Amendment No. 2 to Form S-4
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As filed with the Securities and Exchange Commission on May 25, 2017

Registration No. 333-216991

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 2

TO

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Bear Newco, Inc.

(to be renamed Baker Hughes, a GE Company)

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   3533   81-4403168

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

17021 Aldine Westfield Road

Houston, Texas 77073

713-439-8600

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

James M. Waterbury

Vice President & Senior Counsel, M&A

General Electric Company

33-41 Farnsworth Street

Boston, Massachusetts 02210

617-433-3030

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

with copies to:

 

John A. Marzulli, Jr.

Rory O’Halloran

Waajid Siddiqui

Shearman & Sterling LLP

599 Lexington Avenue

New York, NY 10022-6069

212-848-4000

 

William D. Marsh, Esq.

Vice President and General Counsel

Baker Hughes Incorporated

17021 Aldine Westfield Road

Houston, Texas 77073

713-439-8600

 

Richard J. Sandler

George R. Bason, Jr.

Michael Davis

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, NY 10017

212-450-4000

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective and upon completion of the transactions described in this registration statement.

If the securities being registered on this Form are being offered in connection with the formation of a holding company, and there is compliance with General Instruction G, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer     Accelerated filer  
Non-accelerated filer   ☒  (Do not check if a smaller reporting company)   Smaller reporting company  
    Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Amount

to be

registered

 

Proposed

maximum

offering price

per unit

 

Proposed

maximum

aggregate

offering price

 

Amount of

registration fee

Newco Class A Common Stock

  434,349,833(1)   N/A   $17,460,863,286.60(2)   $2,023,714.05(3)

 

 

(1) Represents the maximum number of Class A Common Stock of Bear Newco, Inc. issuable on completion of the transactions described in this registration statement, based on the aggregate number of shares of common stock of Baker Hughes Incorporated outstanding as of May 23, 2017 or issuable pursuant to the exercise of outstanding options or settlement of restricted stock units (including performance-based restricted stock units) of Baker Hughes Incorporated.
(2) Estimated solely for purposes of calculating the amount of the registration fee and computed pursuant to Rules 457(c), 457(f)(1) and 457(f)(3) promulgated under the Securities Act, the proposed maximum aggregate offering price is $17,460,863,286.60. Such amount equals the product of (i) (a) $57.70, the average of the high and the low prices of common stock of Baker Hughes Incorporated as reported on the New York Stock Exchange on May 23, 2017, minus (b) a special cash dividend of $17.50 per share and (ii) the maximum aggregate number of shares of Class A Common Stock of Bear Newco, Inc. proposed to be issued hereunder, calculated in accordance with footnote (1) above.
(3) Calculated pursuant to Rule 457(f) of the Securities Act to be $2,023,714.05 by multiplying the proposed maximum aggregate offering price by 0.0001159. New Baker Hughes previously paid a $2,105,761.44 registration fee in connection with the initial filing of this registration statement on March 29, 2017.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, pursuant to said Section 8(a), may determine.

 

 

 


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The information in this combined proxy statement/prospectus is not complete and may be changed. Bear Newco, Inc. may not sell these securities until the registration statement filed with the Securities and Exchange Commission, of which this document is a part, is declared effective. This combined proxy statement/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer, solicitation or sale is not permitted.

 

PRELIMINARY—SUBJECT TO COMPLETION, DATED MAY 25, 2017

 

LOGO

Baker Hughes Incorporated

17021 Aldine Westfield Road

Houston, Texas 77073

(713) 439-8600

[                ], 2017

Dear Baker Hughes Incorporated Stockholders:

On behalf of the board of directors and management team of Baker Hughes Incorporated (“Baker Hughes”), I am pleased to enclose the combined proxy statement/prospectus relating to the combination of General Electric Company’s (“GE”) oil and gas business (“GE O&G”) and Baker Hughes (the “Transactions”).

The Transactions include (i) the merger of Baker Hughes with an indirect, wholly owned subsidiary of Baker Hughes, with Baker Hughes surviving the merger as a direct wholly owned subsidiary of BHI Newco, Inc. (“Newco 2”) (the “First Merger”), (ii) the conversion of the surviving corporation of the First Merger into Newco LLC, a Delaware limited liability company (“Newco LLC”) (the “Conversion”), (iii) the merger of Newco 2 with Bear Newco, Inc., a Delaware corporation (“New Baker Hughes”), with New Baker Hughes surviving the merger (the “Second Merger” and collectively with the First Merger, the “Mergers”) and (iv) the transfer by GE to Newco LLC, following the Mergers and the Conversion of (1) all of the equity interests of the GE O&G holding companies that will hold directly or indirectly all of the assets and liabilities of GE O&G, including any GE O&G operating subsidiaries, and (2) $7.4 billion in cash in exchange for approximately 62.5% of the membership interests in Newco LLC (the “Contribution”).

We believe the Transactions will create a world-leading, fullstream oilfield technology provider that will have a unique mix of equipment and service capabilities. By drawing from GE’s technology expertise and Baker Hughes’ capabilities in oilfield services, we believe New Baker Hughes will be a leading oil and gas equipment, technology and services company and will provide the potential for substantial strategic and financial benefits to our stockholders.

Pursuant to the Transactions, you will receive, for each share of Baker Hughes common stock, a special one-time cash dividend of $17.50, substantially all of which will be funded ultimately by GE’s $7.4 billion cash contribution, and one share of New Baker Hughes Class A common stock (“Class A Common Stock”), as described in more detail in the enclosed combined proxy statement/prospectus under the heading “The Transaction Agreement—Surrender and Payment; Lost Certificates.” Holders of Baker Hughes common stock immediately prior to the Mergers will collectively hold approximately 37.5%, and GE will hold approximately 62.5%, of the economic interests in the combined businesses of GE O&G and Baker Hughes.

In connection with the Mergers, you are cordially invited to attend a special meeting of the stockholders of Baker Hughes to be held on [                ], 2017 at [                ] a.m., local time, at [                ].

At the special meeting of the stockholders of Baker Hughes, you will be asked to vote on:

 

    a proposal to adopt the Transaction Agreement and Plan of Merger, dated as of October 30, 2016, as amended by the Amendment to Transaction Agreement and Plan of Merger, dated as of March 27, 2017, among GE, Baker Hughes and certain subsidiaries of Baker Hughes (the “Transaction Agreement”) and thereby approve the Transactions, including the Mergers;


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    a proposal to adjourn Baker Hughes’ special meeting if Baker Hughes determines it is necessary or advisable to permit further solicitation of proxies in the event there are not sufficient votes at the time of the special meeting to adopt the Transaction Agreement (the “Adjournment Proposal”);

 

    a proposal to approve, on a non-binding, advisory basis, the compensation that will or may become payable to Baker Hughes’ named executive officers in connection with the Transactions, including the Mergers (the “Transaction-Related Compensation Proposal”);

 

    a proposal to approve and adopt the Bear Newco, Inc. 2017 Long-Term Incentive Plan (the “LTI Plan”), a copy of which is attached as Annex J to this combined proxy statement/prospectus (the “LTI Plan Proposal”); and

 

    a proposal to approve the material terms of executive officer performance goals (the “Executive Officer Performance Goals Proposal”).

The Transactions, including the Mergers, cannot be completed unless you vote to adopt the Transaction Agreement. Only the proposal to adopt the Transaction Agreement is a condition to the consummation of the Transactions; the failure to adopt the other proposals will have no impact on the consummation of the Transactions.

Baker Hughes’ board of directors has reviewed and considered the terms of the Transaction Agreement and has unanimously determined that the Transaction Agreement and the Transactions contemplated by the Transaction Agreement, including the Mergers, are advisable and in the best interests of Baker Hughes and its stockholders and recommends that you vote:

 

    FOR the proposal to adopt the Transaction Agreement and thereby approve the Transactions, including the Mergers;

 

    FOR the Adjournment Proposal;

 

    FOR the Transaction-Related Compensation Proposal;

 

    FOR the LTI Plan Proposal; and

 

    FOR the Executive Officer Performance Goals Proposal.

Immediately following completion of the Transactions: The combined business of GE O&G and Baker Hughes will be held by Newco LLC. GE will own approximately 62.5% of Newco LLC and New Baker Hughes, indirectly through two wholly owned subsidiaries, will own approximately 37.5% of Newco LLC, and one of those wholly owned subsidiaries of New Baker Hughes will be Newco LLC’s managing member. GE will hold 100% of New Baker Hughes Class B common stock (“Class B Common Stock”), which will represent approximately 62.5% of the voting power of the outstanding shares of common stock of New Baker Hughes (“Common Stock”) (calculated on a fully diluted basis) and current Baker Hughes stockholders will hold 100% of the Class A Common Stock, which will represent approximately 37.5% of the voting power of the outstanding shares of Common Stock. We anticipate that the Class A Common Stock will be listed on the New York Stock Exchange (“NYSE”). The rights of Class A Common Stock and Class B Common Stock will be identical, except that, unlike the holders of Class A Common Stock, GE, as the holder of Class B Common Stock, will have no economic rights, including no right to dividends and no right to any assets in the event of the liquidation of New Baker Hughes. The Class A common stock and Class B common stock will have equal voting rights.

We urge you to read the enclosed combined proxy statement/prospectus, which includes important information about the Transactions and Baker Hughes’ special meeting. In particular, see “Risk Factors” beginning on page 44 of this combined proxy statement/prospectus for a description of the risks that you should consider in evaluating the Transactions.

For a discussion of the U.S. federal income tax consequences of the Transactions, see “Material U.S. Federal Income Tax Consequences of the Transactions” beginning on page 114 of this combined proxy statement/prospectus.


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Your vote is very important. We cannot complete the Transactions unless Baker Hughes stockholders adopt the Transaction Agreement and approve the Transactions, including the Mergers. Whether or not you expect to attend the special meeting, the details of which are described in the enclosed combined proxy statement/prospectus, please immediately submit your proxy by telephone, by the Internet or by completing, signing, dating and returning your signed proxy card(s) in the enclosed prepaid return envelope.

If you have any questions or require assistance in voting your shares, you should call D.F. King & Co., Inc. (“D.F. King”), Baker Hughes’ proxy solicitor for the special meeting, toll-free at (800) 735-3591.

 

Sincerely,
/s/ Martin Craighead

Martin S. Craighead

Chairman of the Board and

Chief Executive Officer

Baker Hughes Incorporated

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Transactions described in this combined proxy statement/prospectus or the securities to be issued pursuant to the Transactions under this combined proxy statement/prospectus or determined if this combined proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

The enclosed combined proxy statement/prospectus is dated [                ], 2017 and is first being mailed to stockholders on or about [                ], 2017.


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LOGO

Baker Hughes Incorporated

17021 Aldine Westfield Road

Houston, Texas 77073

(713) 439-8600

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD [    ], 2017

A Baker Hughes Incorporated (“Baker Hughes”) special meeting of stockholders will be held on [    ], 2017, at [    ] a.m., local time, at [    ], for the following purposes, all as set forth in the accompanying combined proxy statement/prospectus:

1. Adopt the Transaction Agreement and Plan of Merger, dated as of October 30, 2016, among General Electric Company (“GE”), Baker Hughes, Bear Newco, Inc. (“New Baker Hughes”) and Bear MergerSub, Inc., as amended by the Amendment to Transaction Agreement and Plan of Merger, dated as of March 27, 2017, among GE, Baker Hughes, New Baker Hughes, Bear MergerSub, Inc., BHI Newco, Inc. (“Newco 2”) and Bear MergerSub 2, Inc. (as it may be further amended from time to time, the “Transaction Agreement”). A copy of the Transaction Agreement is attached as Annex A (including Annex A-II) to the combined proxy statement/prospectus accompanying this notice. As a result of the transactions contemplated by the Transaction Agreement (the “Transactions”), including the merger of Baker Hughes with Bear MergerSub 2, Inc. (the “First Merger”) and the merger of Newco 2 with New Baker Hughes (the “Second Merger” and together with the First Merger, the “Mergers”), (i) each share of Baker Hughes common stock outstanding immediately prior to the Mergers (other than dissenting shares) will be converted as a result of the Mergers into the right to receive one share of New Baker Hughes Class A common stock and (ii) New Baker Hughes will pay a special one-time cash dividend of $17.50 per share of New Baker Hughes Class A common stock, substantially all of which will be funded ultimately by GE’s $7.4 billion cash contribution, to the holders of record on the closing date of the Transactions (the “Special Dividend”).

2. Approve the adjournment of the special meeting if Baker Hughes determines it is necessary or advisable to permit further solicitation of proxies, in the event there are not sufficient votes at the time of the special meeting, to adopt the Transaction Agreement (the “Adjournment Proposal”).

3. Approve, on a non-binding, advisory basis, the compensation that will or may become payable to Baker Hughes’ named executive officers in connection with the Transactions (the “Transaction-Related Compensation Proposal”).

4. Approve and adopt the Bear Newco, Inc. 2017 Long-Term Incentive Plan (the “LTI Plan”), a copy of which is attached as Annex J to this combined proxy statement/prospectus (the “LTI Plan Proposal”).

5. Approve the material terms of executive officer performance goals (the “Executive Officer Performance Goals Proposal”).

6. Transact any other business properly brought before the special meeting and any adjournment or postponement thereof, in each case, by or at the direction of the Baker Hughes board of directors.

Only stockholders of record on the books of Baker Hughes at the close of business on [    ], 2017 will be entitled to vote at the meeting. If a new record date is set, you will be entitled to vote at the special meeting if you hold shares in Baker Hughes as of such record date. These items of business, including the Transaction Agreement and the proposed Transactions, are described in detail in the accompanying combined proxy statement/prospectus.


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The Baker Hughes board of directors, by unanimous vote of the directors, determined that the Transaction Agreement and the Transactions contemplated by the Transaction Agreement, including the Mergers, are advisable and in the best interests of Baker Hughes and its stockholders and recommends that Baker Hughes stockholders vote:

 

    FOR the adoption of the Transaction Agreement;

 

    FOR the Adjournment Proposal;

 

    FOR the Transaction-Related Compensation Proposal;

 

    FOR the LTI Plan Proposal; and

 

    FOR the Executive Officer Performance Goals Proposal.

Your vote is very important. Adoption of the Transaction Agreement by the Baker Hughes stockholders is a condition to the Transactions and requires the affirmative vote, in person or by proxy, of holders of a majority of the shares of Baker Hughes common stock outstanding and entitled to vote on such proposal. Your abstaining, failure to submit a proxy or vote in person at the special meeting or failure to provide your broker, nominee, fiduciary or other custodian, as applicable, with instructions on how to vote your shares will have the same effect as a vote against the adoption of the Transaction Agreement.

Whether or not you plan to attend the special meeting, please promptly submit your proxy by telephone or by accessing the Internet site following the instructions in the accompanying combined proxy statement/prospectus or by marking, dating, signing and returning the accompanying proxy card in the self-addressed postage prepaid envelope as promptly as possible. If you attend the special meeting, you may withdraw your proxy and vote in person.

 

By Order of the Board of Directors

/s/ Lee Whitley

M. Lee Whitley

Vice President and Corporate Secretary
Houston, Texas   
[    ], 2017   


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WHERE TO FIND ADDITIONAL INFORMATION

This combined proxy statement/prospectus incorporates important business and financial information about Baker Hughes Incorporated (“Baker Hughes”) from other documents that are not included in or delivered with this combined proxy statement/prospectus. This information is available to you without charge. You can obtain copies of the documents incorporated by reference into this combined proxy statement/prospectus through the Securities and Exchange Commission (“SEC”) website at www.sec.gov or by requesting them in writing or by telephone from Baker Hughes at the following address and telephone number:

Baker Hughes Incorporated

17021 Aldine Westfield Road

Houston, Texas 77073

Investor Relations

(713) 439-8600

You may also obtain additional copies of this combined proxy statement/prospectus or the documents incorporated by reference into this combined proxy statement/prospectus by contacting D.F. King, Baker Hughes’ proxy solicitor, at the address and telephone number listed below. You will not be charged for any of the documents that you request.

D.F. King & Co.

48 Wall Street

New York, New York 10005

Toll-free: (800) 735-3591

Collect: (212) 269-5550

To obtain timely delivery of documents, you must request them no later than five business days before the date of the special meeting. Therefore, if you would like to request documents from Baker Hughes, please do so by [], 2017, in order to receive them before the special meeting.

See “Where You Can Find Additional Information” beginning on page 250 of this combined proxy statement/prospectus.

SUBMITTING PROXIES BY MAIL, TELEPHONE OR INTERNET

Baker Hughes stockholders of record may vote by submitting their proxies:

 

    by telephone, by calling the toll-free number (800) 690-6903 and following the recorded instructions;

 

    by accessing the Internet website at www.proxyvote.com and following the instructions on the website; or

 

    by mail, by indicating their vote on each proxy card received, signing and dating each proxy card and returning each proxy card in the prepaid envelope that accompanied the proxy card.

The Internet and telephone proxy submission procedures are designed to authenticate stockholders and to allow them to confirm that their instructions have been properly recorded.

Stockholders of Baker Hughes whose shares are held in “street name” must provide their broker, nominee, fiduciary or other custodian with instructions on how to vote their shares; otherwise, their broker, nominee, fiduciary or other custodian will not vote their shares on any of the proposals before the special meeting. Stockholders should check the voting form provided by their broker, nominee, fiduciary or other custodian for instructions on how to vote their shares.

 


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TABLE OF CONTENTS

 

     Page  

HELPFUL INFORMATION

     1  

QUESTIONS AND ANSWERS

     5  

Questions and Answers about the Transactions

     5  

Questions and Answers about the Special Meeting

     10  

TRADEMARKS AND TRADE NAMES

     16  

SUMMARY

     17  

The Companies

     17  

The Transactions

     18  

The New Baker Hughes Structure

     20  

Consideration

     20  

Baker Hughes Stockholders Will Have Appraisal Rights in Connection with the Transactions

     20  

Treatment of Baker Hughes Equity Incentive Awards

     21  

Material U.S. Federal Income Tax Consequences of the Transactions

     21  

The Baker Hughes Special Meeting

     22  

Approvals Required by Baker Hughes Stockholders to Complete the Transactions

     22  

Recommendations to Baker Hughes Stockholders

     23  

Opinion of Baker Hughes’ Financial Advisor

     23  

Regulatory Matters Relating to the Transactions

     23  

Additional Interests of Baker Hughes’ Directors and Executive Officers in the Transactions

     25  

Completion of the Transactions is Subject to a Number of Conditions

     25  

No Solicitation of Alternative Transactions by Baker Hughes

     26  

Termination Fees and Expenses May Be Payable in the Event the Transaction Agreement is Terminated by GE or Baker Hughes

     27  

Specific Performance; Remedies

     29  

Class  A Common Stock Anticipated to be Listed on NYSE; Baker Hughes Common Stock to be Delisted and Deregistered if the Transactions are Completed

     29  

Former Baker Hughes Stockholders Will Hold Shares Representing Approximately 37.5% of the Voting Power of the Outstanding Shares of New Baker Hughes Following Closing

     29  

Differences Exist Between the Rights of the Holders of Class  A Common Stock and Baker Hughes Stockholders

     29  

The Transactions and the Performance of New Baker Hughes are Subject to a Number of Risks

     30  

Post-Transactions Governance and Management

     30  

Stockholders Agreement

     30  

Newco LLC Agreement

     33  

Exchange Agreement

     34  

Registration Rights Agreement

     34  

Tax Matters Agreement

     35  

Commercial Agreements

     35  

Market Prices and Dividend Information

     37  

SELECTED HISTORICAL AND PRO FORMA CONDENSED COMBINED FINANCIAL DATA

     39  

Selected Historical Financial Data of Baker Hughes

     39  

Selected Historical Financial Data of GE O&G

     39  

Selected Unaudited Pro Forma Condensed Combined Financial Information

     41  

COMPARATIVE PER SHARE INFORMATION (UNAUDITED)

     43  


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     Page  

RISK FACTORS

     44  

Risk Factors Related to the Transactions

     44  

Risk Factors Related to the Business of New Baker Hughes

     53  

Risk Factors Related to the Worldwide Oil and Natural Gas Industry

     61  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     64  

INFORMATION ABOUT THE SPECIAL MEETING AND VOTING

     65  

Date, Time and Place of Special Meeting

     65  

Purpose of the Special Meeting

     65  

Record Date for the Special Meeting

     65  

Shares Entitled to Vote

     65  

Quorum

     65  

Vote Required; Abstentions and Broker Non-Vote

     66  

Voting by Baker Hughes Directors and Executive Officers

     67  

Voting at the Special Meeting

     68  

How to Vote by Proxy

     68  

Proxies Without Instruction

     68  

Revocation of Proxies

     69  

Solicitation of Proxies

     69  

Stockholders Should Not Send Stock Certificates With Their Proxies

     69  

Other Business; Adjournments

     69  

Baker Hughes Stockholder Account Maintenance

     70  

Recommendations to Baker Hughes Stockholders

     70  

THE TRANSACTIONS

     71  

The Companies

     71  

General

     72  

Background of the Transactions

     74  

Recommendation of the Board of Directors and its Reasons for the Transactions

     82  

Leadership of New Baker Hughes

     88  

Indemnification and Insurance

     89  

Projected Financial Data

     89  

Opinion of Baker Hughes’ Financial Advisor

     98  

Accounting Treatment

     105  

Regulatory Matters Relating to the Transactions

     105  

Litigation Relating to the Transactions

     108  

Appraisal Rights

     109  

Federal Securities Laws Consequences; Stock Transfer Restrictions

     112  

Stock Exchange Listing

     113  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS

     114  

ADDITIONAL INTERESTS OF BAKER HUGHES’ DIRECTORS AND EXECUTIVE OFFICERS IN THE TRANSACTIONS

     118  

Leadership of New Baker Hughes

     118  

Indemnification and Insurance

     118  

Equity Incentive Awards

     118  

Deferred Compensation—“Single Trigger” Vesting

     119  

Annual Bonuses—“Single Trigger” Payment

     120  

Change in Control and Severance Arrangements

     120  


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     Page  

Letter Agreement with Ms. Ross

     123  

Letter Agreement with Mr. Crain

     123  

Retention Awards

     123  

Arrangements with New Baker Hughes

     123  

Golden Parachute Compensation

     123  

TRANSACTION-RELATED COMPENSATION

     129  

THE TRANSACTION AGREEMENT

     130  

Structure of the Transactions

     130  

Surrender and Payment; Lost Certificates

     131  

Treatment of Baker Hughes Equity Incentive Awards

     132  

Working Capital Adjustment

     133  

Representations and Warranties

     133  

Conditions to Closing

     134  

Operations of Baker Hughes and GE O&G Pre-Closing

     136  

Government Approvals

     141  

Baker Hughes Non-Solicitation; Baker Hughes’ Ability to Change Recommendation

     143  

GE Reorganization

     145  

Stockholder Litigation

     145  

Director and Officer Indemnification and Insurance

     145  

Baker Hughes Stockholder Meeting

     146  

Termination and Termination Fees

     146  

Indemnification

     148  

Amendment and Waiver

     149  

Specific Performance

     149  

CERTAIN AGREEMENTS RELATED TO THE TRANSACTIONS

     150  

Stockholders Agreement

     150  

Newco LLC Agreement

     154  

Exchange Agreement

     158  

Registration Rights Agreement

     159  

Tax Matters Agreement

     160  

Commercial Agreements

     161  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     166  

COMPARISON OF STOCKHOLDER RIGHTS AND CORPORATE GOVERNANCE MATTERS

     178  

BEAR NEWCO, INC. 2017 LONG-TERM INCENTIVE PLAN

     188  

Approval of the LTI Plan

     188  

Description of the LTI Plan

     188  

Types of Awards the Committee May Grant

     189  

EXECUTIVE OFFICER PERFORMANCE GOALS

     192  

Approval of Executive Officer Performance Goals

     192  

Description of Executive Officer Performance Goals

     192  

DESCRIPTION OF NEW BAKER HUGHES CAPITAL STOCK

     194  

Authorized Capital Stock

     194  

New Baker Hughes Common Stock

     194  

New Baker Hughes Preferred Stock

     196  

Exclusive Venue

     196  

Anti-Takeover Effects of Provisions of the New Baker Hughes Charter and Bylaws

     196  


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     Page  

Corporate Opportunities and Transactions with Controlling Stockholder

     198  

Transfer Agent and Registrar

     198  

Listing of Common Stock

     198  

BUSINESS

     199  

New Baker Hughes

     199  

Baker Hughes

     200  

GE O&G Business

     201  

Products and Services

     203  

Raw Materials and Suppliers

     205  

Intellectual Property

     205  

Customers and Sales

     206  

Contracts

     207  

Research and Development

     208  

Regulatory and Environmental

     208  

Competition

     209  

Employees

     210  

Properties

     210  

Legal Proceedings

     211  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BAKER HUGHES

     212  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GE O&G

     213  

Presentation

     213  

Executive Summary

     213  

The Transactions

     214  

Factors Affecting Results of Operations

     214  

Key Performance Indicators

     215  

Orders for the Three-Month Periods Ending, and Backlog as at, March  31, 2017 and 2016

     216  

Historical Orders and Backlog by Fiscal Year

     217  

Results of Operations

     217  

Historical Segment Revenues and Segment Profit

     219  

Geographic Revenue for the Three Months Ended March 31, 2017

     219  

Historical Segment Revenues and Segment Profit

     220  

2016 Geographic Revenues

     220  

Three Months Ended March 31, 2017 to Three Months Ended March  31, 2016

     220  

Fiscal Year 2016 to Fiscal Year 2015

     223  

Fiscal Year 2015 to Fiscal Year 2014

     225  

Financial Resources and Liquidity

     227  

Operating Activities

     227  

Investing Activities

     228  

Financing Activities

     228  

Contractual Obligations

     229  

Other Factors Affecting Liquidity

     229  

Off Balance Sheet Commitments

     230  

Quantitative and Qualitative Disclosures about Market Risk

     230  


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     Page  

Changes in and Disagreements with Accountants and Financial Disclosure

     230  

Critical Accounting Estimates

     231  

DIRECTORS OF NEW BAKER HUGHES

     234  

Director Nominations

     237  

Director Independence

     237  

Board Meetings and Committees

     238  

New Baker Hughes Director Compensation

     240  

Indemnification of Officers and Directors

     240  

EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION

     241  

Executive Officers of Baker Hughes

     241  

Executive Officers of New Baker Hughes

     241  

Executive Compensation of New Baker Hughes

     241  

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     243  

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     244  

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     245  

DEADLINE AND PROCEDURES FOR SUBMITTING PROPOSALS FOR THE 2018 ANNUAL MEETING OF NEW BAKER HUGHES

     246  

HOUSEHOLDING

     247  

EXPERTS

     248  

LEGAL MATTERS

     249  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     250  

INDEX TO FINANCIAL STATEMENTS

     FS-1  

ANNEX A—TRANSACTION AGREEMENT AND PLAN OF MERGER

     A-1  

ANNEX A-II—AMENDMENT TO TRANSACTION AGREEMENT AND PLAN OF MERGER

     A-II-1  

ANNEX B—FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF BEAR NEWCO, INC.

