,
in any way, limit the scope and effect of Article XI. In any arbitration proceeding full effect
shall be given to the rights, powers, and authorities of the Plan Administrator under Article XI.

     13.08 Stockholder Approval. Notwithstanding any other provision of the Plan, no payments
shall be made under the Plan with respect to Performance Periods commencing on or after January 1,
2006 unless, prior to the payments, the stockholders of Baker Hughes approve the material terms of
the performance goals under which the compensation is to be paid (within the meaning of Section
162(m)).

     13.09 Compliance With Section 409A. To the extent applicable, the Plan shall be operated in
compliance with Section 409A and the provisions of Section 409A shall override any provisions of
the Plan to the extent that they are inconsistent with Section 409A.

     13.10 Governing Law. All provisions of the Plan shall be construed in accordance with the
laws of Texas, except to the extent preempted by federal law and except to the extent that the
conflicts of laws provisions of the State of Texas would require the application of the relevant
law of another jurisdiction, in which event the relevant law of the State of Texas will nonetheless
apply, with venue for litigation being in Houston, Texas.

22

 

     IN WITNESS WHEREOF, Baker Hughes has caused this instrument to be executed by its duly
authorized officer this 26th day of January, 2006, effective as of January 1, 2005, except insofar
as a later effective date is expressly specified in this instrument.

	 	 	 	 	 
	 	 	BAKER HUGHES INCORPORATED
	 
	 	 	 	 
	 

	 	By:	 	/s/ GREG NAKANISHI 
	 

	 	 	 	 
	 

	 	Title:
	 	Greg Nakanishi, Vice President, Human Resourcesexv4w1w1

 

Exhibit 4.1.1

[FORM OF 13% SENIOR SECURED DISCOUNT NOTE]

     This security has not been registered under the Securities Act of 1933, as amended (the
“Securities Act”), or any state securities laws. Neither this security nor any interest or
participation herein may be reoffered, sold, assigned, transferred, pledged, encumbered or
otherwise disposed of in the absence of such registration unless such transaction is exempt from,
or not subject to, such registration.

     The Holder of this security, by its acceptance hereof,

     (1) represents that (a) it is a “qualified institutional buyer” (as defined in Rule 144A under
the Securities Act), (b) it is a non-U.S. person and is acquiring this security in an offshore
transaction within the meaning of Regulation S under the Securities Act or (c) it is an
institutional “accredited investor” within the meaning of subparagraph (a)(1), (2), (3) or (7) of
Rule 501 under the Securities Act, and

     (2) agrees not to offer, sell or otherwise transfer this security or any interest or
participation herein, prior to the date (the “Resale Restriction Termination Date”) which
is two years after the later of the original issue date hereof and the last date on which the
Issuer or any affiliate of the Issuer was the owner of this security (or any predecessor of this
security) except (a) to the Issuer or any Subsidiary thereof, (b) for so long as the securities are
eligible for resale pursuant to Rule 144A under the Securities Act, to a person it reasonably
believes is a “qualified institutional buyer” as defined in Rule 144A under the Securities Act that
purchases for its own account or for the account of a qualified institutional buyer, to which
notice is given that the transfer is being made in reliance on Rule 144A or (c) pursuant to another
available exemption from the registration requirements of the Securities Act, subject to the
Issuer’s and the Trustee’s right prior to any such offer, sale or transfer pursuant to this clause
(c) to require the delivery of an opinion of counsel, certification and/or other information
reasonably satisfactory to each of them. In each of the foregoing cases, a certificate of transfer
in the form appearing on the other side of this security shall be completed and delivered by the
transferor to the Trustee.

     This legend will be removed upon the request of the Holder after the Resale Restriction
Termination Date.