     B-1  

ANNEX C—FORM OF AMENDED AND RESTATED BYLAWS OF BEAR NEWCO, INC.

     C-1  

ANNEX D—FORM OF STOCKHOLDERS AGREEMENT

     D-1  

ANNEX E—FORM OF NEWCO LLC AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

     E-1  

ANNEX F—FORM OF EXCHANGE AGREEMENT

     F-1  

ANNEX G—FORM OF REGISTRATION RIGHTS AGREEMENT

     G-1  

ANNEX H—FORM OF TAX MATTERS AGREEMENT

     H-1  

ANNEX I—FAIRNESS OPINION OF GOLDMAN SACHS & CO. LLC

     I-1  

ANNEX J—BEAR NEWCO, INC. 2017 LONG-TERM INCENTIVE PLAN

     J-1  

ANNEX K—SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE

     K-1  


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HELPFUL INFORMATION

In this document:

 

    “Adjournment Proposal” means the proposal to adjourn Baker Hughes’ special meeting if Baker Hughes determines that it is necessary or advisable to permit further solicitation of proxies in the event there are not sufficient votes at the time of the special meeting to adopt the Transaction Agreement;

 

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

 

    “Baker Hughes board of directors” means the board of directors of Baker Hughes;

 

    “CFC Holdings” means CFC Holdings, LLC, a Delaware limited liability company and wholly owned indirect subsidiary of New Baker Hughes;

 

    “Class A Common Stock” means the Class A common stock, par value $0.0001 per share, of New Baker Hughes;

 

    “Class B Common Stock” means the Class B common stock, par value $0.0001 per share, of New Baker Hughes;

 

    “Closing” means the consummation of the Transactions contemplated by the Transaction Agreement;

 

    “Closing Date” means the date on which Closing occurs;

 

    “Code” means the Internal Revenue Code of 1986, as amended;

 

    “Common Stock” means the Class A Common Stock and the Class B Common Stock, collectively;

 

    “Common Units” means membership interests in Newco LLC;

 

    “Company Independent Directors” means each of the four independent directors initially designated by Baker Hughes to the New Baker Hughes Board and any successor to such directors or any successor to Martin Craighead who is appointed to the New Baker Hughes Board in accordance with the terms of the Stockholders Agreement;

 

    “Contribution” means the transfer by GE® to Newco LLC, following the Second Merger and certain restructuring transactions effected by New Baker Hughes, of (i) all of the equity interests of the GE O&G holding companies that will hold directly or indirectly all of the assets and liabilities of GE O&G, including any GE O&G operating subsidiaries and (ii) $7.4 billion in cash in exchange for approximately 62.5% of the Common Units;

 

    “Conversion” means the conversion of the surviving corporation of the First Merger into Newco LLC by the filing of a Certificate of Formation and a Certificate of Conversion with the Secretary of State of Delaware in accordance with the Delaware Limited Liability Company Act and the DGCL;

 

    “DGCL” means the Delaware General Corporation Law;

 

    “DOJ” means the U.S. Department of Justice;

 

    “EC Merger Regulation” means Council Regulation (EC) No. 139/2004 of 20 January 2004 regarding the control of concentrations between undertakings, Official Journal L 24, 29.01.2004, p. 1-22;

 

    “EHHC” means EHHC Newco, LLC, a Delaware limited liability company and direct wholly owned subsidiary of New Baker Hughes that will own Common Units and be the managing member of Newco LLC;

 

    “Exchange Act” means the Securities Exchange Act of 1934, as amended;

 



 

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    “Exchange Agreement” means the Exchange Agreement, to be dated, executed and delivered as of the Closing Date, among GE, Newco LLC and New Baker Hughes, a copy of which is attached as Annex F to this combined proxy statement/prospectus;

 

    “Executive Officer Performance Goals Proposal” means the proposal to approve the material terms of executive officer performance goals;

 

    “First Merger” means the merger of Baker Hughes with Bear MergerSub 2, Inc., an indirect, wholly owned subsidiary of Baker Hughes, with Baker Hughes surviving the merger as a direct wholly owned subsidiary of BHI Newco, Inc.;

 

    “FTC” means the U.S. Federal Trade Commission;

 

    “GAAP” means generally accepted accounting principles in the United States;

 

    “GE” means General Electric Company, a New York corporation;

 

    “GE Digital Master Products and Services Agreement” means the GE Digital Master Products and Services Agreement, to be dated, executed and delivered as of the Closing Date, between GE and Newco LLC;

 

    “GE O&G” means GE’s Oil & Gas business as described in the segment disclosures in GE’s annual report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2016 and in “Summary—The Companies—GE and GE O&G” beginning on page 71 of this combined proxy statement/prospectus;

 

    “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;

 

    “Intercompany Services Agreement” means the Intercompany Services Agreement, to be dated, executed and delivered as of the Closing Date, between GE and Newco LLC;

 

    “IP Cross-License Agreement” means the IP Cross-License Agreement, to be dated, executed and delivered as of the Closing Date, between GE and Newco LLC;

 

    “LTI Plan” means the Bear Newco, Inc. 2017 Long-Term Incentive Plan;

 

    “LTI Plan Proposal” means the proposal to approve and adopt the LTI Plan;

 

    “Merger Consideration” means the right of those entitled to receive it under the Transaction Agreement to receive one share of Class A Common Stock;

 

    “Mergers” means, collectively, the First Merger and the Second Merger;

 

    “New Baker Hughes” means Bear Newco, Inc., a Delaware corporation, and, unless the context requires otherwise, its consolidated subsidiaries, including Newco LLC and its consolidated subsidiaries;

 

    “New Baker Hughes Board” means the board of directors of New Baker Hughes;

 

    “New Baker Hughes Bylaws” means the amended and restated bylaws of New Baker Hughes, a copy of which is attached as Annex C to this combined proxy statement/prospectus;

 

    “New Baker Hughes Charter” means the amended and restated certificate of incorporation of New Baker Hughes, a copy of which is attached as Annex B to this combined proxy statement/prospectus;

 

    “Newco LLC” means the Delaware limited liability company to be formed pursuant to the Conversion. Newco LLC will be owned approximately 62.5% by GE and approximately 37.5% by New Baker Hughes, indirectly through EHHC and CFC Holdings, and EHHC will be its managing member;

 



 

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    “Newco LLC Agreement” means the Newco LLC Amended & Restated Operating Agreement, to be dated, executed and delivered as of the Closing Date, among Newco LLC and its members, a copy of which is attached as Annex E to this combined proxy statement/prospectus;

 

    “Non-Competition Agreement” means the Non-Competition Agreement, to be dated, executed and delivered as of the Closing Date, between GE and New Baker Hughes;

 

    “NYSE” means the New York Stock Exchange;

 

    “Paired Interest” means, unless otherwise provided for in the Exchange Agreement or Newco LLC Agreement, one Common Unit together with one share of Class B Common Stock;

 

    “Registration Rights Agreement” means the Registration Rights Agreement, to be dated, executed and delivered as of the Closing Date, between GE and New Baker Hughes, a copy of which is attached as Annex G to this combined proxy statement/prospectus;

 

    “SEC” means the U.S. Securities and Exchange Commission;

 

    “Second Merger” means the merger of BHI Newco, Inc., a Delaware corporation, with New Baker Hughes, with New Baker Hughes as the surviving entity;

 

    “Securities Act” means the Securities Act of 1933, as amended;

 

    “Stockholders Agreement” means the Stockholders Agreement, to be dated, executed and delivered as of the Closing Date, between GE and New Baker Hughes, a copy of which is attached as Annex D to this combined proxy statement/prospectus;

 

    “Supply Agreement” means the Supply Agreement, to be dated, executed and delivered as of the Closing Date, between GE and Newco LLC;

 

    “Tax Matters Agreement” means the Tax Matters Agreement, to be dated, executed and delivered as of the Closing Date, among GE, New Baker Hughes, EHHC and Newco LLC, a copy of which is attached as Annex H to this combined proxy statement/prospectus;

 

    “Trademark License Agreement” means the Trademark License Agreement, to be dated, executed and delivered as of the Closing Date, between GE and Newco LLC;

 

    “Transaction Agreement” means the Transaction Agreement and Plan of Merger, dated as of October 30, 2016, among GE, Baker Hughes, Bear Newco, Inc., a Delaware corporation and Bear MergerSub, Inc., a Delaware corporation, as amended by the Amendment to Transaction Agreement and Plan of Merger, dated as of March 27, 2017, among GE, Baker Hughes, Bear Newco, Inc., Bear MergerSub, Inc., BHI Newco, Inc., a Delaware corporation and Bear MergerSub 2, Inc., a Delaware corporation, and as it may be further amended from time to time, a copy of which is attached as Annex A (including Annex A-II) to this combined proxy statement/prospectus;

 

    “Transaction Documents” means, collectively, the Transaction Agreement, the New Baker Hughes Charter, the New Baker Hughes Bylaws, the Stockholders Agreement, the Newco LLC Agreement, the Exchange Agreement, the Registration Rights Agreement, the Tax Matters Agreement, the GE Digital Master Products and Services Agreement, the Intercompany Services Agreement, the Non-Competition Agreement, the IP Cross-License Agreement, the Trademark License Agreement and the Supply Agreement;

 

    “Transaction-Related Compensation Proposal” means the proposal to approve, on a non-binding, advisory basis, the compensation that will or may become payable to Baker Hughes’ named executive officers in connection with the Transactions;

 

    “Transactions” means the various transactions contemplated by the Transaction Agreement, including the First Merger, the Conversion, the Second Merger and the Contribution;

 



 

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    “Trigger Date” means the first date on which GE both (a) ceases to beneficially own more than fifty percent (50%) of the voting power of the outstanding Common Stock and (b) is no longer required to consolidate the financial statements of New Baker Hughes in accordance with GAAP with those of GE during any fiscal year;

 

    “us,” “we,” and “our,” refer to Baker Hughes Incorporated and its consolidated subsidiaries, before completion of the Transactions, or New Baker Hughes and its consolidated subsidiaries, after the completion of the Transactions, as the context requires; and

 

    “you” means the stockholders of Baker Hughes.

 



 

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QUESTIONS AND ANSWERS

The following are some questions that you, as a stockholder of Baker Hughes, may have regarding the Transactions and the answers to those questions. Baker Hughes urges you to read the remainder of this combined proxy statement/prospectus carefully, including the annexes, because the information in this section does not provide all of the information that might be important to you with respect to the Transactions and how to vote your shares. In this combined proxy statement/prospectus, unless the context requires otherwise, references to “Baker Hughes” or “BHI” refer to Baker Hughes Incorporated and its consolidated subsidiaries before the completion of the Transactions, references to “New Baker Hughes” refer to Bear Newco, Inc. and its consolidated subsidiaries following the completion of the Transactions and references to “the Company,” “we,” “our” or “us” refer to Baker Hughes Incorporated and its consolidated subsidiaries, before completion of the Transactions, or Bear Newco, Inc. and its consolidated subsidiaries, after the completion of the Transactions, as the context requires. Throughout this combined proxy statement/prospectus we refer to the combined company as New Baker Hughes; however, following the completion of all of the Transactions described in this combined proxy statement/prospectus, Bear Newco, Inc. will be renamed “Baker Hughes, a GE Company.”

Questions and Answers about the Transactions

Q: Why am I receiving this combined proxy statement/prospectus?

A: This document is being delivered to you because you are a stockholder of Baker Hughes. Baker Hughes is holding a special meeting in connection with the proposed combination (sometimes referred to as the “Transactions”) of GE O&G and Baker Hughes. The Transactions include the merger of Baker Hughes with Bear MergerSub 2, Inc., with Baker Hughes surviving the merger as a direct, wholly owned subsidiary of BHI Newco, Inc., and the merger of BHI Newco, Inc. with New Baker Hughes, with New Baker Hughes surviving the merger (sometimes referred to as the “Mergers”).

Baker Hughes stockholders are being asked to adopt at a special meeting the Transaction Agreement, and thereby approve the Transactions, including the Mergers, and proposals to adjourn the special meeting if Baker Hughes determines it is necessary or advisable to permit further solicitation of proxies in the event there are not sufficient votes at the time of the special meeting to adopt the Transaction Agreement (sometimes referred to as the “Adjournment Proposal”), to approve, on a non-binding, advisory basis, the compensation that will or may become payable to Baker Hughes’ named executive officers in connection with the Transactions (sometimes referred to as the “Transaction-Related Compensation Proposal”), to approve and adopt the Bear Newco, Inc. 2017 Long-Term Incentive Plan (sometimes referred to as the “LTI Plan”), a copy of which is attached as Annex J to this combined proxy statement/prospectus (sometimes referred to as the LTI Plan Proposal”), and to approve the material terms of executive officer performance goals (sometimes referred to as “Executive Officer Performance Goals Proposal”). The adoption of the Transaction Agreement by Baker Hughes stockholders, thereby approving the Transactions, including the Mergers, is sometimes referred to as the “Baker Hughes stockholder approval.”

This document is serving as both a proxy statement of Baker Hughes and a prospectus of New Baker Hughes. It is a proxy statement because it is being used by the Baker Hughes board of directors to solicit proxies from its stockholders. It is a prospectus because New Baker Hughes is offering shares of its Class A Common Stock in exchange for shares of Baker Hughes common stock. A copy of the Transaction Agreement is attached as Annex A (including Annex A-II) to this combined proxy statement/prospectus.

Q: What is happening in the Transactions?

A: Baker Hughes and GE wish to combine Baker Hughes and GE O&G. In connection with the Transactions, GE will contribute GE O&G and $7.4 billion in cash to Newco LLC and New Baker Hughes will

 



 

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distribute a one-time cash dividend of $17.50 per share, to holders of record of Class A Common Stock immediately following the Mergers (which we refer to as the “Special Dividend”). Substantially all of the cash used to fund the Special Dividend will be provided by GE and paid to New Baker Hughes in connection with certain restructuring transactions effected at Closing. Baker Hughes and GE believe that the Transactions, as set forth in the Transaction Agreement, will create a leading oil and gas equipment, technology and services company and provide the potential for substantial strategic and financial benefits to their stockholders and customers and other stakeholders worldwide, including, among others:

 

    a diversified portfolio and strong balance sheet to deliver substantial value for GE and Baker Hughes stockholders;

 

    an industry leader with best-in-class physical and digital technology solutions for customer productivity; and

 

    significant cost and revenue synergies once fully integrated.

Additional information on the reasons for the Transactions can be found below in the section entitled “The Transactions—Recommendation of the Board of Directors and its Reasons for the Transactions” beginning on page 82 of this combined proxy statement/prospectus.

Q: What is New Baker Hughes?

A: New Baker Hughes is Bear Newco, Inc., a Delaware corporation that was created at the time the Transaction Agreement was entered into and is currently a subsidiary of Baker Hughes. Upon Closing, New Baker Hughes will become a holding company whose principal asset will be the indirect ownership of Common Units representing approximately 37.5% of the interests in Newco LLC. A wholly owned subsidiary of New Baker Hughes will also become the managing member of Newco LLC. At Closing, New Baker Hughes’ equity capital will consist solely of the Class A Common Stock and Class B Common Stock issued pursuant to the Transactions. Immediately after Closing, former Baker Hughes stockholders will hold the Class A Common Stock and GE will hold the Class B Common Stock.

Q: What is Newco LLC?

A: Newco LLC will be a Delaware limited liability company which will be the successor to Baker Hughes pursuant to the Conversion and will own GE O&G as a result of the Contribution. As a result, Newco LLC will own the combined businesses of Baker Hughes and GE O&G, as each existed prior to the consummation of the Transactions. Newco LLC will be governed by the Newco LLC Agreement. The operations of Newco LLC will be managed by New Baker Hughes through its wholly owned subsidiary as the managing member. The managing member will be able to control all of the day-to-day business affairs and decision-making of Newco LLC without the approval of any other member. For additional information regarding Newco LLC, see the section titled “Certain Agreements Related to the Transactions—Newco LLC Agreement” beginning on page 154 of this combined proxy statement/prospectus.

Q: What will existing stockholders of Baker Hughes own after the Transactions?

A: Holders of Baker Hughes common stock immediately prior to the Mergers will own approximately 37.5% of the economic interest in Newco LLC through their ownership of 100% of the Class A Common Stock. They will also be entitled to the Special Dividend of $17.50 per share that will be paid to holders of Class A Common Stock.

When the Transactions are completed, each share of Baker Hughes common stock outstanding immediately prior to the Mergers (other than appraisal shares and shares held by Baker Hughes) will have been converted

 



 

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automatically into the right to receive one share of Class A Common Stock in the Mergers. In addition, holders of Class A Common Stock will be entitled to receive the Special Dividend. Substantially all of the cash used to fund the Special Dividend will be provided by GE and paid to New Baker Hughes in connection with certain restructuring transactions effected at Closing. The exchange ratio and dividend payment amount to be used in connection with the Mergers is fixed and will not be adjusted to reflect changes in the price of Baker Hughes common stock prior to Closing.

Q: Are there risks associated with the Transactions?

A: Yes. We may not achieve the expected benefits of the Transactions because of the risks and uncertainties discussed in the section titled “Risk Factors” beginning on page 44 of this combined proxy statement/prospectus, which you should read carefully. Those risks include, among other things, risks relating to the uncertainty that we will be able to satisfy the closing conditions and complete the Transactions and, if we do so, that we will be able to successfully integrate the existing Baker Hughes business with the assets and operations of GE O&G, and uncertainties relating to the performance of the combined businesses following the completion of the Transactions. There are also other risks associated with the Transactions that are described in that section.

Q: How will my rights as a New Baker Hughes stockholder after Closing differ from my current rights as a Baker Hughes stockholder?

A: Both Baker Hughes and New Baker Hughes are Delaware corporations, but after Closing, your rights as a stockholder will be governed by the New Baker Hughes Charter, a copy of which is attached as Annex B to this combined proxy statement/prospectus, and by the New Baker Hughes Bylaws, a copy of which is attached as Annex C to this combined proxy statement/prospectus, rather than the current amended and restated certificate of incorporation of Baker Hughes and the current restated bylaws of Baker Hughes. A comparison of your rights as a stockholder under these governing documents is discussed in the section titled “Comparison of Stockholder Rights and Corporate Governance Matters” beginning on page 178 of this combined proxy statement/prospectus. New Baker Hughes will also be governed by the Stockholders Agreement, a copy of which is attached as Annex D to this combined proxy statement/prospectus and which is incorporated by reference into the New Baker Hughes Charter and also referred to in the New Baker Hughes Bylaws. In particular, following Closing there will be eleven members of the New Baker Hughes Board, and GE will have the right to designate for election six of the members. The remaining five members of the New Baker Hughes Board will be designated for election by the Governance & Nominating Committee of the New Baker Hughes Board, which will be comprised of a majority of Baker Hughes directors who meet certain NYSE independence requirements. GE will be obligated to vote in favor of all non-GE directors. In addition, the New Baker Hughes Charter will permit stockholders, including GE, to take action by written consent in lieu of a meeting. The current amended and restated certificate of incorporation of Baker Hughes does not permit stockholders to act by written consent.

Q: How will my rights as a New Baker Hughes stockholder differ from the rights of GE as the holder of Class B Common Stock and Common Units?

A: After the Transactions, GE will own shares of Class B Common Stock and Common Units. Each share of Class B Common Stock and the associated Common Unit form a Paired Interest which is intended to be equivalent to the Class A Common Stock. While each share of Class B Common Stock will have equal voting rights to a share of Class A Common Stock, it will have no economic rights, meaning holders of Class B Common Stock will have no right to dividends and no right to any assets in the event of liquidation of New Baker Hughes. GE will hold its economic interest through its direct ownership of Common Units.

 



 

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Q: What will happen to Baker Hughes’ dividend policy as a result of the Transactions?

A: Since the third quarter of 2014, Baker Hughes has paid quarterly dividends of $0.17 per share. The payment of future cash dividends is at the discretion of the Baker Hughes board of directors and, prior to Closing, will be determined in light of then-current conditions, including Baker Hughes’ earnings, Baker Hughes’ operations, Baker Hughes’ financial condition, Baker Hughes’ capital requirements and other factors deemed relevant by the Baker Hughes board of directors. Pursuant to the Transaction Agreement, Baker Hughes may declare quarterly cash dividends in amounts no greater than $0.17 per share. Following Closing, the New Baker Hughes Board will determine the dividend policy for New Baker Hughes, including the frequency or amount of any dividends (if any), in light of then-existing conditions.

Q: How are outstanding Baker Hughes stock options, restricted shares, restricted stock units and performance units treated as a result of the Transactions?

A: Awards granted under Baker Hughes’ equity incentive plans prior to the date of the Transaction Agreement that are outstanding at Closing will become fully vested as a result of Closing and will be treated as follows:

 

    Each option to purchase shares of Baker Hughes common stock ultimately will be converted into an option to purchase an equal number of shares of Class A Common Stock. Each converted option will be subject to the same terms and conditions as applied to the original option, and the per share exercise price of each converted option will be reduced by $17.50 to reflect the per share amount of the Special Dividend.

 

    Restricted shares of Baker Hughes common stock and restricted stock units with respect to Baker Hughes common stock ultimately will be converted into an equal number of unrestricted shares of Class A Common Stock. The converted shares will receive the Special Dividend.

 

    The performance period for the performance units that were outstanding on the date of the Transaction Agreement was completed on December 31, 2016, and all such performance units were settled in March 2017 based on actual performance. The Transactions have no impact on the vesting or payout of the performance unit awards.

After the date of the Transaction Agreement, Baker Hughes may grant equity awards, subject to specified limitations (see section entitled “The Transaction Agreement—Treatment of Baker Hughes Equity Incentive Awards” beginning on page 132 of this combined proxy statement/prospectus). It is anticipated that all such equity awards will be granted in the form of time-based and performance-based restricted stock units. All such restricted stock units that are outstanding at Closing (other than those held by non-employee directors) ultimately will be converted into restricted stock units with respect to a number of shares of Class A Common Stock equal to the number of shares (or, for performance-based restricted stock units, the target number of shares) of Baker Hughes subject to such restricted stock units immediately prior to Closing (and associated rights with respect to the Special Dividend) that will continue to vest based solely on service with New Baker Hughes over the remaining vesting schedule of the original restricted stock units (subject to accelerated vesting on an involuntary termination of employment that occurs during the 12-month period following Closing). All restricted stock units held by non-employee directors will vest at Closing.

Q: What are the material U.S. federal income tax consequences to Baker Hughes stockholders resulting from the Transactions?

A: Mergers and Conversion. Baker Hughes stockholders will not recognize gain or loss for U.S. federal income tax purposes as a result of the Mergers and the Conversion.

 



 

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Special Dividend. The Special Dividend will be characterized as a dividend for U.S. federal income tax purposes to the extent paid out of New Baker Hughes’ current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Baker Hughes does not expect that the Special Dividend will exceed New Baker Hughes’ current and accumulated earnings and profits.

With respect to the amount of the Special Dividend that is treated as a dividend for U.S. federal income tax purposes and paid to a former Baker Hughes stockholder who is a U.S. person, (i) if the U.S. person is not a corporation, such amount generally will be eligible for a reduced rate of taxation and (ii) if the U.S. person is a corporation, such amount generally will be eligible for the dividends-received deduction, in each case, if certain holding periods and other requirements are satisfied. Each such person should consult its tax advisors regarding the potential applicability of the statutory provisions regarding “extraordinary dividends” in light of its particular circumstances.

The amount of the Special Dividend that is treated as a dividend for U.S. federal income tax purposes and paid to a former Baker Hughes stockholder who is a non-U.S. person generally will be subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty unless such non-U.S. person is subject to U.S. federal income tax with respect to the Special Dividend in the same manner as a U.S. person.

Each Baker Hughes stockholder is urged to read the discussion in the section entitled “Material U.S. Federal Income Tax Consequences of the Transactions” beginning on page 114 of this combined proxy statement/prospectus and to consult its tax advisors to determine the particular U.S. federal, state or local or non-U.S. income or other tax consequences of the Transactions to such stockholder.

Q: How will the income and loss of Newco LLC be taxed?

A: It is intended that Newco LLC will be classified as a partnership for U.S. federal income tax purposes following Closing. As such, Newco LLC will not itself be subject to U.S. federal income tax under current U.S. tax laws. Newco LLC will file a U.S. federal partnership information return that reports its items of income, gain, loss and deduction for each taxable year. Each member of Newco LLC will be required to take into account for U.S. federal income tax purposes its distributive share of the items of income, gain, loss and deduction of Newco LLC which generally will include the items of income, gain, loss and deduction attributable to the U.S. operations of both Baker Hughes and GE O&G. The members of Newco LLC will be taxed on their distributive share of income and gain, whether or not a corresponding amount of cash or other property is distributed to them. As a consequence, New Baker Hughes’ share of the taxable income of Newco LLC may exceed the cash or other property actually distributed to New Baker Hughes members by Newco LLC.

Newco LLC is required to make distributions such that New Baker Hughes receives the amounts required to enable New Baker Hughes to meet its tax obligations, including its obligations pursuant to the Tax Matters Agreement.

Q: When will the Transactions be completed?

A: We are working to complete the Transactions as quickly as reasonably practicable, subject to receipt of necessary regulatory approvals and the stockholder approval that is being sought at the Baker Hughes special meeting. Baker Hughes and GE currently expect to complete the Transactions in mid-2017. However, Baker Hughes and GE cannot predict when regulatory review will be completed, whether or when regulatory or stockholder approval will be received or the potential terms and conditions of any regulatory approval that is received, and it is possible that those or other factors could require us to complete the Transactions at a later time or not complete them at all. For a discussion of the conditions to the Transactions, see the section titled “The Transaction Agreement—Conditions to Closing” beginning on page 134 of this combined proxy statement/prospectus.

 



 

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Q: What happens if Baker Hughes stockholders fail to adopt the Transaction Agreement and the Transactions contemplated thereby?

A: Adoption of the Transaction Agreement by Baker Hughes stockholders requires the affirmative vote, in person or by proxy, of the holders of a majority of the shares of Baker Hughes common stock outstanding and entitled to vote. If Baker Hughes stockholders do not adopt the Transaction Agreement, then both GE and Baker Hughes will be permitted to terminate unilaterally the Transaction Agreement. In such event, Baker Hughes will be required to reimburse GE’s expenses up to $40 million if an alternative proposal for Baker Hughes has been publicly proposed and is not withdrawn at least ten days prior to the special meeting. In addition if Baker Hughes subsequently enters into a definitive agreement providing for an alternative proposal within twelve months after the Transaction Agreement is terminated, Baker Hughes will be required to pay GE a termination fee of $750 million (less the amount of any expense reimbursement). If the Transaction Agreement is terminated by GE or Baker Hughes because of the failure of Baker Hughes stockholders to adopt the Transaction Agreement and no alternative proposal for Baker Hughes has been publicly proposed, or has been withdrawn at least ten days prior to the special meeting, then no expense reimbursement or termination fee is payable by Baker Hughes. See “The Transaction Agreement—Termination and Termination Fees” beginning on page 146 of this combined proxy statement/prospectus.

Q: Am I entitled to exercise appraisal rights instead of receiving the Merger Consideration and the Special Dividend for my shares of Baker Hughes common stock?

A: Yes. Baker Hughes stockholders are entitled to appraisal rights under Section 262 of the DGCL, provided they fully comply with and follow the procedures and satisfy the conditions set forth in Section 262 of the DGCL. For more information regarding appraisal rights, see the section entitled “The Transactions—Appraisal Rights” beginning on page 109 of this combined proxy statement/prospectus. In addition, a copy of Section 262 of the DGCL is attached as Annex K to this combined proxy statement/prospectus. Failure to comply with Section 262 of the DGCL will result in your waiver of, or inability to exercise, appraisal rights.

Q: What will GE stockholders be entitled to receive pursuant to the Transactions?

A: GE stockholders will not receive any consideration pursuant to the Transactions. GE stockholders will continue to own shares of GE and as such will indirectly share in the investments held by GE in New Baker Hughes and Newco LLC following the completion of the Transactions through their ownership of GE stock.

Questions and Answers about the Special Meeting

Q: What do I need to do now?

A: After you carefully read this combined proxy statement/prospectus, please respond by submitting your proxy by telephone, by the Internet or by completing, signing, dating and returning your signed proxy card(s) in the enclosed prepaid return envelope(s), as soon as possible, so that your shares may be represented at the special meeting. If you hold your shares in “street name” through a broker, nominee, fiduciary or other custodian, follow the directions given by the broker, nominee, fiduciary or other custodian regarding how to instruct them to vote your shares. In order to ensure that your vote is recorded, please submit your proxy as instructed on your proxy card(s) even if you currently plan to attend the special meeting in person.

Q: Who is entitled to vote at the special meeting?

A: All holders of Baker Hughes common stock who held shares at the record date for the special meeting (the close of business on [                ], 2017) are entitled to receive notice of, and to vote at, the special meeting provided that those shares remain outstanding on the date of the special meeting. As of the close of business on

 



 

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[                ], 2017, there were [                ] shares of Baker Hughes common stock outstanding. Each holder of Baker Hughes common stock is entitled to one vote for each share of Baker Hughes common stock owned at the record date.

Q: Why is my vote important?

A: If you do not submit your proxy, vote in person at the special meeting, or provide voting instructions, it will be more difficult for Baker Hughes to obtain the necessary quorum to hold the special meeting and to obtain the stockholder approvals necessary for the completion of the Mergers. For the special meeting, the presence, in person or by proxy, of holders of a majority of the Baker Hughes common stock issued and outstanding and entitled to vote at the special meeting constitutes a quorum for the transaction of business. If a quorum is not present at the special meeting, the Baker Hughes stockholders will not be able to take action on any of the proposals at that meeting.

For the Baker Hughes proposal to adopt the Transaction Agreement, a majority of the outstanding shares entitled to vote on such matter must approve such proposal, thus an abstention from voting, a failure to submit a proxy or vote in person at the special meeting, or a failure to provide your broker, nominee, fiduciary or other custodian, as applicable, with instructions on how to vote your shares will have the same effect as a vote against the proposal.

Your vote is very important. Baker Hughes cannot complete the Transactions unless Baker Hughes stockholders adopt the Transaction Agreement.

Q: How will my proxy be voted?

A: If you submit your proxy by telephone, by the Internet or by completing, signing, dating and returning your signed proxy card(s), your proxy will be voted in accordance with your instructions. If other matters are properly brought before the special meeting, or any adjournments of the meeting, your proxy includes discretionary authority on the part of the individuals appointed to vote your shares to act on those matters in their discretion.

Q: May I vote in person?

A: Yes. If you hold shares directly in your name as a stockholder of record of Baker Hughes common stock as of the close of business on [                ], 2017, you may attend the special meeting and vote your shares in person. If you hold shares of Baker Hughes common stock in “street name,” meaning through a broker, nominee, fiduciary or other custodian, you must obtain a legal proxy from that institution and present it to the inspector of election with your ballot to be able to vote in person at the special meeting. To request a legal proxy, please contact your broker, nominee, fiduciary or other custodian. Baker Hughes highly recommends that you vote in advance by submitting your proxy by telephone, by the Internet or by mail, even if you plan to attend the special meeting.

Q: What constitutes a quorum for the special meeting?

A: A quorum is the number of shares that must be represented at a meeting to lawfully conduct business. The presence at the special meeting, in person or by proxy, of the holders of a majority of the shares of Baker Hughes common stock issued and outstanding and entitled to vote at the special meeting constitutes a quorum for the transaction of business. Abstentions and broker non-votes, if any, will be included in the calculation of the number of shares considered to be present at the meeting for quorum purposes.

 



 

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Q: What are the votes required to approve the proposals?

A:

 

    Approval of the proposal to adopt the Transaction Agreement requires the affirmative vote of the holders of a majority of the shares of Baker Hughes common stock outstanding and entitled to vote on such proposal.

 

    Approval of the Adjournment Proposal requires the affirmative vote of the holders of a majority of the shares of Baker Hughes common stock represented at the special meeting and entitled to vote on such proposal if a quorum is present, and a majority of the voting stock represented in person or by proxy if a quorum is not present.

 

    Approval of the Transaction-Related Compensation Proposal requires the affirmative vote of the holders of a majority of the shares of Baker Hughes common stock represented at the special meeting and entitled to vote on such proposal.

 

    Approval of the LTI Plan Proposal requires the affirmative vote of the holders of a majority of the shares of Baker Hughes common stock represented at the special meeting and entitled to vote on such proposal.

 

    Approval of the Executive Officer Performance Goals Proposal requires the affirmative vote of the holders of a majority of the shares of Baker Hughes common stock represented at the special meeting and entitled to vote on such proposal.

Q: If I am a record holder of my shares, what happens if I abstain from voting (whether by returning my proxy card or submitting my proxy by telephone or via the Internet) or I don’t submit a proxy?

A:

 

    For the proposal to adopt the Transaction Agreement, an abstention or a failure to submit a proxy will have the same effect as a vote against such proposal.

 

    For the Adjournment Proposal, an abstention will have the same effect as a vote cast against such proposal, whether or not a quorum is present. A failure to submit a proxy will not have an effect on the outcome of the vote for the proposal.

 

    For the Transaction-Related Compensation Proposal, an abstention will have the same effect as a vote cast against such proposal. A failure to submit a proxy will not have an effect on the outcome of the vote for the proposal.

 

    For the LTI Plan Proposal, an abstention will have the same effect as a vote cast against such proposal. A failure to submit a proxy will not have an effect on the outcome of the vote for the proposal.

 

    For the Executive Officer Performance Goals Proposal, an abstention will have the same effect as a vote cast against such proposal. A failure to submit a proxy will not have an effect on the outcome of the vote for the proposal.

Q: What will happen if I return my proxy card without indicating how to vote?

A: If you are a Baker Hughes stockholder of record and submit your proxy but do not make specific choices with respect to the proposals, your proxy will follow the Baker Hughes board of directors’ recommendations and your shares will be voted:

 

    FOR the proposal to adopt the Transaction Agreement (under such circumstances, your proxy will constitute a waiver of your right of appraisal under Section 262 of the DGCL and will nullify any previously delivered written demand for appraisal under Section 262 of the DGCL);

 

    FOR the Adjournment Proposal;

 



 

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    FOR the Transaction-Related Compensation Proposal;

 

    FOR the LTI Plan Proposal; and

 

    FOR the Executive Officer Performance Goals Proposal.

A copy of Section 262 of the DGCL is attached as Annex K to this combined proxy statement/prospectus.

Q: What if my shares are held in “street name”?

A: If some or all of your shares of Baker Hughes are held in “street name” by your broker, nominee, fiduciary or other custodian, you must provide your broker, nominee, fiduciary or other custodian with instructions on how to vote your shares; otherwise, your broker, nominee, fiduciary or other custodian may submit a broker non-vote so as to be present for quorum purposes but will not be able to vote your shares on any of the proposals before the special meeting.

As a result of the foregoing, please be sure to provide your broker, nominee, fiduciary or other custodian with instructions on how to vote your shares. Please check the voting form used by your broker, nominee, fiduciary or other custodian to see if it offers telephone or Internet submission of proxies.

Q: Does Baker Hughes’ board of directors recommend that Baker Hughes stockholders adopt the Transaction Agreement and the Transactions contemplated thereby, including the Mergers?

A: Yes. The Baker Hughes board of directors has unanimously approved the Transaction Agreement and the Transactions contemplated thereby, including the Mergers, and determined that the Transaction Agreement and the Transactions contemplated by the Transaction Agreement, including the Mergers, are in the best interest of Baker Hughes and its stockholders. Therefore, the board of directors of Baker Hughes unanimously recommends that you vote FOR the proposal to adopt the Transaction Agreement and the Transactions contemplated thereby, including the Mergers, at the special meeting. See “The Transactions—Recommendation of the Board of Directors and its Reasons for the Transactions” beginning on page 82 of this combined proxy statement/prospectus. In considering the recommendation of the Baker Hughes board of directors with respect to the Transaction Agreement and the Transactions contemplated thereby, including the Mergers, you should be aware that directors and executive officers of Baker Hughes are parties to agreements or participants in other arrangements that give them interests in the Mergers that may be different from, or in addition to, your interests as a stockholder of Baker Hughes. You should consider these interests in voting on this proposal. These different interests are described under “Additional Interests of Baker Hughes’ Directors and Executive Officers in the Transactions” beginning on page 118 of this combined proxy statement/prospectus.

Q: What if I fail to instruct my broker how to vote? Will my broker automatically vote my shares for me?

A: Under the rules of NYSE, brokers who hold shares in “street name” for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are not allowed to exercise their voting discretion with respect to the approval of matters that NYSE determines to be “non-routine.” Accordingly, a broker non-vote occurs when the broker is not permitted to vote on an item without instruction from the beneficial owner of shares of common stock and the beneficial owner gives no instruction as to voting of the shares.

Under NYSE rules, your broker or bank does not have discretionary authority to vote your shares on any of the proposals to be presented at the special meeting. Therefore, if you are a Baker Hughes stockholder and you do not instruct your broker on how to vote your shares:

 

    your broker may not vote your shares on the proposal to adopt the Transaction Agreement, which broker non-votes will have the same effect as a vote against such proposal;

 



 

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    your broker may not vote your shares on the Adjournment Proposal, which broker non-votes will have no effect on the outcome of the proposal if a quorum is present, and will have the same effect as a vote against such proposal if a quorum is not present;

 

    your broker may not vote your shares on the Transaction-Related Compensation Proposal, which broker non-votes will have no effect on the outcome of the proposal;

 

    your broker may not vote your shares on the LTI Plan Proposal, which broker non-votes will have no effect on the outcome of the proposal; and

 

    your broker may not vote your shares on the Executive Officer Performance Goals Proposal, which broker non-votes will have no effect on the outcome of the proposal.

See “Information About the Special Meeting and Voting—Vote Required; Abstentions and Broker Non-Vote” beginning on page 66 of this combined proxy statement/prospectus.

Q: What happens if I sell my shares after the record date but before the special meeting or before the Closing?

A: The record date for the special meeting (the close of business on [                ], 2017) is earlier than the date of the special meeting and earlier than the date that the Mergers are expected to be completed. If you sell or otherwise transfer shares of Baker Hughes common stock after the record date but before the date of the special meeting, you will retain your right to vote those shares at the special meeting. However, you will not have the right to receive the Merger Consideration or the Special Dividend in respect of those shares. In order to receive the Merger Consideration and the Special Dividend, you must hold your shares through the effective time of the Mergers.

Q: Who will count the votes?

A: The inspector of elections will count all ballots submitted, including those submitted by proxies, and report the votes at the special meeting. Whether you vote your shares by Internet, telephone or mail, your vote will be received directly by Broadridge Financial Solutions, Inc.

Q: What does it mean if I receive more than one set of materials?

A: This means you own shares of Baker Hughes that are registered under different names or held in different brokerage accounts. For example, you may own some shares directly as a stockholder of record and other shares through a broker or you may own shares through more than one broker. In these situations, you may receive multiple sets of proxy materials. It is necessary for you to vote, sign and return all of the proxy cards or follow the instructions for submitting your proxy by telephone, by the Internet on each of the proxy cards you receive in order to vote all of the shares you own. Each proxy card you receive will come with its own prepaid return envelope; if you submit your proxy by mail, make sure you return each proxy card in the return envelope which accompanied that proxy card.

Q: Can I revoke my proxy and change my vote?

A: Yes. You have the right to revoke your proxy at any time prior to the time your shares are voted at the special meeting. If you are a stockholder of record, your proxy can be revoked in several ways:

 

    by sending a written notice stating that you revoke your proxy to Baker Hughes Incorporated, 17021 Aldine Westfield Road, Houston, Texas 77073, Attention: Corporate Secretary, that bears a date later than the date of your previously submitted proxy and is received prior to the special meeting;

 



 

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    by submitting a valid, later-dated proxy by telephone or Internet that is received prior to [                ] Houston, Texas time on [                ], 2017; or

 

    by attending the special meeting and voting by ballot in person (your attendance at the special meeting will not, by itself, revoke any proxy that you have previously given).

However, if your shares are held in “street name” through a broker, nominee, fiduciary or other custodian, you must check with your broker, nominee, fiduciary or other custodian to determine how to revoke your proxy.

Q: When and where is the special meeting?

A: The special meeting will take place on [                ], 2017, at [                ] a.m., local time, at [                ].

Q: Who can attend the special meeting? What must I bring to attend the special meeting?

A: Admittance to the special meeting will require the admission ticket that is attached to your proxy card (or other proof of stock ownership) and a valid photo identification. Attendance at the meeting will be limited to stockholders of record as of the record date and one guest per stockholder, and to guests of Baker Hughes. Stockholders whose shares are held in “street name” by a broker, nominee, fiduciary or other custodian should bring with them evidence of share ownership, such as a recent brokerage account or bank statement, together with a valid photo identification. If you want to vote your shares of Baker Hughes common stock held in “street name” in person at the special meeting, you will have to obtain a legal proxy in your name from the broker, nominee, fiduciary or other custodian who holds your shares.

Q: Should I send in my Baker Hughes stock certificates now?

A: No. After the Mergers are completed, New Baker Hughes will send former Baker Hughes stockholders written instructions for exchanging their Baker Hughes stock certificates for stock certificates of New Baker Hughes, if applicable.

Q: When and how will the Special Dividend be paid?

A: The Special Dividend will be distributed after the consummation of the Transactions to holders of record of Class A Common Stock on the Closing Date. Holders of Baker Hughes common stock that properly demand appraisal of their shares under Delaware law will not receive shares of Class A Common Stock in connection with the Transactions and consequently will not be entitled to receive the Special Dividend.

Q: Who can answer any questions I may have about the special meeting or the Mergers?

A: Baker Hughes stockholders may call D.F. King, Baker Hughes’ proxy solicitor for the special meeting, toll-free at (800) 735-3591.

 



 

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TRADEMARKS AND TRADE NAMES

Baker Hughes owns and has rights to, and New Baker Hughes will own or acquire rights to, trademarks, service marks, copyrights and trade names in conjunction with the operation of its business and future business including, without limitation, Baker Hughes and certain “GE” marks. Solely for convenience, the trademarks, service marks, copyrights and trade names referred to in this combined proxy statement/prospectus may be listed without the ™, © and ® symbols, but such references do not constitute a waiver of any rights that might be associated with the respective trademarks, service marks, copyrights and trade names included or referred to in this combined proxy statement/prospectus.

This combined proxy statement/prospectus also includes trademarks, service marks and trade names of other companies, including, without limitation, GE. Each trademark, service mark or trade name of any other company appearing in this combined proxy statement/prospectus belongs to its holder. Use or display by us of other parties’ trademarks, service marks or trade names is not intended to and does not imply a relationship with, or endorsement or sponsorship by us of the trademark, service mark or trade name owner.

 



 

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SUMMARY

The following summary highlights information contained elsewhere in this combined proxy statement/prospectus. It may not contain all the information that may be important to you. You should read this entire combined proxy statement/prospectus carefully, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of GE O&G,” “Business—GE O&G Business” and the GE O&G financial statements and related notes, all included elsewhere in this combined proxy statement/prospectus. A copy of the Transaction Agreement is attached as Annex A (including Annex A-II) to this combined proxy statement/prospectus.

The Companies (see page 71)

New Baker Hughes

New Baker Hughes is a Delaware corporation that was formed by Baker Hughes for the purpose of engaging in the Transactions. New Baker Hughes will be a holding company whose principal asset will be the indirect ownership of Common Units representing approximately 37.5% of the interests in Newco LLC. A wholly owned subsidiary of New Baker Hughes will also be the managing member of Newco LLC. Immediately after the completion of the Transactions, New Baker Hughes’ equity capital will consist solely of the Class A Common Stock and Class B Common Stock issued pursuant to the Transactions. In the Transaction Agreement, New Baker Hughes represents that it has not conducted any business since its formation, and prior to Closing will have no assets, liabilities or obligations of any nature other than those incident to its formation and pursuant to the Transaction Agreement, and the Transactions contemplated thereby. For a description of the capital stock of New Baker Hughes, see “Description of New Baker Hughes Capital Stock” beginning on page 194 of this combined proxy statement/prospectus.

The principal executive offices of New Baker Hughes are located at 17021 Aldine Westfield Road, Houston, Texas 77073, and the telephone number at that address is (713) 439-8600. Following Closing, the principal executive offices of New Baker Hughes will be dual located at 17021 Aldine Westfield Road, Houston, Texas 77073, and the telephone number at this location is (713) 439-8600, and The Ark, 201 Talgarth Road, Hammersmith, London, UK, W6 8BJ, United Kingdom, and the telephone number at this location is +44 (207) 302 6000.

Baker Hughes

Baker Hughes is a leading supplier of oilfield services, products, technology and systems to the worldwide oil and natural gas industry. Baker Hughes’ approximately 33,000 employees today work in more than 80 countries helping customers find, evaluate, drill, produce, transport and process hydrocarbon resources. Additional information about Baker Hughes and its subsidiaries is included in documents incorporated by reference in this combined proxy statement/prospectus. See “Where You Can Find Additional Information” beginning on page 250 of this combined proxy statement/prospectus.

The principal executive offices of Baker Hughes are located at 17021 Aldine Westfield Road, Houston, Texas 77073, and its telephone number at that address is (713) 439-8600.

GE and GE O&G

General Electric Company, a New York corporation, is a global digital industrial company, transforming industry with software-defined machines and solutions that are connected, responsive and predictive. With products and services ranging from aircraft engines, power generation and oil and gas production equipment to

 



 

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medical imaging, financing and industrial products, GE serves customers in approximately 180 countries and employs approximately 295,000 people worldwide. Since GE’s incorporation in 1892, it has developed or acquired new technologies and services that have considerably broadened and changed the scope of its activities. GE is organized around a global exchange of knowledge (which we sometimes refer to as the “GE Store”), through which each of its businesses shares and accesses the same technology, markets, structure and intellect. Each invention further fuels innovation and application across the industrial sectors in which GE competes. With people, services, technology and scale, GE delivers better outcomes for customers by speaking the language of industry.

GE O&G is part of GE. GE O&G serves segments across the oil and gas industry, from drilling, completion, production and oilfield operations, to transportation as liquefied natural gas (LNG) or via pipelines. GE

O&G operates in over 120 countries and employs approximately 34,000 people worldwide. In addition, GE O&G provides industrial power generation and compression solutions to the refining and petrochemicals segments. GE O&G also delivers pipeline integrity solutions and a wide range of sensing, inspection and monitoring technologies. GE O&G exploits technological innovation from other GE segments, such as Aviation and Healthcare, to continuously improve oil and gas industry performance, output and productivity. See “Business—GE O&G Business” beginning on page 201 of this combined proxy statement/prospectus.

Newco 2 and Merger Sub 2

BHI Newco, Inc. (which we refer to as “Newco 2”) and Bear MergerSub 2, Inc. (which we refer to as “Merger Sub 2”) have been formed solely for the purpose of engaging in the Transactions. Neither Newco 2 nor Merger Sub 2 has conducted any business since its formation, and prior to Closing, each will have no assets, liabilities or obligations of any kind other than those incident to its formation and pursuant to the Transaction Agreements. Newco 2 is, and will be prior to Closing, a corporation incorporated in Delaware and wholly owned by Baker Hughes. Merger Sub 2 is, and will be prior to Closing, a corporation incorporated in Delaware and wholly and directly owned by Newco 2.

Newco LLC

Baker Hughes, the surviving entity of the First Merger, will convert into a Delaware limited liability company, Newco LLC. Pursuant to the Transactions, GE will transfer GE O&G to Newco LLC. As a result of the Transactions, Newco LLC will own the combined businesses of Baker Hughes and GE O&G. GE will also transfer $7.4 billion in cash to Newco LLC. In connection with certain restructuring transactions effected at Closing, the contributed cash will be paid to New Baker Hughes and used to fund substantially all of the Special Dividend paid to holders of record of Class A Common Stock. Newco LLC will be governed by the Newco LLC Agreement, pursuant to which the business and operations of Newco LLC will be managed by EHHC as the managing member.

The Transactions (see page 71)

The Transaction Agreement and related documents provide that, on the terms and subject to the conditions set forth in the Transaction Agreement, among other things:

 

    Formation of New Baker Hughes Entities. Baker Hughes formed New Baker Hughes and Newco 2 as its direct and wholly owned subsidiaries. Newco 2, in turn, formed Merger Sub 2 as its direct wholly owned subsidiary.

 

   

Baker Hughes Reorganization. Baker Hughes will undertake certain restructuring transactions to facilitate the Transactions, including converting certain U.S. corporate subsidiaries of Baker Hughes to limited liability companies. As part of the Baker Hughes Reorganization, EHHC will be formed as a

 



 

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Delaware limited liability company and successor to an existing Baker Hughes subsidiary, and CFC Holdings, Inc., an existing subsidiary of Baker Hughes, will be converted into CFC Holdings, a Delaware limited liability company. As described below, EHHC and CFC Holdings (including their predecessors) currently hold substantially all of the foreign operations of Baker Hughes. Causing EHHC and CFC Holdings to be the members of Newco LLC will facilitate the transfer of these operations to Newco LLC and permit Baker Hughes’ consolidated tax group to continue following the Transactions.

 

    GE O&G Reorganization. GE will undertake certain restructuring transactions to separate GE O&G from GE’s other business activities and facilitate the transfer of GE O&G to Newco LLC, including converting certain U.S. corporate subsidiaries of GE that will be transferred to Newco LLC to limited liability companies.

 

    The First Merger. Merger Sub 2 will merge with and into Baker Hughes, with Baker Hughes as the surviving corporation and a direct, wholly owned subsidiary of Newco 2. As a result of the First Merger, each issued and outstanding share of common stock of Baker Hughes will be converted into the right to receive one share of common stock, par value $1.00 per share, of Newco 2 (which we refer to as the “First Step Consideration”).

 

    The Conversion. Immediately following and as part of the plan that includes the First Merger, Newco 2 will cause Baker Hughes, the surviving entity of the First Merger, to be converted into Newco LLC, a Delaware limited liability company. Newco 2 will become the managing member of Newco LLC.

 

    The Second Merger. Immediately following and as part of the plan that includes the First Merger and the Conversion, Newco 2 will merge with and into New Baker Hughes, with New Baker Hughes as the surviving corporation and New Baker Hughes becoming the managing member of Newco LLC. As a result of the Second Merger, each issued and outstanding share of common stock of Newco 2 will be converted into the right to receive one share of Class A Common Stock (which we refer to as the “Merger Consideration”). Following the Second Merger and as a part of the Baker Hughes Reorganization, described above, EHHC and CFC Holdings will acquire all of the Common Units held by New Baker Hughes, and EHHC will become the managing member of Newco LLC. As managing member of Newco LLC, EHHC will be exclusively vested with all management powers over the business affairs of Newco LLC and will appoint officers to oversee the day-to-day business and operations of Newco LLC. EHHC and CFC Holdings will be holding companies and will have no other assets or liabilities, and New Baker Hughes will be the managing member of EHHC. Accordingly, New Baker Hughes will, as the managing member of EHHC, effectively control Newco LLC.

 

    The Class B Purchase. GE will contribute to New Baker Hughes a nominal amount of cash equal to the product of the number of shares of Class B Common Stock issuable to GE multiplied by the par value of one share of Class B Common Stock in exchange for a number of shares of Class B Common Stock equal to the number of Common Units issued to GE in the Contribution, described immediately below.

 

    The Contribution. Following the Second Merger and the completion of the Baker Hughes Reorganization, GE will transfer to Newco LLC, in exchange for approximately 62.5% of the Common Units, (i) all of the equity interests of the GE O&G holding companies that will hold directly or indirectly all of the assets and liabilities of GE O&G, including any GE O&G operating subsidiaries, and (ii) $7.4 billion in cash.

 

    Special Dividend. New Baker Hughes will distribute as a special dividend an amount equal to $17.50 per share to the holders of record of Class A Common Stock immediately following the Second Merger.

 



 

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The Transaction Agreement is attached as Annex A (including Annex A-II) to this combined proxy statement/prospectus. We encourage you to read the Transaction Agreement carefully and fully, as it is the legal document that governs the Transactions.

The New Baker Hughes Structure

The following diagram illustrates the structure of New Baker Hughes and its stockholders and a simplified version of its operating subsidiaries upon completion of the Transactions:

 

LOGO

 

* These Common Units will be owned directly by EHHC and CFC Holdings, and EHHC will also be the managing member of Newco LLC.

Consideration

Subject to the terms and conditions of the Transaction Agreement, at Closing, each share of Baker Hughes common stock issued and outstanding immediately prior to Closing (other than dissenting shares as described in “The Transactions—Appraisal Rights” and other than shares held in Baker Hughes’ treasury, which will be canceled for no consideration) will be automatically converted into the right to receive one share of Class A Common Stock. In addition, New Baker Hughes will distribute the Special Dividend. The Special Dividend will not be paid unless the Transactions are completed.

Baker Hughes Stockholders Will Have Appraisal Rights in Connection with the Transactions (see page 109)

Baker Hughes stockholders are entitled to appraisal rights under Section 262 of the DGCL provided they fully comply with and follow the procedures and satisfy all of the conditions set forth in Section 262 of the DGCL. For more information regarding appraisal rights, see the section entitled “The Transactions—Appraisal Rights” beginning on page 109 of this combined proxy statement/prospectus. In addition, a copy of Section 262

 



 

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of the DGCL is attached as Annex K to this combined proxy statement/prospectus. Failure to comply with Section 262 of the DGCL will result in your waiver of, or inability to exercise, appraisal rights.