[RESTRICTED UNITS LEGEND]

     The securities represented by this certificate constitute a portion of one or more Units (as
defined in the Indenture), each consisting of 13% Senior Secured Discount Notes due 2012 of
IdleAire Technologies Corporation (the “Company”) and Initial Warrants to purchase Common
Stock of the Company. Until the Separation Date (as defined in the Indenture), the securities
represented by this certificate may be transferred only together as a Unit. Following the
Separation Date, the securities represented by this certificate may be transferred without
reference to the foregoing restriction.

 

 

IDLEAIRE TECHNOLOGIES CORPORATION

13% SENIOR SECURED DISCOUNT NOTE DUE 2012

	 	 	 	 	 
	CUSIP No.

	 	U.S.$320,000,000
	 	Initial Aggregate Principal amount
	Certificate No.

	 	U.S.$
	 	Initial Principal amount of this Certificate

     This Note is issued with original issue discount for purposes of Section 1271 et seq. of
the U.S. Internal Revenue Code of 1986, as amended (the “Code”). The issue date of this Note is
December 30, 2005. Within 10 days from the issue date of this Note, the issue price, the amount of
original issue discount, the yield to maturity and any other information required to be provided to
the Holder hereof under the Code may be obtained from the Chief Financial Officer of the Company
(as defined below) in writing at 410 North Cedar Bluff Road, Suite 200, Knoxville, Tennessee
37923.

     IdleAire Technologies Corporation, a Delaware corporation (the “Company”), for value
received, promises to pay to
                                         or registered assigns the principal sum of
                                        
DOLLARS ($[     ]) on December 15, 2012, and to pay interest thereon as
hereinafter set forth.

     Interest Rate: 13%, accreting at such rate and compounding semi-annually on June 15 and
December 15 of each year from the Issue Date until June 15, 2008, then accruing at such rate
thereafter.

     Interest Payment Dates: Interest will be payable semi-annually in cash in arrears on June 15
and December 15 of each year, commencing on December 15, 2008.

     Record Dates: June 1 and December 1.

     Reference is made to the further provisions of this Discount Note contained herein, which will
for all purposes have the same effect as if set forth at this place.

     IN WITNESS WHEREOF, the Company has caused this Discount Note to be signed manually or by
facsimile by its duly authorized officers.

	 	 	 	 	 
	Dated: December 30, 2005	 	IDLEAIRE TECHNOLOGIES CORPORATION
	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 	 	Name:
	 	 	Title:
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 	 	Name:
	 	 	Title:

 

 

TRUSTEE CERTIFICATE OF AUTHENTICATION

     This is one of the 13% Senior Secured Discount Notes due 2012 referred to in the
within-mentioned Indenture.

	 	 	 	 	 
	 	 	WELLS FARGO BANK, NATIONAL

ASSOCIATION, as Trustee
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 	 	Authorized Signatory

Dated: December 30, 2005

 

 

(REVERSE OF SECURITY)

IDLEAIRE TECHNOLOGIES CORPORATION

13% SENIOR SECURED DISCOUNT NOTE DUE 2012

     1. Interest. IdleAire Technologies Corporation, a Delaware corporation (the
“Company”), promises to pay interest on the principal amount of the Discount Notes, at the
rate and in the manner specified herein. The Discount Notes will accrete at a rate of 13% per
annum, compounded semi-annually on June 15 and December 15 of each year, to par on June 15, 2008.
Thereafter, interest on the Discount Notes will accrue at the rate of 13% per annum until maturity
and shall be payable in arrears on June 15 and December 15 of each year, commencing on December 15,
2008. Interest will be computed on the basis of a 360-day year of twelve 30-day months.

     2. Method of Payment. The Company will pay interest hereon (except defaulted
interest) to the Persons who are registered Holders at the close of business on June 1 or December
1 immediately preceding the Interest Payment Date (whether or not a Business Day) even if the
Discount Notes are cancelled on registration of transfer or registration of exchange after such
Record Date, and on or before such Interest Payment Date. Holders must surrender Discount Notes to
a Paying Agent to collect principal payments. The Company will pay principal and interest in money
of the United States of America that at the time of payment is legal tender for payment of public
and private debts. If a Holder has given wire transfer instructions to the Company at least ten
Business Days prior to the applicable payment date, the Company will make all payments on the
Holder’s Discount Notes in accordance with those instructions. Otherwise, payments on the Discount
Notes will be made at the office or agency of the Paying Agent and Registrar unless the Company
elects to make interest payments by check mailed to the Holder entitled thereto at the address
indicated on the register maintained by the Registrar for the Discount Notes.

     3. Paying Agent and Registrar. Initially, Wells Fargo Bank, National Association (the
“Trustee”) will act as a Paying Agent and Registrar. The Company may change any Paying
Agent or Registrar without prior notice. Neither the Company nor any of its Affiliates may act as
Paying Agent or Registrar.

     4. Indenture. The Company issued the Discount Notes under an Indenture, dated as of
December 30, 2005 (the “Indenture”), by and among the Company, the Guarantors named
therein, the Trustee and Wells Fargo Bank, National Association, as collateral agent. This is one
of an issue of Discount Notes of the Company issued, or to be issued, under the Indenture. The
terms of the Discount Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb), as amended
from time to time. Notwithstanding anything to the contrary herein, the Discount Notes are
subject to all such terms, and Holders of Discount Notes are referred to the Indenture and the TIA
for a statement of such terms. The Discount Notes are senior secured obligations of the Company.
Each Holder, by accepting a Discount Note, agrees to be bound by all of the terms and provisions of
the Indenture, as the same may be amended from time to time.

 

 

Capitalized and certain other terms used herein and not otherwise defined have the meanings
set forth in the Indenture.

     5. Redemption.

     (a) Optional Redemption. Except as set forth below, the Discount Notes may not be
redeemed prior to December 15, 2009. At any time on or after December 15, 2009, the Company, at
its option, may redeem the Discount Notes, in whole or in part, at the redemption prices (expressed
as percentages of principal amount) set forth below, together with accrued and unpaid interest from
June 15, 2008 and Additional Interest, if any, to the redemption date, if redeemed during the
12-month period beginning on December 15th of the years indicated:

	 	 	 	 	 
	 	 	Optional	 
	Year	 	Redemption Price	 
	2009
	 	 	106.500	%
	2010
	 	 	103.250	%
	2011 and thereafter
	 	 	100.000	%

     (b) Redemption with Proceeds from Qualified Equity Offerings. In addition, at any
time prior to December 15, 2008, the Issuer may redeem up to 35% of the principal amount of the
Discount Notes with the net cash proceeds of one or more Qualified Equity Offerings at a redemption
price equal to 113.000% of the Accreted Value of the Discount Notes to be redeemed, plus accrued
and unpaid interest from June 15, 2008 and Additional Interest, if any, to the redemption date;
provided, that:

     (1) at least 65% of the principal amount of Discount Notes issued under the Indenture
remains outstanding immediately after the occurrence of such redemption, and

     (2) the redemption occurs within 90 days following the date of the closing of any such
Qualified Equity Offering.

     6. Notice of Redemption. Notice of redemption will be electronically transmitted or
mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of
Discount Notes to be redeemed at his registered address. On and after the Redemption Date, unless
the Company defaults in making the redemption payment, interest ceases to accrue on Discount Notes
or portions thereof called for redemption. In the event of a redemption of fewer than all of the
Discount Notes, the Trustee shall select the Discount Notes to be redeemed in compliance with the
requirements of the principal national securities exchange, if any, while such Discount Notes are
listed, or if such Discount Notes are not then listed on a national securities exchange, on a pro
rata basis, by lot or in such other manner as the Trustee shall deem fair and appropriate;
provided, that no Discount Notes of a principal amount of less than $1,000 shall be
redeemed in part; and provided further, that any such partial redemption made with the
proceeds of a Qualified Equity Offering will be made only on a pro rata basis or on as nearly a pro
rata basis as is practicable (subject to the procedures of the Depository), unless that method

 

 

is otherwise prohibited. Discount Notes in denominations of $1,000 or more may be redeemed in
part.