Treatment of Baker Hughes Equity Incentive Awards (see page 132)

Awards granted under Baker Hughes’ equity incentive plans prior to the date of the Transaction Agreement that are outstanding at Closing will become fully vested as a result of Closing and will be treated as follows:

 

    Each option to purchase shares of Baker Hughes common stock ultimately will be converted into an option to purchase an equal number of shares of Class A Common Stock. Each converted option will be subject to the same terms and conditions as applied to the original option, and the per share exercise price of each converted option will be reduced by $17.50 to reflect the per share amount of the Special Dividend.

 

    Restricted shares of Baker Hughes common stock and restricted stock units with respect to Baker Hughes common stock ultimately will be converted into an equal number of unrestricted shares of Class A Common Stock. The converted shares will receive the Special Dividend.

 

    The performance period for the performance units that were outstanding on the date of the Transaction Agreement was completed on December 31, 2016, and all such performance units were settled in March 2017 based on actual performance. The Transactions had no impact on the vesting or payout of the performance unit awards.

After the date of the Transaction Agreement, Baker Hughes may grant equity awards, subject to specified limitations (see section entitled “The Transaction Agreement—Treatment of Baker Hughes Equity Incentive Awards” beginning on page 132 of this combined proxy statement/prospectus). It is anticipated that all such equity awards will be granted in the form of time-based and performance-based restricted stock units. All such restricted stock units that are outstanding at Closing (other than those held by non-employee directors) ultimately will be converted into restricted stock units with respect to a number of shares of Class A Common Stock equal to the number of shares (or, for performance-based restricted stock units, the target number of shares) of Baker Hughes subject to such restricted stock units immediately prior to Closing (and associated rights with respect to the Special Dividend) that will continue to vest based solely on service with New Baker Hughes over the remaining vesting schedule of the original restricted stock units (subject to accelerated vesting on an involuntary termination of employment that occurs during the 12-month period following Closing). All restricted stock units held by non-employee directors will vest at Closing.

Material U.S. Federal Income Tax Consequences of the Transactions (see page 114)

Baker Hughes stockholders will not recognize gain or loss for U.S. federal income tax purposes as a result of the Mergers and the Conversion.

The Special Dividend will be characterized as a dividend for U.S. federal income tax purposes to the extent paid out of New Baker Hughes’ current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Baker Hughes does not expect that the Special Dividend will exceed New Baker Hughes’ current and accumulated earnings and profits.

With respect to the amount of the Special Dividend that is treated as a dividend for U.S. federal income tax purposes and paid to a Baker Hughes stockholder who is a U.S. person, (i) if the U.S. person is not a corporation, such amount generally will be eligible for a reduced rate of taxation and (ii) if the U.S. person is a corporation, such amount generally will be eligible for the dividends-received deduction, in each case if certain holding periods and other requirements are satisfied. Each such person should consult its tax advisors regarding the potential applicability of the statutory provisions regarding “extraordinary dividends” in light of its particular circumstances.

 



 

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The amount of the Special Dividend that is treated as a dividend for U.S. federal income tax purposes and paid to a Baker Hughes stockholder who is a non-U.S. person generally will be subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty. However, if the Special Dividend paid to such a non-U.S. person is effectively connected with such person’s conduct of a U.S. trade or business and, if required by an applicable income tax treaty, attributable to a permanent establishment or fixed base maintained by such person in the United States, the Special Dividend will instead be subject to U.S. federal income tax on a net income basis in the same manner as if such person were a U.S. person. Each beneficial owner that is a non-U.S. corporation should consult its tax advisors regarding the possible imposition of a branch profits tax at a rate of 30% (or lower treaty rate).

Each Baker Hughes stockholder is urged to read the discussion in the section entitled “Material U.S. Federal Income Tax Consequences of the Transactions” beginning on page 114 of this combined proxy statement/prospectus and to consult its tax advisors to determine the particular U.S. federal, state or local or non-U.S. income or other tax consequences of the Transactions to such stockholder.

The Baker Hughes Special Meeting

The special meeting will be held at [            ] on [            ], 2017 at [        ], local time. The record date for the special meeting is [            ], 2017. Only Baker Hughes stockholders of record at the close of business on [            ], 2017 will be entitled to receive notice of and to vote at the special meeting or any adjournment thereof. Shares of Baker Hughes common stock held by Baker Hughes as treasury shares and by any Baker Hughes subsidiary will not be entitled to vote.

Approvals Required by Baker Hughes Stockholders to Complete the Transactions (see page 66)

A stockholder will be deemed “present” at the special meeting by proxy if the stockholder has returned a proxy by mail, by telephone, or via the Internet (even if the proxy contains no instructions as to voting, abstains from voting or constitutes a broker “non-vote”). If you do not return your proxy card or submit your proxy by telephone, via the Internet or vote in person at the special meeting, your vote will not be counted and it will be less likely that there will be a quorum to conduct business at the special meeting and that the vote necessary to adopt the Transaction Agreement will be obtained.

 

    Approval of the proposal to adopt the Transaction Agreement requires the affirmative vote of the holders of a majority of the shares of Baker Hughes common stock outstanding and entitled to vote on such proposal.

 

    Approval of the Adjournment Proposal requires the affirmative vote of the holders of a majority of the shares of Baker Hughes common stock represented at the special meeting and entitled to vote on such proposal if a quorum is present, and a majority of the voting stock represented in person or by proxy if a quorum is not present.

 

    Approval of the Transaction-Related Compensation Proposal requires the affirmative vote of the holders of a majority of the shares of Baker Hughes common stock represented at the special meeting and entitled to vote on such proposal.

 

    Approval of the LTI Plan Proposal requires the affirmative vote of the holders of a majority of the shares of Baker Hughes common stock represented at the special meeting and entitled to vote on such proposal.

 

    Approval of the Executive Officer Performance Goals Proposal requires the affirmative vote of the holders of a majority of the shares of Baker Hughes common stock represented at the special meeting and entitled to vote on such proposal.

 



 

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Baker Hughes’ directors and executive officers beneficially owned [            ] shares of Baker Hughes common stock on [            ], 2017, the record date for the special meeting. These shares represent in total [    ]% of the total voting power of Baker Hughes’ voting securities outstanding and entitled to vote as of the record date. Baker Hughes currently expects that Baker Hughes’ directors and executive officers will vote their shares in favor of all the proposals to be voted on at the special meeting, although none of them have entered into any agreements obligating them to do so.

Baker Hughes cannot complete the Transactions unless Baker Hughes stockholders approve the proposal to adopt the Transaction Agreement. All proposals other than the proposal to adopt the Transaction Agreement are not conditions to the consummation of the Transactions.

Recommendations to Baker Hughes Stockholders (see page 70)

The Baker Hughes board of directors has reviewed and considered the terms of the Transactions and the Transaction Agreement and has unanimously determined that the Transaction Agreement and the Transactions contemplated thereby, including the Mergers, are advisable, fair to, and in the best interests of Baker Hughes and its stockholders and unanimously recommends that Baker Hughes stockholders vote FOR the proposal to adopt the Transaction Agreement and thereby approve the Transactions, including the Mergers. The Baker Hughes board of directors also recommends that you vote FOR the Adjournment Proposal, FOR the Transaction-Related Compensation Proposal, FOR the LTI Plan Proposal, and FOR the Executive Officer Performance Goals Proposal.

Opinion of Baker Hughes’ Financial Advisor (see page 98)

On October 30, 2016, at a meeting of the Baker Hughes board of directors, Goldman Sachs & Co. LLC (sometimes referred to as “Goldman Sachs”) rendered its oral opinion, subsequently confirmed in writing, to the effect that, as of October 30, 2016, the date of its written opinion, and based upon and subject to the factors and assumptions set forth therein, the Merger Consideration together with the Special Dividend to be paid to the holders of Baker Hughes common stock (other than GE and its affiliates) pursuant to the Transaction Agreement, was fair from a financial point of view to such holders. The full text of the written opinion of Goldman Sachs, dated October 30, 2016, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex I.

Goldman Sachs provided advisory services and its opinion for the information and assistance of the Baker Hughes board of directors in connection with its consideration of the Transactions. The Goldman Sachs opinion is not a recommendation as to how any holder of the shares of Baker Hughes common stock should vote with respect to the Transactions or any other matter. The engagement letter between Baker Hughes and Goldman Sachs provides for compensation to be paid to Goldman Sachs that is estimated, based on information available as of May 23, 2017 at approximately $39 million, as it may be reduced in accordance with the terms of such engagement letter. Upon the public announcement of the Transaction Agreement, Baker Hughes paid Goldman Sachs $5 million of the compensation and the remainder is payable upon Closing. The amount of compensation to be paid to Goldman Sachs upon Closing depends on the implied per share value of the Merger Consideration to be paid to holders of Baker Hughes common stock pursuant to the Transaction Agreement.

Regulatory Matters Relating to the Transactions (see page 105)

Under the terms of the Transaction Agreement, the Transactions cannot be completed until the waiting period applicable to the consummation of the Transactions under the HSR Act has expired or been terminated and all other specified required approvals have been obtained or any applicable waiting period thereunder has expired or been terminated.

 



 

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Under the HSR Act and the rules promulgated thereunder by the FTC, the Transactions cannot be completed until each of GE and Baker Hughes has filed a notification and report form with the FTC and the Antitrust Division of the DOJ under the HSR Act and the applicable waiting period has expired or been terminated. Each of GE and Baker Hughes filed an initial notification and report on February 2, 2017. On March 6, 2017, the DOJ issued a request for additional information under the HSR Act.

At any time before or after consummation of the Transactions, notwithstanding the termination of the waiting period under the HSR Act, the Antitrust Division of the DOJ or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest including seeking to enjoin the completion of the Transactions or seeking divestiture of substantial assets of GE or Baker Hughes. At any time before or after the completion of the Transactions, and notwithstanding the termination of the waiting period under the HSR Act, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the Transactions or seeking divestiture of substantial assets of GE and Baker Hughes. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

The Transactions are also subject to approval by governmental authorities in other jurisdictions under the antitrust/competition laws of those jurisdictions. Under the Transaction Agreement, the parties’ obligations to complete the Transactions are conditioned on the receipt or making, as the case may be, of all antitrust/competition law approvals or filings required by the laws of the United States, European Union, Australia, Brazil, Canada, China, Colombia, Ecuador, India, Israel, Kazakhstan, Kenya, Mexico, Pakistan, Russia, Saudi Arabia, Serbia, South Africa and Turkey, to the extent filings are required in any or all of these jurisdictions. In addition, the parties’ obligations to complete the Transactions are also conditioned on (i) the expiration of any other waiting or other time periods, and the receipt of any additional regulatory clearances which, to avoid significant adverse effects, GE reasonably determines to be required as a result of a material change in fact or law, subject to Baker Hughes’ consent, which consent may not be unreasonably withheld, or as otherwise agreed by GE and Baker Hughes, and (ii) Strategic Investment Committee clearance and competition clearance from Russia. The parties have submitted antitrust/competition filings in all of the jurisdictions listed above.

GE has agreed to take any action, including with respect to any request that assets, businesses or product lines be divested or held separate or subject to conduct remedies, limitations or other actions, as may be necessary to resolve such objections, if any, that the FTC, the DOJ, the European Commission, state antitrust enforcement authorities or competition authorities of any other nation or other jurisdiction, may assert in connection with obtaining antitrust clearance for the Transactions so as to enable Closing to occur as soon as reasonably possible (and in any event no later than January 30, 2018 (or such later date as may be permitted under the Transaction Agreement or as extended as described below, the “outside date”)). GE, however, is not required (although it could so choose) to divest or hold separate, or agree to any conduct remedy or similar antitrust action regarding, any assets, businesses or product lines if such assets, businesses or product lines account for, in the aggregate, more than $200 million of 2015 revenue of GE, Baker Hughes and/or any of their respective subsidiaries. The divestiture of certain specified businesses will not be taken into account for purposes of calculating the $200 million divestiture limit. If reaching agreement with the antitrust authorities would require GE to divest or take other action regarding assets, businesses or product lines (excluding the specified businesses) in excess of the $200 million divestiture limit, GE has the option to either divest or take other action with respect to the larger amount or continue to attempt to obtain approval of the antitrust authorities until the outside date. In addition, GE would be required to pay Baker Hughes an antitrust termination fee of $1.3 billion if the Transaction Agreement is terminated because:

 

    there is an antitrust-related order or injunction that prevents Closing and that has become final and nonappealable;

 



 

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    GE materially breaches its antitrust-related covenants, which breach results in the antitrust condition to Closing being incapable of being satisfied; or

 

    the Transactions are not completed by the outside date, and as of such termination the failure to obtain an antitrust approval or an antitrust-related order or injunction prevents Closing but all other conditions to GE’s obligation to close have been satisfied (other than any such conditions which by their nature cannot be satisfied until the Closing Date but subject to such conditions being capable of being satisfied if the Closing Date were the date of termination).

GE is entitled to direct the defense of any antitrust investigation or litigation, but must consult with and consider in good faith the view of Baker Hughes. GE has the right to litigate or appeal any proposed antitrust remedial action. However, if such proceedings conclude prior to the outside date with an order restricting the Transactions or if no order has been issued in such proceedings prior to the outside date, then GE must take such actions as are necessary to achieve antitrust approval prior to the outside date, except that GE is not required to take any action that would exceed the $200 million divestiture limit. Notwithstanding the foregoing, divestitures of the specified businesses are not taken into account for purposes of the $200 million divestiture limit, and GE must take any action necessary to resolve any objection raised by a governmental authority in relation to the specified businesses. Baker Hughes is required to take any actions requested by GE to obtain any required regulatory clearances but Baker Hughes is not required to agree to any divestiture or other remedy unless conditioned on Closing.

New Baker Hughes cannot assure you that an antitrust law, competition law or other regulatory challenge to the Transactions will not be made. If a challenge is made, New Baker Hughes cannot predict the result. These filings and approvals are more fully described in “The Transaction Agreement—Government Approvals” beginning on page 141 of this combined proxy statement/prospectus.

Additional Interests of Baker Hughes’ Directors and Executive Officers in the Transactions (see page 118)

Baker Hughes stockholders should be aware that Baker Hughes’ non-employee directors and executive officers may have interests in the Transactions that are different from, or in addition to, Baker Hughes stockholders’ interests when they consider the recommendation of the Baker Hughes board of directors that they vote (i) for the proposal to adopt the Transaction Agreement and thereby approve the Transactions, including the Mergers, (ii) for the Adjournment Proposal, (iii) for the Transaction-Related Compensation Proposal, (iv) for the LTI Plan Proposal, and (v) for the Executive Officer Performance Goals Proposal. Those interests include, among other things, accelerated vesting of non-employee directors’ and executive officers’ equity awards and, for executive officers, prorated payment of annual bonuses and severance benefits.

The Baker Hughes board of directors was aware of these interests and considered them, among other matters, in approving the Transaction Agreement and making its recommendation that the Baker Hughes stockholders adopt the Transaction Agreement. These interests are described in “Additional Interests of Baker Hughes’ Directors and Executive Officers in the Transactions” beginning on page 118 of this combined proxy statement/prospectus.

Completion of the Transactions is Subject to a Number of Conditions (see page 134)

As more fully described in this combined proxy statement/prospectus and in the Transaction Agreement, completion of the Transactions depends upon the satisfaction or waiver of a number of conditions, including, among others, the following:

 

    receipt of the Baker Hughes stockholder approval;

 



 

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    clearances and approvals under the rules of antitrust and competition law authorities in various jurisdictions agreed upon among the parties, including the United States and the European Union and the other jurisdictions set forth in “The Transaction Agreement—Government Approvals;”

 

    the absence of any law or order prohibiting the consummation of the Transactions;

 

    the effectiveness of the registration statement on Form S-4, of which this combined proxy statement/prospectus is a part, and there being no pending or threatened stop order relating thereto;

 

    approval for listing on NYSE of the shares of Class A Common Stock issuable to Baker Hughes stockholders pursuant to the Transaction Agreement; and

 

    the completion in all material respects of certain restructuring transactions by GE in connection with the Transactions.

GE’s and Baker Hughes’ obligation to complete the Transactions also depends upon the satisfaction or waiver of a number of other conditions, including, among others, the following:

 

    the accuracy of the representations and warranties of the other party in the Transaction Agreement, subject to the material adverse effect standard provided in the Transaction Agreement, with specified exceptions;

 

    performance by the other party in all material respects of all of its respective obligations required to be performed or complied with under the Transaction Agreement;

 

    the nonoccurrence of any continuing fact, circumstance, occurrence, event, development, change or condition which, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on Baker Hughes or GE O&G; and

 

    the delivery by GE of the audited financial statements for GE O&G for the years ended December 31, 2014, December 31, 2015 and December 31, 2016 (including Combined Statement of Financial Position of GE O&G as of December 31, 2014 and December 31, 2015 and Combined Statement of Earnings of GE O&G for the years ended December 31, 2014, December 31, 2015 and December 31, 2016) together with the audited combined balance sheets of GE O&G as of September 30, 2016 and combined statements of income of GE O&G for the nine months ended September 30, 2016 (which we refer to as the “Comparable GE O&G Audited Financial Statements”), and the Comparable GE O&G Audited Financial Statements not differing from the unaudited financial statements in a manner that is material to the intrinsic value of GE O&G in a manner that is adverse. Following its receipt and review of the Comparable GE O&G Audited Financial Statements, Baker Hughes has confirmed to GE its determination that this condition has been satisfied.

If the Transactions are not completed for any reason, Baker Hughes stockholders will not receive any form of consideration for their Baker Hughes common stock in connection with the Transactions, including the Special Dividend. Instead, Baker Hughes will remain an independent publicly traded corporation and its common stock will continue to be listed and traded on NYSE.

We cannot provide any assurances as to when, or if, the conditions to the Transactions will be satisfied or, if applicable, waived, or that the Transactions will be completed.

No Solicitation of Alternative Transactions by Baker Hughes (see page 143)

As more fully described in this combined proxy statement/prospectus and in the Transaction Agreement, under the Transaction Agreement, Baker Hughes has agreed not to (and to not permit its directors, officers, members, employees, representatives, agents, attorneys, consultants, contractors, accountants, financial advisors and other advisors to) solicit, initiate or knowingly encourage or facilitate, or negotiate, any competing acquisition proposal, subject to the terms of the Transaction Agreement.

 



 

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For more information regarding the limitations on Baker Hughes and the Baker Hughes board of directors to consider other proposals, see “The Transaction Agreement—Baker Hughes Non-Solicitation; Baker Hughes’ Ability to Change Recommendation” beginning on page 143 of this combined proxy statement/prospectus.

Termination Fees and Expenses May Be Payable in the Event the Transaction Agreement is Terminated by GE or Baker Hughes (see page 146)

General

The Transaction Agreement may be terminated at any time prior to Closing in any of the following ways:

 

    by mutual written consent of GE and Baker Hughes;

 

    by either GE or Baker Hughes upon written notice to the other if:

 

    the Transactions are not completed on or before the outside date, and the party seeking to terminate the Transaction Agreement has not breached its obligations under the Transaction Agreement in a manner that proximately caused the failure of the Transactions to be completed on or before the outside date, except that if the only mutual closing condition under the Transaction Agreement that has not been satisfied by such date is the Strategic Investment Committee clearance and competition clearance from Russia, either GE or Baker Hughes may unilaterally extend the outside date on one or more occasions until no later than April 30, 2018;

 

    If either party so terminates the Transaction Agreement and as of such termination the failure to obtain regulatory approval or an antitrust-related order or injunction prevents Closing, but all other conditions to GE’s obligation to close have been satisfied (other than any such conditions which by their nature cannot be satisfied until the Closing Date, but subject to such conditions being capable of being satisfied if the Closing Date were the date of termination), GE must pay Baker Hughes a fee of $1.3 billion (the “GE Termination Fee”).

 

    any injunction, judgment, order or decree prohibiting or permanently enjoining Closing is in effect and has become permanent, final and nonappealable, provided that the party seeking to terminate the Transaction Agreement on such grounds is not then in material breach of any representation, warranty, covenant or other agreement made by it in the Transaction Agreement; or

 

    If either party so terminates the Transaction Agreement with respect to an antitrust-related order or injunction, GE must pay Baker Hughes the GE Termination Fee.

 

    the Baker Hughes stockholders fail to approve and adopt the Transaction Agreement at the special meeting;

 

    If either party so terminates the Transaction Agreement and an alternative proposal for Baker Hughes has been publicly proposed prior to, and not withdrawn at least ten days prior to, the special meeting, and within twelve months after the date the Transaction Agreement is terminated, Baker Hughes enters into a definitive agreement with respect to, or consummates, any alternative proposal, Baker Hughes must pay GE $750 million (the “Baker Hughes Termination Fee”).

 

    If either party so terminates the Transaction Agreement and an alternative proposal for Baker Hughes has been publicly proposed prior to, and not withdrawn at least ten days prior to, the special meeting and no Baker Hughes Termination Fee is yet payable pursuant to the previous bullet point, Baker Hughes must reimburse GE’s expenses up to a cap of $40 million.

 

    If either party so terminates the Transaction Agreement and an alternative proposal for Baker Hughes has not been publicly proposed prior to, or has been withdrawn at least ten days prior to, the special meeting, Baker Hughes will not be required to reimburse any of GE’s expenses or to pay the Baker Hughes Termination Fee.

 



 

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    by Baker Hughes if:

 

    GE has breached or failed to perform any of its representations, warranties, covenants or other agreements contained in the Transaction Agreement, which breach or failure to perform (a) would give rise to the failure of a related condition to Closing and (b) is incapable of being cured prior to the outside date or is not cured by GE within 30 days following receipt of written notice from Baker Hughes of such breach or failure to perform, provided that Baker Hughes is not then in breach of any representation, warranty, covenant or other agreement by Baker Hughes contained in the Transaction Agreement in a manner that gives GE the right to terminate the Transaction Agreement;

 

    If Baker Hughes so terminates the Transaction Agreement due to GE’s material breach of its regulatory covenants, which breach results in the regulatory condition to Closing being incapable of being satisfied, GE must pay Baker Hughes the GE Termination Fee.

 

    the Baker Hughes board of directors has authorized Baker Hughes to enter into a definitive agreement for a competing superior proposal and Baker Hughes enters into such definitive agreement, provided Baker Hughes has not breached its obligations under the no solicitation provisions of the Transaction Agreement;

 

    In which case, Baker Hughes must pay GE the Baker Hughes Termination Fee; or

 

    the Comparable GE O&G Audited Financial Statements differ from the applicable unaudited GE O&G financial statements in a manner that is material to the intrinsic value (determined in a manner consistent with appropriate valuation methodologies) of GE O&G in a manner that is adverse, and Baker Hughes exercises its termination rights within 20 business days of delivery of such financial statements;

 

    In which case, GE must reimburse Baker Hughes’ expenses up to a cap of $40 million.

 

    Following its receipt and review of the Comparable GE O&G Audited Financial Statements, Baker Hughes has confirmed to GE that any differences between the Comparable Audited GE O&G Financial Statements and the applicable unaudited financial statements are not material and therefore such termination right is not available to Baker Hughes.

 

    by GE if:

 

    Baker Hughes has breached or failed to perform any of its representations, warranties, covenants or other agreements contained in the Transaction Agreement, which breach or failure to perform (a) would give rise to the failure of a related condition to Closing and (b) is incapable of being cured prior to the outside date or is not cured by Baker Hughes within 30 calendar days after written notice has been given by GE to Baker Hughes of such breach or failure to perform, provided that GE is not then in breach of any representation, warranty, covenant or other agreement by GE contained in the Transaction Agreement in a manner that gives Baker Hughes the right to terminate the Transaction Agreement;

 

    A Change in Recommendation (as defined in “The Transaction Agreement—Baker Hughes’ Ability to Change Recommendation”) has occurred;

 

    In which case, Baker Hughes must pay GE the Baker Hughes Termination Fee; or

 

    Baker Hughes has breached or failed to perform in any material respect any of its obligations under the no solicitation provisions of the Transaction Agreement.

If the Transaction Agreement is terminated in accordance with its terms, it will become null and void and, except as described below, there will be no liability or obligation on the part of GE, Baker Hughes or their

 



 

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respective affiliates or representatives, provided that (i) certain customary provisions will survive such termination and (ii) no party will be relieved from any liabilities or damages (which the parties agreed may include, in addition to the reimbursement of expenses and out-of-pocket costs, and to the extent proven, other damages suffered by the other party calculated based on losses suffered by such other party’s stockholders (taking into consideration all relevant matters and equitable considerations), which shall be deemed in such event to be damages of such other party and not of such other party’s stockholders themselves and may only be pursued by such other party through actions expressly approved by its board of directors) as a result of any willful and material breach by any party of any of such party’s representations, warranties, covenants or other agreements set forth in the Transaction Agreement.

GE and Baker Hughes have agreed that where payment of a termination fee is required under the Transaction Agreement, upon such payment, the payment of the termination fee in accordance with the Transaction Agreement will be the exclusive remedy of GE and Baker Hughes, as the case may be, for any loss suffered as a result of the failure of the transactions to be completed and any other losses, damages, obligations or liabilities suffered as a result of or under the Transaction Agreement and the Transactions.

Specific Performance; Remedies (see page 149)

Under the Transaction Agreement, each of GE and Baker Hughes is entitled to specific performance or an injunction (in addition to any other remedy that may be available to the non-breaching party in law or equity) in the event of a breach or threatened breach of the Transaction Agreement.

Class A Common Stock Anticipated to be Listed on NYSE; Baker Hughes Common Stock to be Delisted and Deregistered if the Transactions are Completed (see page 113)

The parties anticipate that shares of Class A Common Stock will be listed on NYSE under the symbol “BHGE.” If the Transactions are completed, Baker Hughes common stock will no longer be listed on NYSE and will be deregistered under the Exchange Act.

Former Baker Hughes Stockholders Will Hold Shares Representing Approximately 37.5% of the Voting Power of the Outstanding Shares of New Baker Hughes Following Closing (see page 130)

Immediately following Closing, GE will hold 100% of the Class B Common Stock, which will represent approximately 62.5% of the voting power of the outstanding shares of the Common Stock (calculated on a fully diluted basis), Baker Hughes stockholders will hold 100% of the Class A Common Stock, which will represent approximately 37.5% of the voting power of the outstanding shares of the Common Stock and 100% of the economic rights in New Baker Hughes.