     7. Offers To Purchase. Sections 4.09 and 4.17 of the Indenture
provide that upon the occurrence of certain Asset Sales or a Change of Control and subject to
further limitations contained therein, the Company shall make an Offer to Purchase outstanding
Discount Notes in accordance with the procedures set forth in the Indenture.

     8. Additional Warrants. If the Issuer fails to comply with the covenants provided in
Section 4.18 of the Indenture, the Issuer shall issue Additional Warrants to the Holders of
Discount Notes in accordance with Section 4.18 of the Indenture.

     9. Registration Rights. Pursuant to the several Registration Rights Agreement between
the Company and the Holders of the Initial Discount Notes, the Issuer will be obligated to
consummate an Exchange Offer. Upon such exchange offering, the Holders of Discount Notes shall
have the right, subject to compliance with securities laws, to exchange such Discount Notes for
Senior Secured Discount Notes due 2012, which have been registered under the Securities Act (the
“Exchange Discount Notes”), in like principal amount and having terms identical in all
material respects to the Initial Discount Notes. The Holders of the Initial Discount Notes shall
be entitled to receive certain Additional Interest payments in the event such exchange offer is not
consummated and upon certain other conditions, all pursuant to and in accordance with the terms of
the Registration Rights Agreement.

     10. Denominations, Transfer, Exchange. The Discount Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. A Holder may transfer
or exchange Discount Notes in accordance with the Indenture. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents and to pay to it any
taxes and fees required by law or permitted by the Indenture. The Registrar shall not be required
to exchange or register a transfer of any Discount Note for a period of 15 days immediately
preceding the mailing of notice of redemption of Discount Notes to be redeemed or of any Discount
Note selected, called or being called for redemption except the unredeemed portion of any Discount
Note being redeemed in part.

     11. Persons Deemed Owners. The registered Holder of this Discount Note may be treated
as the owner of this Discount Note for all purposes.

     12. Unclaimed Money. If money for the payment of principal or interest remains
unclaimed for two years, the Trustee will pay the money back to the Company at its written request.
After that, Holders entitled to the money must look to the Company for payment as general
creditors unless an “abandoned property” law designates another Person.

     13. Amendment, Supplement, Waiver, Etc. The Company, the Guarantors and the Trustee
(if a party thereto) may, without the consent of the Holders of any outstanding Discount Notes,
amend, waive or supplement the Indenture or the Discount Notes for certain specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies, maintaining the
qualification of the Indenture under the Trust Indenture Act of 1939, as amended, and making any
change that does not adversely affect the rights of any Holder. Other

 

 

amendments and modifications of the Indenture or the Discount Notes may be made by the
Company, the Guarantors and the Trustee with the consent of the Holders of not less than a majority
of the aggregate Accreted Value of the Discount Notes then outstanding, subject to certain
exceptions requiring the consent of either the Holders of (i) not less than two-thirds of the
aggregate Accreted Value of the Discount Notes then outstanding or (ii) the Holders of the
particular Discount Notes to be affected.

     14. Restrictive Covenants. The Indenture imposes certain limitations on the ability
of the Company and its Restricted Subsidiaries to, among other things, incur additional
Indebtedness, make payments in respect of, or redeem, their Equity Interests or certain
Indebtedness, make certain Investments, create or incur Liens, enter into transactions with
Affiliates, enter into agreements restricting the ability of Restricted Subsidiaries to pay
dividends and make distributions and on the ability of the Parent and the Company to merge or
consolidate with any other Person or transfer all or substantially all of the Parent’s, the
Company’s or any Guarantor’s assets. Such limitations are subject to a number of important
qualifications and exceptions. Pursuant to Section 4.04 of the Indenture, the Company must
annually report to the Trustee on compliance with such limitations.