Differences Exist Between the Rights of the Holders of Class A Common Stock and Baker Hughes Stockholders (see page 178)

Baker Hughes stockholders, whose rights are currently governed by the restated certificate of incorporation of Baker Hughes, as amended, the restated bylaws of Baker Hughes, as amended, and Delaware law, will, upon completion of the Transactions, become stockholders of New Baker Hughes and their rights will be governed by the New Baker Hughes Charter, the New Baker Hughes Bylaws, and Delaware law. As a result, Baker Hughes stockholders will have different rights once they become New Baker Hughes stockholders due to differences between the governing documents of Baker Hughes and New Baker Hughes. These differences are described in detail in the section titled “Comparison of Stockholder Rights and Corporate Governance Matters” beginning on page 178 of this combined proxy statement/prospectus.

 



 

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The Transactions and the Performance of New Baker Hughes are Subject to a Number of Risks (see page 44)

There are a number of risks relating to the Transactions and to the businesses of GE O&G, Baker Hughes and New Baker Hughes. See “Risk Factors” beginning on page 44 of this combined proxy statement/prospectus for a discussion of these and other risks and see also the documents that Baker Hughes has filed with the SEC that are incorporated by reference into this combined proxy statement/prospectus.

Post-Transactions Governance and Management (see pages 234 and 241)

Immediately following Closing, the New Baker Hughes Board will consist of eleven directors, six of whom will be designated by GE (sometimes referred to as the “GE designees”) and five of whom will be designated by Baker Hughes (including Martin Craighead, the Chairman and Chief Executive Officer of Baker Hughes; such directors, and their successors, are sometimes referred to as the “Baker Hughes directors”). The successor Baker Hughes directors will be chosen by the Governance & Nominating Committee of the New Baker Hughes Board, which will be comprised of a majority of Baker Hughes directors who meet certain NYSE independence requirements. GE only has the right to designate directors to the New Baker Hughes Board for so long as it and its affiliates either beneficially own at least 50% of the Common Stock or are required to consolidate New Baker Hughes’ financial results with GE’s financial results. At least one independent Baker Hughes director must be on the New Baker Hughes Audit Committee, at least one non-GE designee must be on the Compensation Committee and at least one independent Baker Hughes director must be on all other New Baker Hughes Board committees. GE and its affiliates are required to vote in favor of all Baker Hughes directors.

Jeffrey R. Immelt, the current Chairman and Chief Executive Officer of GE, will serve as Chairman of the New Baker Hughes Board. Martin Craighead, the current Chairman and Chief Executive Officer of Baker Hughes, will serve as Vice Chairman of the New Baker Hughes Board. In addition, W. Geoffrey Beattie, Gregory D. Brenneman, Clarence P. Cazalot, Jr., Lynn L. Elsenhans, Jamie S. Miller, James J. Mulva, J. Larry Nichols, John G. Rice and Lorenzo Simonelli are expected to be nominated and elected to the New Baker Hughes Board following the completion of the Transactions. For additional information regarding the new directors of New Baker Hughes, please see “Directors of New Baker Hughes” beginning on page 234 of this combined proxy statement/prospectus.

Lorenzo Simonelli, the current President and Chief Executive Officer of GE O&G, will serve as President and Chief Executive Officer of New Baker Hughes. Brian Worrell, the current Vice President and Chief Financial Officer of GE O&G, will serve as Chief Financial Officer of New Baker Hughes. For additional information regarding the new executive officers of New Baker Hughes, please see “Executive Officers and Executive Compensation—Executive Officers of New Baker Hughes” beginning on page 241 of this combined proxy statement/prospectus.

Stockholders Agreement (see page 150)

At Closing, GE and New Baker Hughes will enter into a Stockholders Agreement, which sets forth, among other things:

Corporate Governance

Board Composition. The New Baker Hughes Board will consist of eleven members:

 

    GE directors. Six directors will be designated by GE, including the Chairman.

 

    Non-GE directors. Five directors will be designated by Baker Hughes, including Martin Craighead, the CEO of Baker Hughes and four directors who are reasonably acceptable to GE that meet NYSE independence standards.

 



 

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GE will have the right to designate directors for nomination by the New Baker Hughes Board for election and maintain its proportional representation in the New Baker Hughes Board so long as GE:

 

    either beneficially owns at least 50% of the voting power of Common Stock; or

 

    is required to consolidate the financial statements of New Baker Hughes in accordance with GAAP with those of GE during any fiscal year (the date on which both of these requirements are no longer true is the “Trigger Date”).

The successor non-GE designated directors will be designated by the Governance & Nominating Committee as described below.

Director Nomination, Removal and Vacancies.

With respect to GE-designated directors, until the Trigger Date, GE will have the right to designate six nominees to the New Baker Hughes Board at any annual or special meeting of stockholders and will have the authority to nominate, elect and remove any GE-designated director.

With respect to the non-GE designated directors, the Governance & Nominating Committee will fill any vacancy or designate a person for nomination with a person who is reasonably acceptable to GE.

Committees. The New Baker Hughes Board will initially have the following committees: (i) Audit Committee, (ii) Compensation Committee, and (iii) Governance & Nominating Committee. The Governance & Nominating Committee will consist of five directors, at least three of whom will be Company Independent Directors.

Company Independent Directors are each of the four independent directors initially designated by Baker Hughes and any successor to such director or successor to Martin Craighead who:

 

    meets the independence standards under NYSE rules;

 

    is not a director designated by GE;

 

    is not a current or former member of the board of directors of GE or officer or employee of GE or its affiliates;

 

    does not and has not had any other substantial relationship with GE or its affiliates; and

 

    is designated by the Governance & Nominating Committee as a “Company Independent Director.”

There will also be a Conflicts Committee, which will be a subcommittee of the Governance & Nominating Committee and will consist solely of non-GE designated independent directors, who satisfy the above independence criteria.

GE Agreement to Vote. GE must cause its shares of Common Stock to be present for quorum purposes at any shareholder meeting, vote in favor of all non-GE directors, and not vote in favor of the removal of any non-GE director other than for cause.

Restrictions on Transfers and Acquisitions

Lockup. For two years after the Closing Date, GE and its affiliates will be prohibited from transferring any shares of Common Stock to any person that is not an affiliate of GE unless approved by the Conflicts Committee. After the expiration of the two-year lockup period, GE and its affiliates generally will be permitted to transfer

 



 

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their shares of Common Stock; provided, they will be prohibited from transferring (without the prior consent of the Conflicts Committee) any shares of Common Stock to any person that is not an affiliate of GE or to any “group” (as such term is used in Section 13(d) of the Exchange Act) if such non-affiliated person or group would beneficially own more than 15% of the voting power of the outstanding shares of Common Stock after such transfer. This 15% ownership restriction will not apply to widely distributed public offerings of Common Stock (including pursuant to “spin-off” and “split-off” transactions).

Upon the fifth anniversary of the Closing Date, transfers of all of GE’s Paired Interests or all of GE’s shares of Class A Common Stock (issued in exchange for Paired Interests pursuant to the Exchange Agreement) will be permitted for transfers meeting certain conditions.

Standstill. For five years following the Closing Date, and subject to certain exceptions, GE and any of its representatives or affiliates will not be able to acquire additional shares of Common Stock or announce or seek to effect such an acquisition of shares, or participate in any tender or exchange offer that would result in GE and its affiliates beneficially owning more than 65% of the voting power of the outstanding shares of Common Stock.

Additionally, during the five-year standstill period following the Closing Date, GE and any of its representatives or affiliates will not be able to:

 

    solicit proxies in connection with the election and removal of non-GE directors;

 

    solicit any third party to engage in such solicitation;

 

    make any public statement or a statement to another stockholder in support of such third-party solicitation or against any of New Baker Hughes’ director nominees;

 

    form any “group” (as defined in Section 13(d)(3) of the Exchange Act) with respect to any Common Stock; or

 

    call a special meeting of the stockholders.

Buyout. Any proposal by GE or its affiliates to acquire all of the shares of Common Stock held by non-GE stockholders will be subject to the approval of (i) the Conflicts Committee and (ii) a majority of the non-GE stockholders of New Baker Hughes in accordance with the terms of the Stockholders Agreement.

Preemptive Rights

To the extent permitted under NYSE rules, New Baker Hughes will grant GE the right to purchase its pro rata portion of any securities of New Baker Hughes (other than excluded securities in accordance with the terms of the Stockholders Agreement) that New Baker Hughes proposes to issue or sell.

Related Party Transactions

Subject to the terms of the Stockholders Agreement, any transaction between New Baker Hughes, on the one hand, and GE or its affiliates (other than New Baker Hughes), on the other hand, is required to be on arm’s-length terms and in the best interest of New Baker Hughes. All related party transactions that are not contemplated by the Transaction Documents will be governed by a related party transactions policy as set forth in the Stockholders Agreement.

Financial Information

Until the end of the fiscal year in which the Trigger Date occurs, New Baker Hughes will be subject to financial reporting requirements to GE.

 



 

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Termination

The Stockholders Agreement will be effective as of the Closing Date and will automatically terminate in the event GE and its affiliates no longer own any shares of Common Stock or own 100% of the outstanding shares of Common Stock.

A copy of the form of the Stockholders Agreement is attached to this combined proxy statement/prospectus as Annex D. For a more detailed summary of the Stockholders Agreement, see “Certain Agreements Related to the Transactions—Stockholders Agreement” beginning on page 150 of this combined proxy statement/prospectus.

Newco LLC Agreement (see page 154)

At Closing, Newco LLC will enter into and be governed by the Newco LLC Agreement, among GE, two wholly owned subsidiaries of New Baker Hughes and Newco LLC. The Newco LLC Agreement will provide, among other things, as described below.

At Closing, there will be one class of Common Units to be held by two wholly owned subsidiaries of New Baker Hughes and GE. Additionally, EHHC, a wholly owned direct subsidiary of New Baker Hughes will be the managing member of Newco LLC and will be responsible for the day-to-day business and decision-making of Newco LLC without the approval of any other member. EHHC may not be removed as managing member except by its own election and will not, subject to certain exceptions, receive any compensation for its role as managing member.

Newco LLC may make distributions to its members from time to time at the discretion of its managing member generally on a pro rata basis in proportion to the number of Common Units held by each member. Newco LLC will also be required to make distributions to members generally on a pro rata basis in proportion to the number of Common Units held by each member to enable New Baker Hughes to meet its tax obligations and obligations under the Tax Matters Agreement. In accordance with the Tax Matters Agreement, Newco LLC may also be required to make payments to the New Baker Hughes members or GE relating to the sharing of certain tax benefits.

If Newco LLC issues additional Common Units to the New Baker Hughes members, under certain circumstances, including following the issuance of shares of Class A Common Stock in connection with an equity incentive or similar plan, GE will have the right to purchase the number of Paired Interests that would result in GE holding the same percentage of Common Units GE held prior to the issuance. If GE is permitted under the terms of the Stockholders Agreement to purchase additional shares of Class A Common Stock, it will have the right, instead, to purchase Paired Interests on the terms and conditions set forth in the Newco LLC Agreement.

If at any time any shares of Class A Common Stock are repurchased or redeemed by New Baker Hughes for cash, then, except to the extent New Baker Hughes applies cash otherwise available to make such repurchase or redemption, the managing member will cause Newco LLC to repurchase or redeem an appropriate number of Common Units held by the New Baker Hughes members for an aggregate repurchase or redemption price equal to the aggregate repurchase or redemption price of the shares of Class A Common Stock of New Baker Hughes being repurchased or redeemed.

No holder will be able to transfer its Common Units or Class B Common Stock, except pursuant to certain exceptions in the Newco LLC Agreement, the Stockholders Agreement and the Exchange Agreement. In addition, GE will be permitted, subject to certain conditions, to transfer the stock of a corporate subsidiary holding its Class B Common Stock and Common Units to GE shareholders in a “spin-off” or “split-off” transaction.

 



 

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The unanimous consent of all members holding voting Common Units will be required to voluntarily dissolve Newco LLC. Newco LLC may also be dissolved upon the entry of a decree of judicial dissolution or in accordance with Delaware law. The Newco LLC Agreement also sets out the order of priority of how the proceeds will be distributed upon dissolution of Newco LLC.

Subject to certain limitations in the Stockholders Agreement, GE and Newco LLC may enter into certain agreements or transactions with each other, which will not be considered contrary to any fiduciary duty owed to the other.

Newco LLC will indemnify any member or affiliate, the managing member or its affiliates, any officer, or individual serving at the request of Newco LLC as an officer, director, principal, member, employee or agent of another corporation, partnership, joint venture, limited liability company, trust or enterprise, subject to the limitations included in the Newco LLC Agreement. The Newco LLC Agreement also states that Newco LLC will maintain directors’ and officers’ liability insurance.

Newco LLC’s managing member and the holders of a majority of voting Common Units must provide their consent in order to amend the Newco LLC Agreement.

A copy of the form of the Newco LLC Agreement is attached to this combined proxy statement/prospectus as Annex E. For a more detailed summary of the Newco LLC Agreement, see “Certain Agreements Related to the Transactions—Newco LLC Agreement” beginning on page 154 of this combined proxy statement/prospectus.

Exchange Agreement (see page 158)

At Closing, GE, New Baker Hughes and Newco LLC will enter into an Exchange Agreement. The Exchange Agreement will grant GE the right to surrender Paired Interests to Newco LLC in exchange for shares of Class A Common Stock on a one-to-one basis (subject to adjustment in accordance with the Exchange Agreement) or, at the option of New Baker Hughes, an amount of cash equal to the aggregate value of the shares of Class A Common Stock that would have otherwise been received by GE in the exchange. GE will not, however, have the right to exchange any Paired Interests if GE would own more than 50% of the outstanding shares of Class A Common Stock after the exchange and after giving effect to any disposition of Class A Common Stock made by GE immediately following the exchange. Additionally, New Baker Hughes will be required to reserve and keep available out of its authorized but unissued Class A Common Stock the maximum number of shares of Common Stock to be delivered in an exchange and will be required to take all other actions necessary to preserve the one-to-one ratio (or if different, the applicable exchange rate) between the number of shares of Class A Common Stock and the Common Units owned by wholly owned subsidiaries of New Baker Hughes then outstanding. Following an exchange, each share of Class B Common Stock subject to the exchange will be canceled by New Baker Hughes and the Common Unit constituting a component of the exchange will be deemed transferred by GE to New Baker Hughes. If the exchange is made for a cash payment instead of shares of Class A Common Stock, such Common Unit will be redeemed by Newco LLC.

A copy of the form of the Exchange Agreement is attached to this combined proxy statement/prospectus as Annex F. For a more detailed summary of the Exchange Agreement, see “Certain Agreements Related to the Transactions—Exchange Agreement” beginning on page 158 of this combined proxy statement/prospectus.

Registration Rights Agreement (see page 159)

At Closing, New Baker Hughes and GE will enter into the Registration Rights Agreement. The Registration Rights Agreement will grant GE certain market registration rights, including, demand registration rights and piggyback registration rights, with respect to its registrable securities, consisting of shares of Class A Common

 



 

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Stock (including shares issuable upon conversion of Class B Common Stock and Common Units and other securities issued or issuable with respect to such shares). New Baker Hughes will pay all reasonable out-of-pocket fees and expenses in connection with any registration pursuant to the Registration Rights Agreement, subject to certain exceptions.

A copy of the form of the Registration Rights Agreement is attached to this combined proxy statement/prospectus as Annex G. For a more detailed summary of the Registration Rights Agreement, see “Certain Agreements Related to the Transactions—Registration Rights Agreement” beginning on page 159 of this combined proxy statement/prospectus.

Tax Matters Agreement (see page 160)

At Closing, New Baker Hughes, GE, EHHC and Newco LLC will enter into a Tax Matters Agreement. The Tax Matters Agreement will govern the administration and allocation between the parties of tax liabilities and benefits arising prior to, as a result of, and subsequent to the Transactions, including certain restructuring transactions in connection therewith, and the respective rights, responsibilities and obligations of GE and New Baker Hughes with respect to various other tax matters.

A copy of the form of the Tax Matters Agreement is attached to this combined proxy statement/prospectus as Annex H. For a more detailed summary of the Tax Matters Agreement, see “Certain Agreements Related to the Transactions—Tax Matters Agreement” beginning on page 160 of this combined proxy statement/prospectus.

Commercial Agreements

Non-Competition Agreement (see page 161)

At Closing, GE and New Baker Hughes will enter into the Non-Competition Agreement, pursuant to which GE and its subsidiaries (other than New Baker Hughes and its subsidiaries) will agree not to compete in certain oil and gas activities and other discrete oil and gas related segments for a certain period of time following the Closing Date. GE and its subsidiaries will be permitted to engage in certain activities notwithstanding that they may fall within the scope of the competing business. GE and New Baker Hughes will also enter into a separate agreement relating to certain oil and gas related segments not otherwise covered by the Non-Competition Agreement. For a more detailed summary of the Non-Competition Agreement, see “Certain Agreements Related to the Transactions—Commercial Agreements—Non-Competition Agreement” beginning on page 161 of this combined proxy statement/prospectus.

Supply Agreement (see page 161)

At Closing, GE and certain of its affiliates and New Baker Hughes and certain of its affiliates will enter into a Supply Agreement, pursuant to which GE and certain of its affiliates will supply New Baker Hughes and certain of its affiliates, and New Baker Hughes and certain of its affiliates will supply GE and certain of its affiliates, other than New Baker Hughes and its subsidiaries, as the case may be, with products, equipment, component parts or related services and licensed software as supplied during the 12-month period immediately preceding the signing of the Transaction Agreement, as well as with such other products, equipment, component parts or related services and licensed software that the parties may agree from time to time.

For a more detailed summary of the Supply Agreement, see “Certain Agreements Related to the Transactions—Commercial Agreements—Supply Agreement” beginning on page 161 of this combined proxy statement/prospectus.

 



 

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IP Cross-License Agreement (see page 162)

At Closing, GE and Newco LLC will enter into the IP Cross-License Agreement. Under the IP Cross-License Agreement, GE will license and cause its affiliates (other than GE Digital LLC (“GE Digital”)) to license to Newco LLC and its affiliates certain intellectual property controlled (whether directly or indirectly) by GE (other than GE Digital) as of the Closing Date or acquired thereafter for Newco LLC’s use within the field of certain oil and gas activities and certain oil and gas-related segments, and in support of certain limited non-oil and gas Baker Hughes business lines operated as of the Closing Date. In addition, Newco LLC will license and cause its affiliates to license to GE and its affiliates (other than GE Digital) certain intellectual property controlled (whether directly or indirectly) by Newco LLC as of the Closing Date or acquired thereafter for GE’s use outside of the field of the license granted to Newco LLC described in the previous sentence.

For a more detailed summary of the IP Cross-License Agreement, see “Certain Agreements Related to the Transactions—Commercial Agreements—IP Cross-License Agreement” beginning on page 162 of this combined proxy statement/prospectus.

Trademark License Agreement (see page 163)

At Closing, GE and Newco LLC will enter into the Trademark License Agreement, pursuant to which GE will license to Newco LLC the right to use certain “GE” marks:

 

  1. On an exclusive basis for use with Newco LLC’s products and services in connection with certain oil and gas activities and discrete oil and gas-related segments;

 

  2. On a non-exclusive basis for use with Newco LLC’s products and services in connection with other oil and gas activities, the offering of certain polymers, the offering of agricultural chemicals to the agricultural industry, certain geothermal activities and other discrete oil and gas-related segments in which GE is also permitted to sell products and services; and

 

  3. On a non-exclusive basis for use in Newco LLC’s corporate name.

The license is granted on a non-transferable and worldwide basis, and is sublicensable to certain of Newco LLC’s subsidiaries. The license is royalty-bearing and the royalty is included as part of the Corporate Assessment paid by Newco LLC to GE under the Intercompany Services Agreement.

For a more detailed summary of the Trademark License Agreement, see “Certain Agreements Related to the Transactions—Commercial Agreements—Trademark License Agreement” beginning on page 163 of this combined proxy statement/prospectus.

GE Digital Master Products and Services Agreement (see page 163)

At Closing, GE Digital and Newco LLC will enter into the GE Digital Master Products and Services Agreement, pursuant to which GE Digital will provide to Newco LLC certain digital products and services that are offered by GE Digital to GE’s other industrial business segments and to the public. The products and services will be offered for use in connection with the combined business of Baker Hughes and GE O&G on terms and conditions, including pricing, that are generally consistent with those offered by GE Digital to GE’s other industrial business segments. Newco LLC may also offer to its customers certain products and services offered by GE Digital under the agreement.

For a more detailed summary of the GE Digital Master Products and Services Agreement, see “Certain Agreements Related to the Transactions—Commercial Agreements—GE Digital Master Products and Services Agreement” beginning on page 163 of this combined proxy statement/prospectus.

 



 

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Intercompany Services Agreement (see page 164)

At Closing, GE and Newco LLC will enter into the Intercompany Services Agreement, pursuant to which GE and its affiliates and Newco LLC and its affiliates will provide various services to each other. The services that will be provided under the Intercompany Services Agreement will include, among other things, general corporate administrative services, facilities confidential access to certain GE proprietary technology and certain Newco LLC proprietary technology, certain service arrangements and processes in effect between GE and GE O&G preceding the signing of the Transaction Agreement, and specialized and tailored technology research and development services related to GE’s or Newco LLC’s business and operations.

For a more detailed summary of the Intercompany Services Agreement, see “Certain Agreements Related to the Transactions—Commercial Agreements—Intercompany Services Agreement” beginning on page 164 of this combined proxy statement/prospectus.

Market Prices and Dividend Information

Baker Hughes common stock is listed on the NYSE and Baker Hughes’ trading symbol is “BHI.”

The following table sets forth the closing prices for Baker Hughes common stock as reported on the NYSE on October 27, 2016, the day that GE confirmed, after the close of trading on the NYSE, that it was in talks with Baker Hughes regarding a transaction, and May 22, 2017, the most recent practicable trading day prior to the date of this combined proxy statement/prospectus.

 

     Baker Hughes
Closing Price
 

October 27, 2016

   $ 54.55  

May 22, 2017

   $ 58.00  

 



 

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The following table sets forth, for the calendar quarters indicated, based on published financial sources: (i) the high and low sale prices of shares of Baker Hughes common stock as reported on the NYSE and (ii) the cash dividends paid per share of Baker Hughes common stock.

 

     Baker Hughes Common Stock  
     Price Range      Cash
Dividends
Declared
 
     High      Low     

Year Ended December 31, 2017

        

First Quarter

   $ 65.03      $ 56.28      $ 0.17  

Second Quarter (through May 22, 2017)

     61.71        57.13        0.17  

Year Ended December 31, 2016

        

Fourth Quarter

   $ 66.89      $ 49.96      $ 0.17  

Third Quarter

     52.70        43.54        0.17  

Second Quarter

     49.52        39.36        0.17  

First Quarter

     47.44        38.88        0.17  

Year Ended December 31, 2015

     

Fourth Quarter

   $ 57.33      $ 43.36      $ 0.17  

Third Quarter

     61.13        45.76        0.17  

Second Quarter

     69.13        61.11        0.17  

First Quarter

     65.04        53.53        0.17  

Year Ended December 31, 2014

     

Fourth Quarter

   $ 65.83      $ 50.02      $ 0.17  

Third Quarter

     75.35        65.06        0.17  

Second Quarter

     74.63        63.37        0.15  

First Quarter

     65.27        51.82        0.15  

We urge you to obtain current market quotations for Baker Hughes common stock. We cannot give any assurance as to the future prices or markets for Baker Hughes common stock or Class A Common Stock.

Market price data for New Baker Hughes has not been presented because the Class A Common Stock is not listed for trading on any exchange or automated quotation service.

In connection with the Transactions, New Baker Hughes will pay a special one-time cash dividend of $17.50 per share of Class A Common Stock to the holders of record of such shares on the Closing Date. Whether the New Baker Hughes Board exercises its discretion to propose any dividends to holders of Class A Common Stock in the future will depend on many factors, including New Baker Hughes’ financial condition, earnings, capital requirements of New Baker Hughes’ business, covenants associated with debt obligations, legal requirements, regulatory constraints, industry practice and other factors that the New Baker Hughes Board deems relevant. There can be no assurance that New Baker Hughes will pay a dividend on its Class A Common Stock in the future. See “Description of New Baker Hughes Capital Stock—New Baker Hughes Common Stock—Dividend Rights” beginning on page 195 of this combined proxy statement/prospectus.

 



 

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SELECTED HISTORICAL AND PRO FORMA CONDENSED COMBINED FINANCIAL DATA

Selected Historical Financial Data of Baker Hughes

The selected historical consolidated financial data below as of and for the three months ended March 31, 2016 and 2017 has been derived from Baker Hughes’ unaudited consolidated condensed financial statements as of and for such periods, as contained in its Quarterly Report on Form 10-Q for the three months ended March 31, 2017, which is incorporated by reference in this combined proxy statement/prospectus. The selected historical consolidated financial data of Baker Hughes for each of the years ended December 31, 2016, 2015 and 2014, and as of December 31, 2016 and 2015 have been derived from Baker Hughes’ audited consolidated financial statements and related notes contained in its Annual Report on Form 10-K for the year ended December 31, 2016, which is incorporated by reference in this combined proxy statement/prospectus. The selected historical consolidated financial data for the years ended December 31, 2013 and 2012 and as of December 31, 2014, 2013 and 2012 have been derived from Baker Hughes’ audited consolidated financial statements, which have not been incorporated by reference in this combined proxy statement/prospectus. The information set forth below is only a summary and is not necessarily indicative of the results of future operations of Baker Hughes or New Baker Hughes, and you should read the following information together with Baker Hughes’ audited consolidated financial statements, the related notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Baker Hughes’ Annual Report on Form 10-K for the year ended December 31, 2016 and in Baker Hughes’ Quarterly Report on Form 10-Q for the three months ended March 31, 2017, which are incorporated by reference in this combined proxy statement/prospectus. For more information, see the section entitled “Where You Can Find More Information” beginning on page 250 of this combined proxy statement/prospectus.