     15. Successor. When a successor assumes all the obligations of its predecessor under
the Discount Notes and the Indenture and the transaction complies with the terms of Article Five of
the Indenture, the predecessor corporation will, except as provided in Article Five, be released
from those obligations.

     16. Defaults and Remedies. Events of Default are set forth in the Indenture. Subject
to certain limitations in the Indenture, if an Event of Default (other than an Event of Default
specified in clause (7) or (8) of Section 6.01 of the Indenture with
respect to the Company) occurs and is continuing, the Trustee, by written notice to the Issuer, or
the Holders of not less than 25% of the aggregate Accreted Value of the Discount Notes then
outstanding, by written notice to the Issuer and the Trustee, may, declare all principal of and
accrued interest on all Discount Notes to be immediately due and payable and such amounts shall
become immediately due and payable. If an Event of Default specified in clause (7) or
(8) of Section 6.01 of the Indenture occurs with respect to the Company, the
Accreted Value of and interest on, all Discount Notes shall ipso facto become and be immediately
due and payable without any declaration or other act on the part of the Trustee or any Holder.
Holders may not enforce the Indenture or the Discount Notes except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the
Discount Notes. Subject to certain limitations, Holders of a majority aggregate Accreted Value of
the Discount Notes then outstanding may direct the Trustee in its exercise of any trust or power.

     17. Trustee Dealings with Company. Subject to the terms of the TIA and the Indenture,
the Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with the Company or its
Affiliates, as if it were not Trustee.

     18. Discharge. The Company’s obligations pursuant to the Indenture will be
discharged, except for obligations pursuant to certain sections thereof, subject to the terms of
the Indenture, upon the payment of all the Discount Notes or upon the irrevocable deposit with the

 

 

Trustee of United States dollars or U.S. Government Obligations sufficient to pay when due
principal of and interest on the Discount Notes to maturity or redemption, as the case may be.

     19. Guarantees. The Discount Note will be entitled to the benefits of certain
Discount Note Guarantees made for the benefit of the Holders. Reference is hereby made to the
Indenture for a statement of the respective rights, limitations of rights, duties and obligations
thereunder of any Guarantors, the Trustee and the Holders.

     20. Authentication. This Discount Note shall not be valid until the Trustee manually
signs the certificate of authentication on the other side of this Discount Note.

     21. Governing Law. This Discount Note shall be governed by and construed in
accordance with the laws of the State of New York, as applied to contracts made and performed
within the State of New York. The Trustee, the Company, the Guarantor and the Holders agree to
submit to the non-exclusive jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to the Indenture or the Discount Notes.

     22. Abbreviations. Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TENANT (= tenants by the entireties), JT TEN (=
joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).

     23. Conflicts with the Indenture. This Discount Note is subject to all terms and
conditions of the Indenture. To the extent that any provision of this Discount Note conflicts with
the express provisions of the Indenture, the provisions of the Indenture shall govern.

     24. Security. The Company’s and Guarantors’ obligations under the Discount Notes
are secured by liens on the Collateral pursuant to the terms of the Collateral Agreements. The
actions of the Trustee and the Holders of the Discount Notes secured by such liens and the
application of proceeds from the enforcement of any remedies with respect to such Collateral are
limited pursuant to the terms of the Collateral Agreements.

     25. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on
the Discount Notes as a convenience to the Holders of the Discount Notes. No representation is
made as to the accuracy of such numbers as printed on the Discount Notes and reliance may be placed
only on the other identification numbers printed thereon.

     The Company will furnish to any Holder upon written request and without charge a copy of the
Indenture. Requests may be made to:

IdleAire Technologies Corporation

410 North Cedar Bluff Road

Suite 200

Knoxville, Tennessee 37923

Attention: Chief Financial Officer

 

 

ASSIGNMENT FORM

     If you the Holder want to assign this Discount Note, fill in the form below and have your
signature guaranteed:

I or we assign and transfer this Discount Note to:

 

 

 

(Print or type name, address and zip code and
social security or tax ID number of assignee)

and
irrevocably appoint               
                                                                                                          
agent to transfer this Discount Note on the books of the Company. The agent may substitute another
to act for him.