 

     Three Months Ended
March 31,
    Year Ended December 31,  
In millions, except per share data        2017             2016         2016     2015     2014      2013      2012  
    

Unaudited

                                 

Statements of Income

                

Total revenue

   $ 2,262     $ 2,670     $ 9,841     $ 15,742     $ 24,551      $ 22,364      $ 21,361  

Operating income (loss)

     (30     (559     (1,623     (2,396     2,859        1,949        2,192  

Net income (loss)

     (130     (981     (2,736     (1,974     1,731        1,103        1,317  

Basic earnings (loss) per share attributable to Baker Hughes:

                

Basic

   $ (0.30   $ (2.22   $ (6.31   $ (4.49   $ 3.93      $ 2.47      $ 2.98  

Diluted

     (0.30     (2.22     (6.31     (4.49     3.92        2.47        2.97  

Dividends per share

     0.17       0.17       0.68       0.68       0.64        0.60        0.60  
     As of March 31,
2017
     As of Year Ended December 31,  
        2016      2015      2014      2013      2012  
     Unaudited                                     

Balance Sheets

                 

Total assets

   $ 18,676      $ 19,034      $ 24,080      $ 28,827      $ 27,934      $ 26,689  

Long-term debt

     2,884        2,886        3,890        3,913        3,882        3,837  

Total equity

     12,551        12,737        16,382        18,730        17,912        17,268  

Selected Historical Financial Data of GE O&G

The following table sets forth the selected combined historical financial information for GE O&G as of and for the periods ended on the dates indicated below. The unaudited selected historical Combined Statement of Earnings Data for the three months ended March 31, 2016 and 2017, and the unaudited selected historical Combined Statement of Financial Position Data as of March 31, 2016 and 2017 have been derived from the unaudited condensed combined financial statements of GE O&G for the interim periods ended March 31, 2017

 



 

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and 2016 which are included in the section entitled “Unaudited Financial Statements of GE O&G” beginning on page FS-1 of the combined proxy statement/prospectus. The selected historical Combined Statement of Earnings Data for the years ended December 31, 2014, December 31, 2015 and December 31, 2016, and the selected historical Combined Statement of Financial Position Data as of December 31, 2015 and December 31, 2016 have been derived from GE O&G’s audited combined financial statements for the years ended December 31, 2014, December 31, 2015 and December 31, 2016, which are included in the section entitled “Financial Statements of GE O&G” beginning on page FS-1 of this combined proxy statement/prospectus. The selected historical balance sheet data as of December 31, 2014 presented below have been derived from our accounting records, which are unaudited. GE O&G’s combined financial statements have been prepared in accordance with GAAP. GE O&G’s results of operations in any period may not necessarily be indicative of the results that may be expected for any future period. See “Risk Factors” beginning on page 44 of this combined proxy statement/prospectus.

The selected combined historical financial information should be read in conjunction with GE O&G’s financial statements and the accompanying notes in the sections titled “Financial Statements of GE O&G” beginning on page FS-1 of this combined proxy statement/prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of GE O&G” beginning on page 212 of this combined proxy statement/prospectus.

Neither the information set forth in the following table nor the combined financial statements of GE O&G included elsewhere in this combined proxy statement/prospectus represent the financial position or results of operations of either the Oil & Gas operating segment of General Electric Company or GE. The information set forth in the table below covers periods prior to the consummation of the Transactions described elsewhere in this combined proxy statement/prospectus and does not reflect its effect on future periods. GE O&G did not operate as a standalone entity in the past and, accordingly, the following information is not necessarily indicative of GE O&G’s future performance and does not reflect what GE O&G’s financial performance would have been had GE O&G operated as a standalone company during the periods presented.

 



 

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Selected combined historical financial information for the years ended December 31, 2013 and 2012 has been omitted from this presentation. GE O&G did not operate as a standalone company during this period, and the preparation of such information in accordance with GAAP would entail significant effort and expense, while providing limited additional insight to investors. Since 2012 and 2013, GE O&G has experienced significant mergers and acquisitions activity, including the acquisition of Lufkin Industries, Inc. in 2013 and Cameron Reciprocating Compression in 2014, as well as the divestiture of its Advanced Sensors business in 2013, Wayne Fueling Systems in 2014 and Industrial Air & Gas Technology in 2015. In addition, internal reorganizations between segments at GE have had the effect of further reducing the comparability between these periods and those presented below.

 

     Three Months Ended
March 31,
    Year Ended December 31,  

(in millions)

   2017     2016     2016     2015     2014  
     Unaudited     Unaudited                    

Combined Statement of Earnings Data

          

Revenues

   $ 3,111     $ 3,407     $ 13,269     $ 16,688     $ 19,191  

Cost of goods and services sold

     2,361       2,698       10,382       12,448       14,280  

Selling, general and administrative expenses

     565       525       2,058       2,184       2,402  

Goodwill impairment(1)

     —         —         —         2,080       —    

Other expenses/(income), net

     (11     25       97       (33     (13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     196       159       732       9       2,522  

Non-operating expense, net

     31       39       148       167       186  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     165       120       584       (158     2,336  

Income tax (provision) benefit

     (42     (42     (250     (473     (484
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     123       78       334       (631     1,852  

Net income (loss) attributable to noncontrolling interests

     (2     (63     (69     (25     12  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to GE O&G

   $ 125     $ 141     $ 403     $ (606   $ 1,840  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     As of
March 31,
     As of December 31,  
     2017      2016      2016      2015      2014  
     Unaudited      Unaudited                    Unaudited  

Combined Statement of Financial Position Data

              

Cash and equivalents

   $ 1,027      $ 1,267      $ 981      $ 1,432      $ 1,390  

Working capital (current assets less current liabilities)

     2,468        2,257        2,467        1,852     

Property, plant and equipment, net

     2,284        2,461        2,325        2,554        2,779  

Total assets

     22,034        22,641        21,721        23,133        26,496  

Total equity

     15,287        14,921        14,855        14,545        16,386  

 

(1) Goodwill impairment recognized in 2015. See Note 7, “Goodwill and Other Intangible Assets” of the Notes to Consolidated Financial Statements for further discussion.

Selected Unaudited Pro Forma Condensed Combined Financial Information

The following (i) selected Unaudited Pro Forma Condensed Combined Statement of Earnings Information of New Baker Hughes for the three months ended March 31, 2017 and for the year ended December 31, 2016, have been prepared to give effect to the Transactions as if Closing had occurred on January 1, 2016 and (ii) selected Unaudited Pro Forma Condensed Combined Statement of Financial Position Information of New Baker Hughes as of March 31, 2017 has been prepared to give effect to the Transactions as if Closing had occurred on March 31, 2017.

 



 

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The following selected Unaudited Pro Forma Condensed Combined Financial Information is for illustrative and informational purposes only and is not necessarily indicative of the results that might have occurred had the Transactions taken place on January 1, 2016 for statements of operations purposes and is not intended to be a projection of future results. Future results may vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors” beginning on page 44 of this combined proxy statement/prospectus. The following selected Unaudited Pro Forma Condensed Combined Financial Information should be read in conjunction with the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements” and related notes beginning on page 166 of this combined proxy statement/prospectus.

 

     For the Three
Months Ended

March 31, 2017
     For the Year Ended
December 31, 2016
 
    

(In millions except for

per share data)

    

(In millions except for

per share data)

 

Pro Forma Condensed Combined Statement of Earnings:

     

Revenues

     $5,373        $23,110  

Cost of goods and services sold

     4,333        20,524  

Income (loss) before income taxes

     121        (1,571

Net income (loss) attributable to the business

     9        (904

Basic earnings (loss) per share

     0.02        (2.08

Diluted earnings (loss) per share

     0.02        (2.08
     As of March 31, 2017         

Pro Forma Condensed Combined Statement of Financial Position:

     

Total assets

   $ 54,123     

Total debt, including current portion

     3,691     

Total liabilities

     14,118     

Total equity

     40,005     

 



 

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COMPARATIVE PER SHARE INFORMATION (UNAUDITED)

The following table summarizes unaudited per share information for New Baker Hughes on a pro forma equivalent basis based on the exchange ratio of 1.00 share of Baker Hughes common stock for 1.00 share of Common Stock. It has been assumed for purposes of the pro forma combined financial information provided below that Closing had occurred on January 1, 2016 for income per share purposes. The following information should be read in conjunction with the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements” and related notes beginning on page 166 of this combined proxy statement/prospectus.

Baker Hughes common stock is listed on NYSE under the “BHI” trading symbol. GE O&G was not a separately traded public company during the period.

 

     Twelve Months Ended December 31, 2016  
     Historical    

 

 
     GE O&G      Baker Hughes     Pro Forma Combined  

Basic and diluted earnings (loss) per share

     —        $ (6.31   $ (2.08

Cash dividends per share

     —          (0.68     (0.68

Book value per share at period end

     —          29.35       34.06  

Weighted average common shares (Basic and diluted)

     —          434,000,000       434,000,000  
     Three Months Ended March 31, 2017  
     Historical    

 

 
     GE O&G      Baker Hughes     Pro Forma Combined  

Basic and diluted earnings (loss) per share

     —        $ (0.30   $ 0.02  

Cash dividends per share

     —          (0.17     (0.17

Book value per share at period end

     —          29.26       35.37  

Weighted average common shares (Basic)

     —          429,000,000       429,000,000  

Weighted average common shares (Diluted)

     —          429,000,000       430,000,000  

 



 

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RISK FACTORS

Baker Hughes stockholders should carefully consider the following factors, in addition to those factors discussed elsewhere in this combined proxy statement/prospectus, before voting at the special meeting.

Risk Factors Related to the Transactions

The Transactions may not be completed on the terms or timeline currently contemplated, or at all, and failure to complete the Transactions may result in material adverse consequences to Baker Hughes’ business and operations.

The Transactions are subject to several closing conditions, including the adoption of the Transaction Agreement by Baker Hughes’ stockholders, the effectiveness of a registration statement relating to the registration of the issuance of the Class A Common Stock in the Transactions, the approval of the listing of the Class A Common Stock on NYSE, the expiration or termination of any applicable waiting period under the HSR Act and the receipt of regulatory approvals in certain other jurisdictions. If any one of these conditions is not satisfied or waived, the Transactions may not be completed. There is no assurance that the Transactions will be completed on the terms or timeline currently contemplated, or at all. See the section titled “The Transaction Agreement—Conditions to Closing” beginning on page 134 of this combined proxy statement/prospectus for a more detailed discussion.

The parties have not yet obtained all regulatory clearances, consents and approvals required to complete the Transactions. Governmental or regulatory agencies could still seek to block or challenge the Transactions or could impose restrictions they deem necessary or desirable in the public interest as a condition to approving the Transactions. These restrictions could include a requirement to sell certain specified businesses that GE is obligated under the terms of the Transaction Agreement to divest if necessary to obtain such regulatory approvals. See “The Transaction Agreement—Government Approvals” beginning on page 141 of this combined proxy statement/prospectus. If these approvals are not received, then neither Baker Hughes nor GE will be obligated to complete the Transactions. If the approvals could be received, but the applicable regulatory agency is not satisfied that a qualified buyer has been found or imposes on a party any antitrust action that would have an effect exceeding $200 million in revenue for the twelve months ended December 31, 2015 (other than with respect to the divestiture of certain specified businesses, which are not subject to the preceding limitations), GE would not be required to agree to undertake such actions and neither Baker Hughes nor GE would be obligated to complete the Transactions.

If Baker Hughes’ stockholders do not approve and adopt the Transaction Agreement or if the Transactions are not completed for any other reason, Baker Hughes would be subject to a number of risks, including the following:

 

    Baker Hughes and its stockholders would not realize the anticipated benefits of the Transactions, including the Special Dividend of $17.50 per share of Class A Common Stock and any anticipated synergies from combining Baker Hughes and GE O&G;

 

    Baker Hughes may be required to pay a termination fee of $750 million if the Transaction Agreement is terminated (i) due to an adverse change in the Baker Hughes board of directors’ recommendation to Baker Hughes’ stockholders to approve the Transactions, (ii) in order to allow it to proceed with an alternative acquisition, or (iii) if an alternative acquisition proposal is made before the Baker Hughes stockholders’ meeting to vote on the Transactions, the Transaction Agreement is terminated because Baker Hughes’ stockholders have not approved the Transactions upon a vote at the special meeting and Baker Hughes enters into an agreement with respect to an alternative acquisition within twelve months following the termination of the Transaction Agreement; and

 

    the trading price of Baker Hughes common stock may experience increased volatility to the extent that the current market prices reflect a market assumption that the Transactions will be completed.

 

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The occurrence of any of these events individually or in combination could have a material adverse effect on the results of operations of Baker Hughes or the trading price of Baker Hughes common stock. Baker Hughes is also exposed to general competitive pressures and risks, which may be increased if the Transactions are not completed.

Each of Baker Hughes and GE O&G will be subject to business uncertainties and contractual restrictions while the Transactions are pending that could adversely affect each of them.

Uncertainty about the effect of the Transactions on employees and customers may have an adverse effect on either or both of Baker Hughes and GE O&G, regardless of whether the Transactions are eventually completed, and, consequently, on New Baker Hughes. These uncertainties may impair Baker Hughes’ and GE O&G’s ability to attract, retain and motivate key personnel until the Transactions are completed, or the Transaction Agreement is terminated, and for a period of time thereafter, and could cause customers, suppliers and others that deal with Baker Hughes or GE O&G to seek to change existing business relationships with Baker Hughes or GE O&G.

Employee retention and recruitment may be particularly challenging for Baker Hughes and GE O&G during the pendency of the Transactions, as employees and prospective employees may experience uncertainty about their future roles with New Baker Hughes. For each of Baker Hughes and GE O&G, the departure of existing key employees or the failure of potential key employees to accept employment with New Baker Hughes, despite Baker Hughes’ and GE O&G’s retention and recruiting efforts, could have a material adverse impact on Baker Hughes’ and New Baker Hughes’ business, financial condition and operating results, regardless of whether the Transactions are eventually completed.

The pursuit of the Transactions and the preparation for the integration of Baker Hughes and GE O&G have placed, and will continue to place, a significant burden on the management and internal resources of both Baker Hughes and GE O&G. There is a significant degree of difficulty and management distraction inherent in the process of closing the Transactions and integrating Baker Hughes and GE O&G, which could cause an interruption of, or loss of momentum in, the activities of each company’s existing businesses, regardless of whether the Transactions are eventually completed. Before and immediately following Closing, the management teams of Baker Hughes and GE O&G will be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to manage their respective existing businesses, service existing customers, attract new customers and develop new products, services or strategies. One potential consequence of such distractions could be the failure of management to realize other opportunities that could be beneficial to Baker Hughes or GE O&G, respectively. If Baker Hughes’ or GE O&G’s senior management is not able to effectively manage the process leading up to and immediately following Closing, or if any significant business activities are interrupted as a result of the integration process, the business of Baker Hughes or GE O&G could suffer.

In addition, the Transaction Agreement restricts Baker Hughes and GE O&G from making certain acquisitions and taking other specified actions without the consent of the other until the Transactions are consummated or the Transaction Agreement is terminated. These restrictions may prevent Baker Hughes and GE O&G from pursuing otherwise attractive business opportunities and making other changes to their businesses before completion of the Transactions or termination of the Transaction Agreement. For a description of the restrictive covenants applicable to Baker Hughes and GE O&G, see the section titled “The Transaction Agreement—Operations of Baker Hughes and GE O&G Pre-Closing” beginning on page 136 of this combined proxy statement/prospectus.

The integration of Baker Hughes and GE O&G following Closing will present challenges that may result in a decline in the anticipated benefits of the Transactions.

The Transactions involve the combination of two businesses that currently operate as independent businesses. New Baker Hughes will be required to devote management attention and resources to integrating its

 

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business practices and operations, and prior to the Transactions, management attention and resources will be required to plan for such integration. Potential difficulties New Baker Hughes may encounter in the integration process include the following:

 

    the inability to successfully integrate the two businesses, including operations, technologies, products and services, in a manner that permits New Baker Hughes to achieve the cost savings and operating synergies anticipated to result from the Transactions, which could result in the anticipated benefits of the Transactions not being realized partly or wholly in the time frame currently anticipated or at all;

 

    lost sales and customers as a result of certain customers of either or both of the two businesses deciding not to do business with New Baker Hughes, or deciding to decrease their amount of business in order to reduce their reliance on a single company;

 

    the necessity of coordinating geographically separated organizations, systems and facilities;

 

    potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Transactions;

 

    integrating personnel with diverse business backgrounds and business cultures, while maintaining focus on providing consistent, high-quality products and services;

 

    consolidating and rationalizing information technology platforms and administrative infrastructures as well as accounting systems and related financial reporting activities; and

 

    preserving important relationships of both Baker Hughes and GE O&G and resolving potential conflicts that may arise.

Furthermore, it is possible that the integration process could result in the loss of key employees or skilled workers of Baker Hughes and GE O&G. The loss of key employees and skilled workers could adversely affect New Baker Hughes’ ability to successfully conduct its business because of their experience and knowledge of Baker Hughes’ and GE O&G’s businesses. In addition, New Baker Hughes could be adversely affected by the diversion of management’s attention and any delays or difficulties encountered in connection with the integration of Baker Hughes and GE O&G. The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of one or more of Baker Hughes’ and GE O&G’s segments. If New Baker Hughes experiences difficulties with the integration process, the anticipated benefits of the Transactions may not be realized fully or at all, or may take longer to realize than expected. These integration matters could have an adverse effect on the business, results of operations, financial condition or prospects of New Baker Hughes during this transition period and for an undetermined period after completion of the Transactions.

Ownership interests will not be adjusted if there is a change in the value of Baker Hughes or GE O&G and their respective assets before the Transactions are completed.

The paired interests of Common Units and Class B Common Stock received by GE and the Class A Common Stock received by former stockholders of Baker Hughes in connection with the Transactions will not be adjusted if there is a change in the value or assets of Baker Hughes or GE O&G prior to the consummation of the Transactions. Baker Hughes will not be required to consummate the Transactions if there has been any “material adverse effect” (as this term is described in the section “The Transaction Agreement—Representations and Warranties” beginning on page 133 of this combined proxy statement/prospectus) with respect to GE O&G. However, Baker Hughes will not be permitted to terminate the Transaction Agreement or re-solicit the vote of Baker Hughes stockholders because of any changes in the market prices of Baker Hughes’ common stock or any changes in the value of GE O&G that do not constitute a material adverse effect with respect to GE O&G.

The Transaction Agreement contains provisions that may discourage other companies from trying to acquire Baker Hughes.

The Transaction Agreement contains provisions that may discourage third parties from submitting business combination proposals to Baker Hughes that might result in greater value to Baker Hughes stockholders than the

 

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Transactions. The Transaction Agreement generally prohibits Baker Hughes from soliciting any competing acquisition proposal. In addition, if the Transaction Agreement is terminated by Baker Hughes or GE in circumstances that obligate Baker Hughes to pay a termination fee and to reimburse transaction expenses to GE, Baker Hughes’ financial condition may be adversely affected as a result of the payment of the termination fee and transaction expenses, which might deter third parties from proposing alternative business combination proposals.

The shares of Class A Common Stock to be received by Baker Hughes stockholders as a result of the Transactions will have different rights from shares of Baker Hughes common stock.

Following Closing, Baker Hughes stockholders will no longer be stockholders of Baker Hughes but will instead be stockholders of New Baker Hughes holding Class A Common Stock. There are important differences between the rights of Baker Hughes stockholders and the rights of holders of Class A Common Stock. For a description of different rights associated with Baker Hughes common stock and Class A Common Stock, see the section titled “Comparison of Stockholder Rights and Corporate Governance Matters” beginning on page 178 of this combined proxy statement/prospectus.

No trading market currently exists for Class A Common Stock.

Prior to Closing, there is no trading market for the Class A Common Stock. At Closing, the Class A Common Stock is expected to be listed for trading on NYSE. However, there can be no assurance that an active market for the Class A Common Stock will develop after Closing, or if it develops, that such market will be sustained. In the absence of an active trading market for the Class A Common Stock, investors may not be able to sell their Class A Common Stock at the time that they would like to sell.

Following the completion of the Transactions, New Baker Hughes will be controlled by GE. The interests of GE may differ from the interests of other stockholders of New Baker Hughes.

Immediately following Closing, GE will beneficially own and possess voting power over approximately 62.5% of the fully diluted shares of Common Stock. Under the Stockholders Agreement, GE may acquire additional shares of Common Stock up to an aggregate of 65% of Common Stock without the approval of the Conflicts Committee of the New Baker Hughes Board during the five-year period following Closing.

Through its ownership of a majority of New Baker Hughes’ voting power and the provisions set forth in the New Baker Hughes Charter, the New Baker Hughes Bylaws and the Stockholders Agreement, GE will have the ability to designate and elect a majority of New Baker Hughes’ directors. As a result of GE’s ownership of a majority of the voting power of Common Stock, New Baker Hughes will be a “controlled company” as defined in NYSE listing rules and will, therefore, not be subject to NYSE requirements that would otherwise require New Baker Hughes to have (i) a majority of independent directors, (ii) a nominating committee composed solely of independent directors, (iii) the compensation of its executive officers determined by a majority of the independent directors or a compensation committee composed solely of independent directors, and (iv) director nominees selected, or recommended for the board’s selection, either by a majority of the independent directors or a nominating committee composed solely of independent directors. Under the Stockholders Agreement, the New Baker Hughes Board will generally have five directors not designated by GE and six directors designated by GE. For further information regarding the New Baker Hughes Board and its committees following Closing, please see “Certain Agreements Related to the Transactions—Stockholders Agreement” beginning on page 150 of this combined proxy statement/prospectus.

GE will also have control over all other matters submitted to stockholders for approval, including changes in capital structure, transactions requiring stockholder approval under Delaware law and corporate governance, subject to the terms of the Stockholders Agreement relating to GE’s agreement to vote in favor of director nominees not designated by GE and to proposals by GE to acquire all of the shares of Common Stock held by

 

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non-GE stockholders that are described in more detail in “Certain Agreements Related to the Transactions—Stockholders Agreement” beginning on page 150 of this combined proxy statement/prospectus. GE may have different interests than other holders of Common Stock and may make decisions adverse to your interests.

Among other things, GE’s control could delay, defer, or prevent a sale of New Baker Hughes that the company’s other stockholders support, or, conversely, this control could result in the consummation of such a transaction that other stockholders do not support. This concentrated control could discourage a potential investor from seeking to acquire Class A Common Stock and, as a result, might harm the market price of that Class A Common Stock.

Given GE’s ownership of the majority of the outstanding voting securities of New Baker Hughes and the interactions that will take place between New Baker Hughes and GE through the GE Store and otherwise, the success of New Baker Hughes will depend in part on the reputation and success of GE.

Members of the management and board of directors of Baker Hughes have interests in the Transactions that are different from, or in addition to, those of other stockholders.

In considering whether to approve the Transactions, Baker Hughes stockholders should recognize that members of Baker Hughes management and the Baker Hughes board of directors have interests in the Transactions that differ from, or are in addition to, their interests as stockholders of Baker Hughes. For a description of these interests, see the section titled “Additional Interests of Baker Hughes’ Directors and Executive Officers in the Transactions” beginning on page 118 of this combined proxy statement/prospectus.

Baker Hughes and New Baker Hughes will incur transaction-related and restructuring costs in connection with the Transactions and the integration of the two businesses.

Baker Hughes and New Baker Hughes will incur transaction-related and restructuring costs in connection with the Transactions and New Baker Hughes will incur costs in connection with the integration of Baker Hughes’ and GE O&G’s businesses. There are many systems that must be integrated, including information management, purchasing, accounting and finance, sales, billing, payroll and benefits, fixed asset and lease administration systems and regulatory compliance. Baker Hughes and GE O&G are in the early stages of assessing the magnitude of these costs and, therefore, are not able to provide estimates of these costs. The costs related to restructuring will be included as a liability in the purchase price allocation or expensed as incurred, depending on the nature of the restructuring activity. Moreover, many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. These expenses could, particularly in the near term, reduce the cost synergies that New Baker Hughes expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost synergies related to the integration of the businesses following the completion of the Transactions, and accordingly, any net synergies may not be achieved in the near term or at all. These integration expenses may result in New Baker Hughes taking significant charges against earnings following the completion of the Transactions. Some of these costs and expenses will be incurred even if the Transactions are not consummated.

The historical financial information of GE O&G may not be representative of its results or financial condition if it had been operated independently of GE and, as a result, may not be a reliable indicator of its future results.

GE O&G is currently a business segment of GE. Consequently, the financial information of GE O&G included in this document has been derived from the consolidated financial statements and accounting records of GE and reflects all direct costs as well as an allocation of indirect costs based on assumptions and allocations made by GE management. The financial position, results of operations and cash flows of GE O&G presented may be different from those that would have resulted had GE O&G been operated independently of GE during the applicable periods or at the applicable dates. For example, in preparing the financial statements of GE O&G,

 

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GE made allocations of costs and GE corporate expenses deemed to be attributable to GE O&G. However, these costs and expenses reflect the costs and expenses attributable to GE O&G operated as part of a larger organization and do not necessarily reflect costs and expenses that would be incurred by GE O&G had it been operated independently. As a result, the historical financial information of GE O&G may not be a reliable indicator of its future results.

The unaudited pro forma combined financial information of Baker Hughes and GE O&G is not intended to reflect what actual results of operations and financial condition would have been had Baker Hughes and GE O&G been a combined company for the periods presented, and therefore these results may not be indicative of New Baker Hughes’ future operating performance.

Because Baker Hughes will combine with GE O&G only upon completion of the Transactions, it has no available historical financial information that combines the financial results for Baker Hughes and GE O&G. The historical financial statements contained or incorporated by reference in this document consist of the separate financial statements of GE O&G and Baker Hughes.

The unaudited pro forma combined financial information presented in this document is for illustrative purposes only and is not intended to, and does not purport to, represent what New Baker Hughes’ actual results or financial condition would have been if the Transactions had occurred on the relevant dates. In addition, such unaudited pro forma combined financial information is based in part on certain assumptions regarding the Transactions that New Baker Hughes, Baker Hughes and GE believe are reasonable. These assumptions, however, are merely preliminary and will be updated only after Closing. The unaudited pro forma combined financial information has been prepared using the acquisition method of accounting, with GE O&G considered the acquirer of Baker Hughes. Under the acquisition method of accounting, the purchase price is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values with any excess purchase price allocated to goodwill. The pro forma purchase price allocation was based on an estimate of the fair values of the tangible and intangible assets and liabilities of Baker Hughes. In arriving at the estimated fair values, Baker Hughes and GE have considered the preliminary appraisals of independent consultants, which were based on a preliminary and limited review of the assets and liabilities related to Baker Hughes to be held by New Baker Hughes following the consummation of the Transactions. Following Closing, New Baker Hughes will have a one-year period to complete the purchase price allocation after considering the fair value of Baker Hughes’ assets and liabilities at the level of detail necessary to finalize the required purchase price allocation. The final purchase price allocation may be different from that reflected in the pro forma purchase price allocation presented herein, and this difference may be material.

The unaudited pro forma combined financial information does not reflect the costs of any integration activities or transaction-related costs or incremental capital spending that GE O&G’s or Baker Hughes’ management believes are necessary to realize the anticipated synergies from the Transactions. Accordingly, the pro forma financial information included in this document does not reflect what New Baker Hughes’ results of operations or operating condition would have been had Baker Hughes and GE O&G been a combined entity during all periods presented, or what New Baker Hughes’ results of operations and financial condition will be in the future.

Business issues currently faced by one company may be imputed to the operations of the combined company.

To the extent that either GE O&G or Baker Hughes currently has or is perceived by customers to have operational challenges, those challenges may raise concerns by existing customers of the other company following Closing, which may limit or impede New Baker Hughes’ future ability to obtain additional orders for products or services from those customers.

 

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If New Baker Hughes were to cease being a subsidiary of GE in the future, such a separation could adversely affect our business and profitability due to GE’s strong brand and reputation.

As a segment of GE, GE O&G has marketed and, as a subsidiary, New Baker Hughes expects to market many of its products and services using the “GE” brand name and logo. New Baker Hughes believes that the association with GE will provide many benefits, including:

 

    a world-class brand associated with trust, integrity and longevity;

 

    perception of high-quality products and related services;

 

    strong research and development, intellectual property, and technology;

 

    preferred status among our suppliers, customers and employees; and

 

    established relationships with regulators.

Although GE will license to New Baker Hughes the right to use certain “GE” marks in its corporate name and in the products and services of New Baker Hughes’ business in connection with certain oil and gas activities and other discrete oil and gas segments, there is a risk that New Baker Hughes might be adversely affected if the license were to expire or otherwise terminate. See “Certain Agreements Related to the Transactions—Commercial Agreements—Trademark License Agreement” beginning on page 163 of this combined proxy statement/prospectus.

While there is no present intention to separate New Baker Hughes from GE, if we were to cease being a subsidiary of GE, such a separation could adversely affect our ability to attract and retain customers. We may be required to provide more favorable pricing and other terms to our customers and take other action to maintain our relationship with existing, and attract new, customers, all of which could have a material adverse effect on our business, financial condition and results of operations.

The terms of our commercial arrangements with GE following Closing may be more favorable than we will be able to obtain from an unaffiliated third party. If we were to cease being a subsidiary of GE, we may be unable to replace the services GE provides us in a timely manner or on comparable terms.

Newco LLC and GE will enter into certain service, supply and license agreements in connection with the completion of the Transactions. Pursuant to such agreements, GE and its affiliates will agree to provide us with certain services after the Transactions through the GE Store, including treasury, payroll, certain human resources and employee benefit services and procurement and sourcing support.

Baker Hughes negotiated these arrangements with GE in anticipation of New Baker Hughes becoming a subsidiary of GE. Although GE will be contractually obligated to provide us with services during the term of these agreements, we cannot assure you that these services will be sustained at the same level after the expiration of such agreements, or that we will be able to replace these services in a timely manner or on comparable terms. In addition, if we cease to be a controlled subsidiary of GE, certain of these arrangements will automatically terminate. For a more detailed discussion of certain consequences of dispositions by GE of all or part of its interest in New Baker Hughes, see “Certain Agreements Related to the Transactions” beginning on page 150 of this combined proxy statement/prospectus. If services are no longer procured from GE pursuant to those arrangements, or if certain arrangements are terminated, our costs of procuring those services from third parties may increase. The agreements also contain terms and provisions that may be more favorable to us than terms and provisions we might have obtained in arm’s-length negotiations with unaffiliated third parties. For a description of these agreements, see “Certain Agreements Related to the Transactions” beginning on page 150 of this combined proxy statement/prospectus.

 

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Some of Baker Hughes’ existing agreements contain change in control or early termination rights that may be implicated by the Transactions.

Parties with which Baker Hughes currently does business or may do business in the future, including customers and suppliers, may experience uncertainty associated with the Transactions, including with respect to current or future business relationships with Baker Hughes and New Baker Hughes. As a result, the business relationships of Baker Hughes may be subject to disruptions if customers, suppliers, or others attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than Baker Hughes and New Baker Hughes. For example, certain customers and collaborators may have contractual consent rights or termination rights that may be triggered by a change of control or assignment of the rights and obligations of contracts that will be transferred in the Transactions. These disruptions could harm our relationships with existing customers and preclude us from attracting new customers, all of which could have a material adverse effect on our business, financial condition and results of operations, cash flows, and/or share price of Baker Hughes or New Baker Hughes. The effect of such disruptions could be exacerbated by a delay in the consummation of the Transactions.

Some of GE O&G’s customers may experience uncertainty associated with the Transactions, which may limit New Baker Hughes’ business.

Parties with which GE, in respect of GE O&G, currently does business or may do business in the future, including customers and suppliers, may experience uncertainty associated with the Transactions, including with respect to future business relationships with New Baker Hughes. As a result, the business relationships of New Baker Hughes may be subject to disruptions if customers, suppliers, or others attempt to renegotiate changes in existing business relationships or consider entering into business relationships with parties other than GE, in respect of GE O&G or New Baker Hughes. For example, certain customers and collaborators of GE O&G may exercise contractual termination rights as they arise or elect to not renew contracts with GE O&G. These disruptions could harm relationships with existing customers, suppliers or others and preclude us from attracting new customers, all of which could have a material adverse effect on our business, financial condition and results of operations, cash flows, and/or share price of New Baker Hughes. The effect of such disruptions could be exacerbated by a delay in the consummation of the Transactions.

GE could engage in business and other activities that compete with us.

GE has agreed that for a certain period of time following the Closing Date, it and its subsidiaries (other than New Baker Hughes and its subsidiaries) will not compete in certain oil and gas activities and other discrete oil and gas related segments. See “Certain Agreements Related to the Transactions—Commercial Agreements—Non-Competition Agreement” beginning on page 161 of this combined proxy statement/prospectus.

Subject to the terms of the Non-Competition Agreement, GE or any of its subsidiaries may engage in certain activities notwithstanding that they may fall within the scope of the competing business. Following the completion of the Transactions, GE will continue to engage in these activities. In addition, if we engage in activities outside the scope of the Non-Competition Agreement, GE will not be restricted from engaging in such activities in competition with us. See “Certain Agreements Related to the Transactions—Commercial Agreements—Non-Competition Agreement” beginning on page 161 of this combined proxy statement/prospectus for a more detailed discussion. To the extent that GE engages in the same or similar business activities or lines of business as us, or engages in business with any of our partners, customers or vendors, our ability to successfully operate and expand our business may be hampered.

The corporate opportunity provisions in the New Baker Hughes Charter could enable GE to benefit from corporate opportunities that might otherwise be available to us.

The New Baker Hughes Charter will contain provisions related to corporate opportunities that may be of interest to both New Baker Hughes and GE. These provisions will provide in general that (i) a corporate

 

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opportunity offered to any person who is a director, but not an officer or employee of New Baker Hughes and who is also a director, officer and/or employee of GE will belong to New Baker Hughes if the opportunity is offered to such person in his or her capacity as a director of New Baker Hughes and otherwise will belong to GE and (ii) a corporate opportunity offered to any person who is an officer or employee of New Baker Hughes and also is a director, officer and/or employee of GE will belong to New Baker Hughes unless it is offered to such person in his or her capacity as a director, officer and/or employee of GE, in which case it will belong to GE. The absence of a duty on the part of GE or its affiliates or its designees on the New Baker Hughes Board to present corporate opportunities to New Baker Hughes could have a material adverse effect on our business, financial condition, results of operations or prospects if attractive corporate opportunities are allocated by GE to itself or its affiliates (not including New Baker Hughes). For a more complete description of the terms of the New Baker Hughes Charter, see the section titled “Description of New Baker Hughes Capital Stock” beginning on page 194 of this combined proxy statement/prospectus.

Pending litigation against Baker Hughes could result in an injunction preventing the consummation of the Transactions or may adversely affect New Baker Hughes’ business, financial condition or results of operations following the Transactions.

On May 10, 2017, a putative class action complaint challenging the Transactions was filed on behalf of purported Baker Hughes stockholders in the U.S. District Court for the Southern District of Texas. The complaint asserts, among other things, claims under Sections 14(a) and 20(a) of the Exchange Act against Baker Hughes and the members of its board of directors and challenges the adequacy of the disclosures made in the version of this combined proxy statement/prospectus filed on May 9, 2017. In addition to certain unspecified damages and reimbursement of costs, the plaintiff seeks to enjoin the consummation of the Transactions, or in the event the Transactions are consummated, to rescind the Transactions or to obtain rescissory damages. While the defendants believe the lawsuit is without merit, the outcome of any such litigation is inherently uncertain. The defense, outcome or settlement of any lawsuit or claim that remains unresolved at the time the Transactions are consummated may adversely affect New Baker Hughes’ business, financial condition or results of operation.

Following the completion of the Transactions, GE will be prohibited from transferring shares of Common Stock until the second anniversary of Closing (including any shares of Class A Common Stock issued in exchange for its Paired Interests), after which, subject to restrictions, it will be permitted to transfer its shares of Common Stock (including any shares of Class A Common Stock issued in exchange for its Paired Interests), which could have a negative impact on New Baker Hughes’ stock price.

For two years following the completion of the Transactions, GE will be prohibited from transferring any of its shares of Common Stock (including any shares of Class A Common Stock issued in exchange for its Paired Interests) other than to GE affiliates. Following such two-year lock-up period, GE will be permitted, subject to restrictions explained in more detail in “Certain Agreements Related to the Transactions—Stockholders Agreement” beginning on page 150 of this combined proxy statement/prospectus, to transfer shares of Class A Common Stock (including any shares of Class A Common Stock issued in exchange for its Paired Interests), including in public offerings pursuant to registration rights to be granted by New Baker Hughes. Any such transfer could significantly increase the number of shares of Class A Common Stock available in the market, which could cause a decrease in the price of Class A Common Stock. In addition, even if GE does not transfer a large number of its shares into the market, the existence of its right to transfer a large number of shares into the market may depress the price of shares of Class A Common Stock.

Additionally, pursuant to the Stockholders Agreement, following the completion of the Transactions and subsequent two-year lockup period, GE will be prohibited from transferring any shares of Common Stock in any transaction that would result in the transferee owning more than 15% of the outstanding shares of Common Stock without the prior consent of the Conflicts Committee (as defined in the Stockholders Agreement). The 15% limitation, however, is not applicable in connection with widely distributed public offerings of Common Stock (including spin-off and split-off transactions) and, following the fifth anniversary of Closing, transfers by GE of

 

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all of its Paired Interests or shares of Class A Common Stock (after exchanging its Paired Interests for shares of Class A Common Stock) to an unaffiliated third party if the third party makes an offer to purchase all other outstanding shares of Common Stock from any other holder on substantially the same terms offered to GE, including price. See the section entitled “Certain Agreements Related to the Transactions—Stockholders Agreement” beginning on page 150 and the section entitled “Certain Agreements Related to the Transactions—Newco LLC Agreement” beginning on page 154 of this combined proxy statement/prospectus. Additional terms governing the transferability of GE’s Common Units and shares of Class B Common Stock are set forth in the Newco LLC Agreement and described in more detail in “Certain Agreements Related to the Transactions—Newco LLC Agreement” beginning on page 154 of this combined proxy statement/prospectus.

New Baker Hughes does not have a contractual right to make indemnification claims against GE for the breach of any representations, warranties or covenants made by GE in the Transaction Agreement.

Under the Transaction Agreement, New Baker Hughes does not have a right to make contractual claims against GE after Closing, including for a breach by GE of the representations and warranties made to Baker Hughes or for a violation by GE of certain covenants and agreements in the Transaction Agreement.

Notwithstanding the foregoing, under the Tax Matters Agreement, New Baker Hughes will have the right to make contractual claims against GE after Closing for any pre-Closing income taxes of GE O&G and for restructuring taxes incurred by Baker Hughes and its subsidiaries in connection with the Transactions. See “Certain Agreements Related to the Transactions—Tax Matters Agreement” beginning on page 160 of this combined proxy statement/prospectus.

Risk Factors Related to the Business of New Baker Hughes

The following are risk factors that relate to the business of the combined company, New Baker Hughes. In this section, as elsewhere in this combined proxy statement/prospectus, unless the context requires otherwise, references to “Baker Hughes” refer to Baker Hughes Incorporated and its consolidated subsidiaries before the completion of the Transactions, references to “New Baker Hughes” refer to Bear Newco, Inc. and its consolidated subsidiaries following the completion of the Transactions, and references to the “Company,” “we,” “our,” or “us” refer to Baker Hughes Incorporated and its consolidated subsidiaries, before completion of the Transactions, or Bear Newco, Inc. and its consolidated subsidiaries, after the completion of the Transactions, as the context requires.

New Baker Hughes will operate in a highly competitive environment, which may adversely affect our ability to succeed.

New Baker Hughes will operate in a highly competitive environment for marketing oilfield products and services and securing equipment and trained personnel. Our ability to continually provide competitive products and services can impact our ability to defend, maintain or increase prices for our products and services, maintain market share, and negotiate acceptable contract terms with our customers. In order to be competitive, we must provide new technologies, reliable products and services that perform as expected and that create value for our customers, and successfully recruit, train and retain competent personnel. The loss or unavailability of key personnel, including the loss of senior management, including Mr. Simonelli, to a reassignment or promotion within GE or to competitors, may adversely affect our operations and success. Mr. Simonelli’s strong performance as Chief Executive Officer of GE O&G qualifies him as a strong candidate for promotions to other senior executive positions across GE. For example, Mr. Simonelli is one of several candidates at GE to succeed Jeffrey Immelt as Chairman and Chief Executive Officer of GE (and Chairman of the New Baker Hughes Board). In the event that Mr. Simonelli were to be promoted to a different position at GE, the New Baker Hughes Board would select a successor Chief Executive Officer for New Baker Hughes.

In addition, our investments in new technologies and properties, plants and equipment may not provide competitive returns. Our ability to defend, maintain or increase prices for our products and services is in part

 

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dependent on the industry’s capacity relative to customer demand, and on our ability to differentiate the value delivered by our products and services from our competitors’ products and services. Managing development of competitive technology and new product introductions on a forecasted schedule and at a forecasted cost can impact our financial results. If we are unable to continue to develop and produce competitive technology or deliver it to our clients in a timely and cost-competitive manner in various markets in which we operate, or if competing technology accelerates the obsolescence of any of our products or services, any competitive advantage that we may hold, and in turn, our business, financial condition and results of operations could be materially and adversely affected.

The high cost or unavailability of infrastructure, materials, equipment, supplies and personnel, particularly in periods of rapid growth, could adversely affect our ability to execute our operations on a timely basis.

Our manufacturing operations will be dependent on having sufficient raw materials, component parts and manufacturing capacity available to meet our manufacturing plans at a reasonable cost while minimizing inventories. Our ability to effectively manage our manufacturing operations and meet these goals can have an impact on our business, including our ability to meet our manufacturing plans and revenue goals, control costs, and avoid shortages or over-supply of raw materials and component parts. Raw materials and components of particular concern include steel alloys (including chromium and nickel), titanium, barite, beryllium, copper, lead, tungsten carbide, synthetic and natural diamonds, gels, sand and other proppants, printed circuit boards and other electronic components and hydrocarbon-based chemical feed stocks. Our ability to repair or replace equipment damaged or lost in the well can also impact our ability to service our customers. A lack of manufacturing capacity could result in increased backlog, which may limit our ability to respond to orders with short lead times.

People will be a key resource to developing, manufacturing and delivering our products and services to our customers around the world. Our ability to manage the recruiting, training, retention and efficient usage of the highly skilled workforce required by our plans and to manage the associated costs could impact our business. A well-trained, motivated workforce will have a positive impact on our ability to attract and retain business. Periods of rapid growth present a challenge to us and our industry to recruit, train and retain our employees, while managing the impact of wage inflation and potential lack of available qualified labor in the markets where we operate.

Likewise, if the economy or markets decline or other changes occur, such as a decline in our stock price, we may have to reduce utilization of our assets or adjust our workforce to control costs, which may cause us to lose some of our skilled employees. Labor-related actions, including strikes, slowdowns and facility occupations can also have a negative impact on our business.

Our business could be impacted by geopolitical and terrorism threats in countries where we or our customers do business and our business operations may be impacted by civil unrest, government expropriations and/or epidemic outbreaks.

Geopolitical and terrorism risks continue to grow in a number of key countries where GE O&G does and we will do business. Geopolitical and terrorism risks could lead to, among other things, a loss of our investment in the country, impairment of the safety of our employees and impairment of our or our customers’ ability to conduct operations. These risks and other factors, most of which are beyond GE O&G’s and our control, include (but are not limited to) the following:

 

    nationalization and expropriation;

 

    potentially burdensome taxation;

 

    inflationary and recessionary markets, including capital and equity markets;

 

    civil unrest, labor issues, political instability, terrorist attacks, cyber-terrorism, military activity and wars;

 

    supply disruptions in key oil producing countries;

 

    ability of the Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels and pricing;

 

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    trade and economic sanctions or other restrictions imposed by the United States, the European Union or other countries;

 

    foreign ownership restrictions;

 

    import or export licensing requirements;

 

    an inability to repatriate income or capital due to foreign exchange controls;

 

    restrictions on operations, trade practices, trade partners and investment decisions resulting from domestic and foreign laws and regulations;

 

    changes in, and the administration of, laws and regulations, potential instability of judicial systems and failure to adhere to the rule of law;

 

    reductions in the availability of qualified personnel;

 

    foreign currency fluctuations or currency restrictions; and

 

    fluctuations in the interest rate component of forward foreign currency rates.

In addition to other geopolitical and terrorism risks, civil unrest continues to grow in a number of key countries where we will do business. Our ability to conduct business operations may be impacted by that civil unrest and our assets in these countries may also be subject to expropriation by governments or other parties involved in civil unrest. Epidemic outbreaks may also impact our business operations by, among other things, restricting travel to protect the health and welfare of our employees and decisions by our customers to curtail or stop operations in impacted areas.

Compliance with and changes in laws could be costly and could affect operating results. In addition, government disruptions could negatively impact our ability to conduct our business.

We will have operations in the United States and in more than 120 countries that can be impacted by expected and unexpected changes in the legal and business environments in which we operate. Compliance-related issues could also limit our ability to do business in certain countries and impact our earnings. Changes that could impact the legal environment include new legislation, new regulations, new policies, investigations and legal proceedings and new interpretations of existing legal rules and regulations, in particular, changes in export control laws or exchange control laws, additional restrictions on doing business in countries subject to sanctions, and changes in laws in countries where we intend to operate. In addition, changes and uncertainty in the political environments in which our businesses operate can have a material effect on the laws, rules, and regulations that affect our operations. For example, the United Kingdom’s vote to exit the European Union, the recent change in the presidential administration in the United States, as well as the upcoming elections in Europe and elsewhere have created policy uncertainties around important commercially relevant issues such as international trade policy, mobility of labor and tax reform that can create a level of uncertainty for multinational companies. Government disruptions may also delay or halt the granting and renewal of permits, licenses and other items required by us and our customers to conduct our business. The continued success of our global business and operations will depend, in part, on our ability to continue to anticipate and effectively manage these and other political, legal and regulatory risks.

Increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted computer crime could pose risks to our systems, networks, products, solutions, services and data.

Increased global cybersecurity vulnerabilities, threats and more sophisticated and targeted cyber-related attacks pose risks to our systems, networks, products, solutions, services and data. Cybersecurity attacks also pose risks to our customers’, partners’, suppliers’ and third-party service providers’ products, systems and networks and the confidentiality, availability and integrity of our and our customers’ data. While we attempt to mitigate these risks by employing a number of measures, including employee training, monitoring and testing,

 

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and maintenance of protective systems and contingency plans, we remain potentially vulnerable to additional known or unknown threats. We also may have access to sensitive, confidential or personal data or information in certain of our businesses that is subject to privacy and security laws, regulations and customer-imposed controls. Despite our efforts to protect sensitive, confidential or personal data or information, we may be vulnerable to material security breaches, theft, misplaced or lost data, programming errors, employee errors and/or malfeasance that could potentially lead to the compromising of sensitive, confidential or personal data or information, improper use of our systems, software solutions or networks, unauthorized access, use, disclosure, modification or destruction of information, defective products, production downtimes and operational disruptions. In addition, a cyber-related attack could adversely impact our operating results and result in other negative consequences, including damage to our reputation or competitiveness, remediation or increased protection costs, litigation or regulatory action.

Our failure to comply with the Foreign Corrupt Practices Act (“FCPA”) and other similar laws could have a negative impact on our ongoing operations.

Our ability to comply with the FCPA, the U.K. Bribery Act and various other anti-bribery and anti-corruption laws will be dependent on the success of our ongoing compliance program, including our ability to continue to manage our agents and business partners, and supervise, train and retain competent employees. Our compliance program will also be dependent on the efforts of our employees to comply with applicable law and our internal policies. We could be subject to sanctions and civil and criminal prosecution, as well as fines and penalties, in the event of a finding of a violation of any of these laws by us or any of our employees.

Anti-money laundering and anti-terrorism financing laws could have significant adverse consequences for us.

We will maintain an enterprise-wide program designed to enable us to comply with all applicable anti-money laundering and anti-terrorism financing laws and regulations, including the Bank Secrecy Act and the Patriot Act. This program will include policies, procedures, processes and other internal controls designed to identify, monitor, manage and mitigate the risk of money laundering or terrorist financing posed by our products, services, customers and geographic locale. These controls will establish procedures and processes to detect and report suspicious transactions, perform customer due diligence, respond to requests from law enforcement, and meet all recordkeeping and reporting requirements related to particular transactions involving currency or monetary instruments. We cannot be sure our programs and controls will be effective to ensure our compliance with all applicable anti-money laundering and anti-terrorism financing laws and regulations, and our failure to comply could subject us to significant sanctions, fines, penalties and reputational harm, all of which could have a material adverse effect on our business, results of operations and financial condition.

Changes in tax laws or tax rates, adverse positions taken by taxing authorities and tax audits could impact operating results.

Changes in tax laws or tax rates, the resolution of tax assessments or audits by various tax authorities, and the ability to fully utilize tax loss carryforwards and tax credits could impact our operating results, including additional valuation allowances for deferred tax assets. In addition, we may periodically restructure our legal entity organization. If taxing authorities were to disagree with our tax positions in connection with any such restructurings, our effective tax rate could be materially impacted.

Our tax filings for various periods will be subject to audit by the tax authorities in most jurisdictions where we conduct business. For example, tax assessments have been received from various taxing authorities and are currently at varying stages of appeals and/or litigation regarding these matters. These audits may result in assessment of additional taxes that are resolved with the authorities or through the courts. We believe these assessments may occasionally be based on erroneous and even arbitrary interpretations of local tax law. Resolution of any tax matter involves uncertainties and there are no assurances that the outcomes will be favorable.

 

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Changes in and compliance with restrictions or regulations on offshore drilling may adversely affect our business and operating results and reduce the need for our services in those areas.

Legislation and regulation in the U.S. and other parts of the world of the offshore oil and natural gas industry may result in substantial increases in costs or delays in drilling or other operations in the Gulf of Mexico and other parts of the world, oil and natural gas projects becoming potentially non-economic, and a corresponding reduced demand for our services. If the U.S. or other countries where we will operate enact stricter restrictions on offshore drilling or further regulate offshore drilling or contracting services operations, higher operating costs could result and adversely affect our business and operating results.

In response to the Deepwater Horizon explosive incident and resulting oil spill in the United States Gulf of Mexico in 2010, the Bureau of Ocean Energy Management (“BOEM”) and the Bureau of Safety and Environmental Enforcement (“BSEE”) imposed more stringent permitting procedures and regulatory safety and performance requirements for new wells to be drilled in federal waters. Compliance with these more stringent regulatory restrictions, in addition to any uncertainties or inconsistencies in current decisions and rulings by governmental agencies, delays in the processing and approval of drilling permits and exploration, development, oil spill-response and decommissioning plans and possible additional regulatory initiatives could adversely affect or delay new drilling and ongoing development efforts. Moreover, new regulatory initiatives may be adopted or enforced by the BOEM and/or the BSEE in the future that could result in additional delays, restrictions or obligations with respect to oil and natural gas exploration and production operations conducted offshore. Other parts of the world in which we operate have also adopted more stringent requirements for the operation of offshore oil and gas wells and other facilities, such as the EU Offshore Safety Directive, which requires more stringent financial assurance to be established to cover potential liabilities as a condition of licensing operations. We expect more stringent requirements to be adopted in this area in each part of the world where we operate.

Our operations will involve a variety of operating hazards and risks that could cause losses.

The products that we will manufacture and the services that we will provide are complex, and the failure of our equipment to operate properly or to meet specifications may greatly increase our customers’ costs. In addition, many of these products are used in inherently hazardous industries, such as the offshore oilfield business. These hazards include blowouts, explosions, nuclear-related events, fires, collisions, capsizings and severe weather conditions. These hazards could result in personal injury and loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage and suspension of operations. We may incur substantial liabilities or losses as a result of these hazards. While we will maintain insurance protection against some of these risks, and seek to obtain indemnity agreements from our customers requiring the customers to hold us harmless from some of these risks, our insurance and contractual indemnity protection may not be sufficient or effective to protect us under all circumstances or against all risks. The occurrence of a significant event, against which we were not fully insured or indemnified, such as an incident similar to the 2010 Deepwater Horizon accident or the failure of a customer to meet its indemnification obligations to us, could materially and adversely affect our results of operations and financial condition.

Compliance with, and rulings and litigation in connection with, environmental regulations and the environmental impacts of our or our customers’ operations may adversely affect our business and operating results.

Our business will be impacted by material changes in environmental laws, regulations, rulings and litigation. Our expectations regarding our compliance with environmental laws and regulations and our expenditures to comply with environmental laws and regulations, including (without limitation) our capital expenditures for environmental control equipment, are only our forecasts regarding these matters. These forecasts may be substantially different from actual results, which may be affected by factors such as: changes in law that impose new restrictions on air emissions, wastewater management, waste disposal, hydraulic fracturing, or wetland and land use practices; more stringent enforcement of existing environmental laws and regulations; a

 

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change in our share of any remediation costs or other unexpected, adverse outcomes with respect to sites where we have been named as a potentially responsible party, including (without limitation) Superfund sites; the discovery of other sites where additional expenditures may be required to comply with environmental legal obligations; and the accidental discharge of hazardous materials.

International, national, and state governments and agencies continue to evaluate and promulgate legislation and regulations that are focused on restricting emissions commonly referred to as greenhouse gas (“GHG”) emissions. In the United States, the EPA has taken steps to regulate GHG emissions as air pollutants under the Clean Air Act of 1963. The EPA’s Greenhouse Gas Reporting Rule requires monitoring and reporting of GHG emissions from, among others, certain mobile and stationary GHG emission sources in the oil and natural gas industry, which in turn may include data from certain of our wellsite equipment and operations. In addition, the U.S. government has proposed rules setting GHG emission standards for the oil and natural gas industry. Caps on carbon emissions, including in the United States, have been and may continue to be established and the cost of such caps could disproportionately affect the fossil-fuel energy sector. We are unable to predict whether the proposed changes in laws or regulations ultimately will occur or what they ultimately will require, and accordingly, we are unable to assess the potential financial or operational impact they may have on our business.

Other developments focused on restricting GHG emissions include the United Nations Framework Convention on Climate Change, which includes the Paris Agreement and the Kyoto Protocol; the European Union Emission Trading System; the United Kingdom’s CRC Energy Efficiency and ESOS schemes; and, in the United States, the Regional Greenhouse Gas Initiative, the Western Regional Climate Action Initiative, and various state programs implementing California Assembly Bill 32.