	 	 	 	 	 	 	 	 	 
	Dated: 

	 	 	 	 	 	Signed:	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	(Sign exactly as your name appears on
the other side of this Discount
Note)
	 
	 	 	 	 	 	 	 	 
	Signature Guarantee:	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 

     In connection with any transfer of this Discount Note occurring prior to the date which is the
earlier of (i) the date of the declaration by the SEC of the effectiveness of a registration
statement under the Securities Act of 1933, as amended (the “Securities Act”), covering
resales of this Discount Note (which effectiveness shall not have been suspended or terminated at
the date of the transfer) and (ii) December 30, 2007, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the transfer and that
this Discount Note is being transferred:

[Check One]

to the Company or a subsidiary thereof; or

pursuant to and in compliance with Rule 144A under the Securities Act; or

pursuant to another exemption from registration under the Securities Act.

Unless one of the boxes is checked, the Trustee will refuse to register any of the Discount Notes
evidenced by this certificate in the name of any person other than the registered Holder thereof;
provided that if box (3) is checked, the Company or the Trustee may require, prior to
registering any such transfer of the Discount Notes, in its sole discretion, such legal opinions,
certifications and other information as the Trustee or the Company has reasonably requested to
confirm that such transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act.

 

 

     If none of the foregoing boxes is checked, the Trustee or Registrar shall not be obligated to
register this Discount Note in the name of any person other than the Holder hereof unless and until
the conditions to any such transfer of registration set forth herein and in Section 2.07 of the
Indenture shall have been satisfied.

	 	 	 	 	 	 	 
	Dated: 

	 	 	 	Signed:	 	 
	 

	 
	 	 	 	 
	 

	 	 	 	 	 	(Sign exactly as your name appears on
the other side of this Discount
Note)
	 
	 	 	 	 	 	 
	Signature Guarantee:	 	 	 	 
	 

	 	 	 	 	 	 

SIGNATURE GUARANTEE

Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of
the Registrar, which requirements include membership or participation in the Security Transfer
Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be
determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.

TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED

     The undersigned represents and warrants that it is purchasing this Discount Note for its own
account or an account with respect to which it exercises sole investment discretion and that it and
any such account is a “qualified institutional buyer” within the meaning of Rule 144A under the
Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the undersigned has
requested pursuant to Rule 144A or has determined not to request such information and that it is
aware that the transferor is relying upon the undersigned’s foregoing representations in order to
claim the exemption from registration provided by Rule 144A.

	 	 	 	 	 
	Dated: 
	 	 	 	 
	 

	 
	 	 
	 

	 	 	 	NOTICE: To be executed by an executive officer

 

 

OPTION OF HOLDER TO ELECT PURCHASE

     If you want to elect to have all or any part of this Discount Note purchased by the Company
pursuant to Section 4.09 or Section 4.17 of the Indenture, check the appropriate
box:

o Section 4.09                    o Section 4.17

     If you want to have only part of the Discount Note purchased by the Company pursuant to
Section 4.09 or Section 4.17 of the Indenture, state the amount you elect to have
purchased:

$                                                            

          (multiple of $1,000)

	 	 	 	 	 	 	 
	Date: 

	 	 	 	Your signature: 	 	 
	 

	 
	 	 	 
	 

	 	 	 	 	 	(Sign exactly as your name appears on the
other side of this Discount Note)

                                                               Signature Guarantee:                                                                                 

SIGNATURE GUARANTEE

Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of
the Registrar, which requirements include membership or participation in the Security Transfer
Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be
determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with
the U.S. Securities Exchange Act of 1934, as amended.

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