Current or future legislation, regulations and developments, including those related to climate change, may curtail production and demand for hydrocarbons such as oil and natural gas in areas of the world where our customers operate, by shifting demand towards relatively lower carbon energy sources such as wind, solar and other renewables. Many governments are providing tax advantages and other subsidies and promoting technological research to support renewable energy sources, or are mandating the use of renewable fuels or technologies. These governmental initiatives, as well as increased societal awareness of climate change impacts, have also resulted in increased investor and consumer demand for renewable energy. Any resulting reduction in demand for oil and natural gas could adversely affect future demand for our services, which may in turn adversely affect future results of operations.

Uninsured claims and litigation against us could adversely impact our operating results.

We could be impacted by the outcome of pending litigation, as well as unexpected litigation or proceedings. We will have insurance coverage against operating hazards, including product liability claims and personal injury claims related to our products, to the extent deemed prudent by our management and to the extent insurance is available; however, no assurance can be given that the nature and amount of that insurance will be sufficient to fully indemnify us against liabilities arising out of pending and future claims and litigation. This insurance will have deductibles or self-insured retentions and will contain certain coverage exclusions. The insurance will not cover damages from breach of contract by us or based on alleged fraud or deceptive trade practices. In addition, the following risks will apply with respect to our insurance coverage:

 

    we may not be able to continue to obtain insurance on commercially reasonable terms;

 

    we may be faced with types of liabilities that will not be covered by our insurance;

 

    our insurance carriers may not be able to meet their obligations under the policies; or

 

    the dollar amount of any liabilities may exceed our policy limits.

Whenever possible, we will obtain agreements from customers that limit our liability, however we often contract with customers that are not the end user of our products. It is our practice to seek to obtain an indemnity

 

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from our customer for any end-user claims, but this is not always possible. Similarly, government agencies and other third parties may make claims in respect of which we are not indemnified and for which responsibility is assessed proportionate to fault. Furthermore, state law, laws or public policy in countries outside the U.S., or the negotiated terms of the agreement with the customer may not recognize those limitations of liability and/or limit the customer’s indemnity obligations to us. In addition, insurance and customer agreements may not provide complete protection against losses and risks from an event like a well control failure that can lead to property damage, personal injury, death or the discharge of hazardous materials into the environment. Our results of operations could be adversely affected by unexpected claims not covered by insurance or customer agreements.

Control of oil and natural gas reserves by state-owned oil companies may impact the demand for our services and create additional risks in our operations.

Much of the world’s oil and natural gas reserves are controlled by state-owned oil companies. State-owned oil companies may require their contractors to meet local content requirements or other local standards, such as conducting our operations through joint ventures with local partners that could be difficult or undesirable for us to meet. The failure to meet the local content requirements and other local standards may adversely impact our operations in those countries. In addition, our ability to work with state-owned oil companies is subject to our ability to negotiate and agree upon acceptable contract terms.

Providing services on an integrated or turnkey basis could require us to assume additional risks.

Many state-owned oil companies and other operators may require integrated contracts or turnkey contracts and we may choose to provide services outside our core business. Providing services on an integrated or turnkey basis may subject us to additional risks, such as costs associated with unexpected delays or difficulties in drilling or completion operations and risks associated with subcontracting arrangements.

Some of our customers require bids in the form of long-term, fixed pricing contracts.

Some of our customers may require bids for contracts in the form of long-term, fixed pricing contracts that may require us to provide integrated project management services outside our normal discrete business to act as project managers, as well as service providers, and may require us to assume additional risks associated with cost over-runs. These customers may provide us with inaccurate information in relation to their reserves. The estimation of reserves is a process that involves subjective judgment about likely location and volume, and estimates that prove inaccurate may result in cost overruns, delays, and project losses for us.

Providing services on an integrated basis may also require us to assume additional risks associated with operating cost inflation, labor availability and productivity, supplier pricing and performance, and potential claims for liquidated damages. We rely on third-party subcontractors and equipment providers to assist us with the completion of these types of contracts. To the extent that we cannot engage subcontractors or acquire equipment or materials in a timely manner and on reasonable terms, our ability to complete a project in accordance with stated deadlines or at a profit may be impaired. If the amount we are required to pay for these goods and services exceeds the amount we have estimated in bidding for fixed-price work, we could experience losses in the performance of these contracts. These delays and additional costs may be substantial and we may be required to compensate our customers for these delays. This may reduce the profit to be realized or result in a loss on a project.

We will be substantially dependent upon GE, which will be a significant supplier, and any failure by GE to supply us in accordance with applicable contractual terms could have a material effect on our business.

Newco LLC will enter into a number of service and supply agreements with GE at Closing under which Newco LLC will purchase a number of products or services for use in our business. If GE becomes unable to, or otherwise does not fulfill its obligations under these agreements, alternative suppliers that we could use in the

 

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event of a disruption may not be immediately available. These disruptions could harm our relationships with existing customers (including by causing breaches under our agreements with those customers) and preclude us from attracting new customers, all of which could have a material adverse effect on our business, financial condition and results of operations, cash flows, and/or share price of New Baker Hughes. In addition, these circumstances may give rise to a dispute between Newco LLC and GE.

The credit risks of having a concentrated customer base in the energy industry could result in losses.

Having a concentration of customers in the energy industry may impact our overall exposure to credit risk as our customers may be similarly affected by prolonged changes in economic and industry conditions. Some of our customers may experience extreme financial distress as a result of falling commodity prices and may be forced to seek protection under applicable bankruptcy laws, which may affect our ability to recover any amounts due from such customers. Furthermore, countries that rely heavily upon income from hydrocarbon exports have been negatively and significantly affected by the drop in oil prices, which could affect our ability to collect from our customers in these countries, particularly national oil companies. Laws in some jurisdictions in which we will operate could make collection difficult or time consuming. We will perform ongoing credit evaluations of our customers and do not expect to require collateral in support of our trade receivables. While we will maintain reserves for potential credit losses, we cannot assure such reserves will be sufficient to meet write-offs of uncollectible receivables or that our losses from such receivables will be consistent with our expectations. Additionally, in the event of a bankruptcy of any of our customers, we may be treated as an unsecured creditor and may collect substantially less, or none, of the amounts owed to us by such customer.

Our backlog will be subject to modification, termination or reduction of orders, which could negatively impact our sales.

Our backlog will be comprised of unfilled customer orders for products and product services (expected life of contract sales for product services). Our backlog can be significantly affected by the timing of orders for large projects. Although modifications and terminations of orders may be partially offset by cancellation fees, customers can, and sometimes do, terminate or modify orders. Our failure to replace canceled orders could negatively impact our sales and results of operations. The total dollar amount of GE O&G’s backlog as of December 31, 2016 was $21,697 million.

We may not be able to satisfy technical requirements, testing requirements or other specifications required under our service contracts and equipment purchase agreements.

Our products will be used in deepwater and other harsh environments and severe service applications. Our contracts with customers and customer requests for bids will typically set forth detailed specifications or technical requirements for our products and services, which may also include extensive testing requirements. We anticipate that such testing requirements will become more common in our contracts. In addition, recent scrutiny of the offshore drilling industry has resulted in more stringent technical specifications for our products and more comprehensive testing requirements for our products to ensure compliance with such specifications. We cannot provide assurance that our products will be able to satisfy the specifications or that we will be able to perform the full-scale testing necessary to prove that the product specifications are satisfied in future contract bids or under existing contracts, or that the costs of modifications to our products to satisfy the specifications and testing will not adversely affect our results of operations. If our products are unable to satisfy such requirements, or we are unable to perform any required full-scale testing, our customers may cancel their contracts and/or seek new suppliers, and our business, results of operations, cash flows or financial position may be adversely affected.

Currency fluctuations or devaluations may impact our operating results.

Fluctuations or devaluations in foreign currencies relative to the U.S. dollar can impact our revenue and our costs of doing business, as well as the costs of doing business of our customers. Most of our products and

 

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services will be sold through contracts denominated in U.S. dollars or local currency indexed to U.S. dollars; however, some of our revenue, local expenses and manufacturing costs will be incurred in local currencies and therefore changes in the exchange rates between the U.S. dollar and foreign currencies can increase or decrease our revenue and expenses reported in U.S. dollars or revenue and expenses of our customers and, consequently, may impact the ability of our customers to satisfy their payment obligations and our results of operations.

Changes in economic and/or market conditions may impact our ability to borrow and/or cost of borrowing.

The condition of the capital markets and equity markets in general can affect the price of our Common Stock and our ability to obtain financing, if necessary. If our credit rating is ever downgraded, it could increase borrowing costs under credit facilities and commercial paper programs, as well as increase the cost of renewing or obtaining, or make it more difficult to renew, obtain or issue new debt financing.

An inability to protect our intellectual property rights could adversely affect our business.

There can be no assurance that the steps we take to obtain, maintain and protect our intellectual property rights will be adequate. Our intellectual property rights may fail to provide us with significant competitive advantages, particularly in foreign jurisdictions where we have not invested in an intellectual property portfolio or that do not have, or do not enforce, strong intellectual property rights. The weakening of protection of our trademarks, patents and other intellectual property rights could adversely affect our business.

We will be a party to a number of licenses that give us rights to intellectual property that is necessary or useful to our business, including from GE. Our success will depend in part on the ability of our licensors to obtain, maintain and enforce the licensed intellectual property rights to which we have licenses. Even if these applications issue or register, our licensors may fail to maintain them, may determine not to pursue litigation against other companies that are infringing them, or may pursue such litigation less aggressively than we would. Without protection for the intellectual property rights we license, other companies might be able to offer substantially identical products for sale, which could adversely affect our competitive business position and harm our business products. Also, there can be no assurances that we will be able to obtain or renew from third parties the licenses to use intellectual property rights we need in the future, and there is no assurance that such licenses can be obtained on reasonable terms.

We may be subject to litigation if another party claims that we have infringed upon its intellectual property rights.

The tools, techniques, methodologies, programs and components we will use to provide our products and services may infringe upon the intellectual property rights of others. Regardless of the merits, infringement claims may result in significant legal and other costs and may distract management from running our core business. Resolving such claims could increase our costs, including through royalty payments to acquire licenses, if available, from third parties and through the development of non-infringing technologies. If a license to resolve a claim were not available, we might not be able to continue providing a particular service or product, which could adversely affect our financial condition, results of operations and cash flows.

Risk Factors Related to the Worldwide Oil and Natural Gas Industry

New Baker Hughes’ business will be focused on providing products and services to the worldwide oil and natural gas industry; therefore, our risk factors include those factors that impact, either positively or negatively, the markets for oil and natural gas. Expenditures by our customers for exploration, development and production of oil and natural gas are based on their expectations of future hydrocarbon demand, their expectations for future energy prices, the risks associated with developing the reserves, their ability to finance exploration for and development of reserves, and the future value of the reserves. Their evaluation of the future value is based, in part, on their expectations for global demand, global supply, spare productive capacity, inventory levels and other factors that influence oil and natural gas prices. The key risk factors we believe are currently influencing the worldwide oil and natural gas markets are discussed below.

 

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Volatility of oil and natural gas prices can adversely affect demand for our products and services.

Prices of oil and gas products are set on a commodity basis. As a result, the volatility in oil and natural gas prices can impact our customers’ activity levels and spending for our products and services. Current energy prices are important contributors to cash flow for our customers and their ability to fund exploration and development activities. Although oil prices have risen over the past year, this increase follows a decline through most of 2014 and 2015, and uncertainty remains about the trajectory of oil prices going forward. Expectations about future prices and price volatility are important for determining future spending levels.

Lower oil and natural gas prices generally lead to decreased spending by our customers. While higher oil and natural gas prices generally lead to increased spending by our customers, sustained high energy prices can be an impediment to economic growth, and can therefore negatively impact spending by our customers. Our customers also take into account the volatility of energy prices and other risk factors by requiring higher returns for individual projects if there is higher perceived risk. Any of these factors could affect the demand for oil and natural gas and could have a material effect on our results of operations.

Demand for oil and natural gas is subject to factors beyond our control, which may adversely affect our operating results. Changes in the global economy could impact our customers’ spending levels and our revenue and operating results.

Demand for oil and natural gas, as well as the demand for our services, is highly correlated with global economic growth, and in particular by the economic growth of countries such as the U.S., India, China, and developing countries in Asia and the Middle East, which are either significant users of oil and natural gas or whose economies are experiencing the most rapid economic growth compared to the global average. Weakness or deterioration of the global economy or credit markets could reduce our customers’ spending levels and reduce our revenue and operating results. Incremental weakness in global economic activity, particularly in China, India, Europe, the Middle East and developing countries in Asia, could reduce demand for oil and natural gas and result in lower oil and natural gas prices. Incremental strength in global economic activity in such areas will create more demand for oil and natural gas and support higher oil and natural gas prices.

Requirements and voluntary initiatives to reduce greenhouse gas emissions, as well as increased climate change awareness, are likely to result in increased costs for the oil and gas industry to curb greenhouse gas emissions and could have an adverse impact on demand for oil and natural gas.

International, national, and state governments, agencies and bodies continue to evaluate and promulgate regulations and voluntary initiatives that are focused on restricting GHG emissions. These requirements and initiatives are likely to become more stringent over time and to result in increased costs for the oil and gas industry to curb greenhouse gas emissions. In addition, these developments may curtail production and demand for hydrocarbons such as oil and natural gas by shifting demand towards and investment in relatively lower carbon energy sources such as wind, solar and other renewables. The renewable energy industry is developing enhanced technologies and becoming more competitive with fossil-fuel energy. If renewable energy becomes more competitive than fossil-fuel energy, particularly during periods of higher oil and natural gas prices, it could have a material effect on our results of operations. Please see the section entitled “Risk Factors Related to the Business of New Baker Hughes—Compliance with, and rulings and litigation in connection with, environmental regulations and the environmental impacts of our or our customers’ operations may adversely affect our business and operating results.”

Supply of oil and natural gas is subject to factors beyond our control, which may adversely affect our operating results.

Productive capacity for oil and natural gas is dependent on our customers’ decisions to develop and produce oil and natural gas reserves and on the regulatory environment in which our customers and we operate. The

 

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ability to produce oil and natural gas can be affected by the number and productivity of new wells drilled and completed, as well as the rate of production and resulting depletion of existing wells. Advanced technologies, such as horizontal drilling and hydraulic fracturing, improve total recovery but also result in a more rapid production decline and may become subject to more stringent regulation in the future.

Productive capacity in excess of demand (“spare productive capacity”) is also an important factor influencing energy prices and spending by oil and natural gas exploration companies. Spare productive capacity and oil and natural gas storage inventory levels are an indicator of the relative balance between supply and demand. High or increasing storage, inventories, or spare productive capacity generally indicate that supply is exceeding demand and that energy prices are likely to soften. Low or decreasing storage, inventories, or spare productive capacity are generally an indicator that demand is growing faster than supply and that energy prices are likely to rise.

Access to prospects is also important to our customers, but such access may be limited because host governments do not allow access to the reserves. Government regulations and the costs incurred by oil and natural gas exploration companies to conform to and comply with government regulations may also limit the quantity of oil and natural gas that may be economically produced.

Supply can also be impacted by the degree to which individual OPEC nations and other large oil and natural gas producing countries, including, but not limited to, Norway and Russia, are willing and able to control production and exports of oil, to decrease or increase supply and to support their targeted oil price while meeting their market share objectives. Any of these factors could affect the supply of oil and natural gas and could have a material effect on our results of operations.

Our customers’ activity levels and spending for our products and services and ability to pay amounts owed us could be impacted by the reduction of their cash flow and the ability of our customers to access equity or credit markets.

Our customers’ access to capital is dependent on their ability to access the funds necessary to develop economically attractive projects based upon their expectations of future energy prices, required investments and resulting returns. Limited access to external sources of funding has caused and may continue to cause customers to reduce their capital spending plans to levels supported by internally generated cash flow. In addition, a reduction of cash flow resulting from declines in commodity prices, a reduction in borrowing bases under reserve-based credit facilities or the lack of available debt or equity financing may impact the ability of our customers to pay amounts owed to us and could cause us to increase our reserve for doubtful accounts.

Seasonal and weather conditions could adversely affect demand for our services and operations.

Variation from normal weather patterns, such as cooler or warmer summers and winters, can have a significant impact on demand. Adverse weather conditions, such as hurricanes in the Gulf of Mexico, may interrupt or curtail our operations, or our customers’ operations, cause supply disruptions and result in a loss of revenue and damage to our equipment and facilities, which may or may not be insured. Extreme winter conditions in Canada, Russia or the North Sea may interrupt or curtail our operations, or our customers’ operations, in those areas and result in a loss of revenue.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This combined proxy statement/prospectus contains “forward-looking” statements as that term is defined in Section 27A of the Securities Act, and Section 21E of the Exchange Act, including statements regarding the proposed Transactions between GE and Baker Hughes. All statements, other than historical facts, including: statements regarding the expected timing and structure of the proposed Transactions; the ability of the parties to complete the proposed Transactions considering the various closing conditions; the expected benefits of the proposed Transactions such as improved operations, enhanced revenues and cash flow, synergies, growth potential, market profile, customers’ business plans and financial strength; the competitive ability and position of New Baker Hughes following completion of the proposed Transactions; the projected future financial performance of GE O&G, Baker Hughes and New Baker Hughes; oil and natural gas market conditions; costs and availability of resources; legal, economic and regulatory conditions; and any assumptions underlying any of the foregoing, are forward-looking statements. Forward-looking statements concern future circumstances and results and other statements that are not historical facts and are sometimes identified by the words “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue,” “target” or other similar words or expressions. Forward-looking statements are based upon current plans, estimates and expectations that are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. The inclusion of such statements should not be regarded as a representation that such plans, estimates or expectations will be achieved. Important factors that could cause actual results to differ materially from such plans, estimates or expectations include, among others, (1) that one or more closing conditions to the Transactions, including certain regulatory approvals, may not be satisfied or waived, on a timely basis or otherwise, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the proposed Transactions, may require conditions, limitations or restrictions in connection with such approvals or that the required approval by the stockholders of Baker Hughes may not be obtained; (2) the risk that the proposed Transactions may not be completed in the time frame expected by GE or Baker Hughes, or at all; (3) unexpected costs, charges or expenses resulting from the proposed Transactions; (4) uncertainty of the expected financial performance of New Baker Hughes following completion of the proposed Transactions; (5) failure to realize the anticipated benefits of the proposed Transactions, including as a result of delay in completing the proposed Transactions or integrating the businesses of GE O&G and Baker Hughes; (6) the ability of New Baker Hughes to implement its business strategy; (7) difficulties and delays in achieving revenue and cost synergies of New Baker Hughes; (8) inability to retain and hire key personnel; (9) the occurrence of any event that could give rise to termination of the proposed Transactions; (10) the risk that stockholder litigation in connection with the proposed Transactions or other settlements or investigations may affect the timing or occurrence of the proposed Transactions or result in significant costs of defense, indemnification and liability; (11) evolving legal, regulatory and tax regimes; (12) changes in general economic and/or industry-specific conditions, including oil price changes; (13) actions by third parties, including government agencies; (14) the risk factors in the section titled “Risk Factors”; and (15) other risk factors as detailed from time to time in Baker Hughes’ reports filed with the SEC, including Baker Hughes’ annual report on Form 10-K, periodic quarterly reports on Form 10-Q, periodic current reports on Form 8-K and other documents filed with the SEC. The foregoing list of important factors is not exclusive.

Any forward-looking statements speak only as of the date of this combined proxy statement/prospectus. Neither New Baker Hughes nor Baker Hughes undertakes any obligation to update any forward-looking statements, whether as a result of new information or developments, future events or otherwise, except as required by law. Readers are cautioned not to place undue reliance on any of these forward-looking statements.

 

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INFORMATION ABOUT THE SPECIAL MEETING AND VOTING

Baker Hughes is providing this combined proxy statement/prospectus to its stockholders in connection with the solicitation of proxies to be voted at the special meeting of Baker Hughes stockholders (or any adjournment or postponement of the special meeting) that Baker Hughes has called to consider and vote on the proposals set forth below.

This combined proxy statement/prospectus is first being mailed to Baker Hughes stockholders on or about [            ], 2017.

Date, Time and Place of Special Meeting

The special meeting will be held at [            ] on [            ], 2017 at [            ], local time.

Purpose of the Special Meeting

The purpose of the special meeting is to consider the following matters:

 

    a proposal to adopt the Transaction Agreement and thereby approve the Transactions, including the Mergers;

 

    the Adjournment Proposal;

 

    the Transaction-Related Compensation Proposal;

 

    the LTI Plan Proposal;

 

    the Executive Officer Performance Goals Proposal; and

 

    any other business properly brought before the special meeting and any adjournment or postponement thereof, in each case by or at the direction of the Baker Hughes board of directors.

Record Date for the Special Meeting

The record date for the special meeting is [            ], 2017.

Shares Entitled to Vote

Only Baker Hughes stockholders of record at the close of business on the record date of [            ], 2017 will be entitled to receive notice of and to vote at the special meeting or any adjournment thereof. Shares of Baker Hughes common stock held by Baker Hughes as treasury shares and by Baker Hughes’ subsidiaries will not be entitled to vote.

As of the close of business on the record date of [            ], 2017, there were [            ] shares of Baker Hughes common stock outstanding and entitled to vote at the special meeting. Each holder of Baker Hughes common stock is entitled to one vote for each share of Baker Hughes common stock owned as of the close of business on the record date.

Quorum

The presence at the special meeting, in person or by proxy, of the holders of a majority of the shares of Baker Hughes common stock issued, outstanding and entitled to vote at the special meeting will constitute a quorum.

Proxies received but marked as abstentions, if any, and broker non-votes, if any, will be included in the calculation of the number of shares considered to be present at the meeting for quorum purposes.

 

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Vote Required; Abstentions and Broker Non-Vote

The required votes to approve the Baker Hughes proposals are as follows:

 

    To adopt the Transaction Agreement, holders of a majority of the shares of Baker Hughes common stock outstanding and entitled to vote thereon must vote in favor of adoption of the Transaction Agreement. Because approval is based on the affirmative vote of a majority of the outstanding shares of Baker Hughes common stock entitled to vote, a Baker Hughes stockholder’s failure to vote in person or by proxy at the special meeting, or an abstention from voting, or the failure of a Baker Hughes stockholder who holds his or her shares in “street name” through a broker, nominee, fiduciary or other custodian or other nominee to give voting instructions to such broker, nominee, fiduciary or other custodian or other nominee, will have the same effect as a vote against adoption of the Transaction Agreement;

 

    To approve the Adjournment Proposal, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote thereon is required, if a quorum is present. The chairman of the meeting may also (regardless of the outcome of the stockholder vote on adjournment) adjourn the meeting to another place, date and time. If a quorum is not present, a majority of the voting stock represented in person or by proxy, or the chairman of the meeting, may adjourn the meeting until a quorum is present. If you fail to submit a proxy or attend the special meeting, or fail to instruct your broker, nominee, fiduciary or other custodian or other nominee to vote, it will have no effect on the Adjournment Proposal. Broker non-votes will have no effect on the outcome of any vote to adjourn the special meeting if a quorum is present but will have the same effect as a vote against if no quorum is present. If you mark your proxy or voting instructions to abstain, it will have the effect of a vote against the adjournment of the special meeting, whether or not a quorum is present;

 

    To approve the Transaction-Related Compensation Proposal, holders of a majority of the shares of Baker Hughes common stock present in person or represented by proxy at the meeting and entitled to vote thereon must vote in favor of the Transaction-Related Compensation Proposal. If you fail to submit a proxy or attend the special meeting, or fail to instruct your broker, nominee, fiduciary or other custodian or other nominee to vote, it will have no effect on the Transaction-Related Compensation Proposal. Broker non-votes will have no effect on the outcome of the Transaction-Related Compensation Proposal. If you mark your proxy or voting instructions to abstain, it will have the effect of a vote against the Transaction-Related Compensation Proposal;

 

    To approve the LTI Plan Proposal, holders of a majority of the shares of Baker Hughes common stock present in person or represented by proxy at the meeting and entitled to vote thereon must vote in favor of the LTI Plan Proposal, if a quorum is present. If you fail to submit a proxy or attend the special meeting, or fail to instruct your broker, nominee, fiduciary or other custodian or other nominee to vote, it will have no effect on the LTI Plan Proposal. Broker non-votes will have no effect on the outcome of the LTI Plan Proposal. If you mark your proxy or voting instructions to abstain, it will have the effect of a vote against the LTI Plan Proposal; and

 

    To approve the Executive Officer Performance Goals Proposal, holders of a majority of the shares of Baker Hughes common stock present in person or represented by proxy at the meeting and entitled to vote thereon must vote in favor of the Executive Officer Performance Goals Proposal, if a quorum is present. If you fail to submit a proxy or attend the special meeting, or fail to instruct your broker, nominee, fiduciary or other custodian or other nominee to vote, it will have no effect on the Executive Officer Performance Goals Proposal. Broker non-votes will have no effect on the outcome of the Executive Officer Performance Goals Proposal. If you mark your proxy or voting instructions to abstain, it will have the effect of a vote against the Executive Officer Performance Goals Proposal.

A complete list of Baker Hughes stockholders entitled to vote at the special meeting will be available for inspection at the principal place of business of Baker Hughes during regular business hours for a period of no less than ten days before the special meeting and during and at the place of the special meeting.

 

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If your shares are held in an account of a broker, nominee, fiduciary or other custodian or through another nominee, you must instruct the broker, nominee, fiduciary or other custodian or other nominee on how to vote your shares. If you do not provide voting instructions to your broker, nominee, fiduciary or other custodian or other nominee, your shares will not be voted on any proposal on which your broker, nominee, fiduciary or other custodian or other nominee does not have discretionary authority to vote.

Under NYSE rules, brokers, nominees, fiduciaries or other custodians or other nominees who hold shares in street name for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are not allowed to exercise their voting discretion with respect to the approval of matters that NYSE determines to be “non-routine” without specific instructions from the beneficial owner. It is expected that all proposals to be voted on by you at the special meeting are “non-routine” matters, and therefore brokers do not have discretionary authority to vote on any of the proposals. Broker non-votes occur when a broker, nominee, fiduciary or other custodian or other nominee is not instructed by the beneficial owner of shares to vote on a particular proposal for which the broker does not have discretionary voting power. Broker non-votes will have the same effect as a vote against the adoption of the Transaction Agreement, no effect on the Adjournment Proposal if a quorum is present, the same effect as a vote against the Adjournment Proposal if a quorum is not present, no effect on the outcome of the Transaction-Related Compensation Proposal, no effect on the LTI Plan Proposal, and no effect on the Executive Officer Performance Goals Proposal.

Therefore, if you do not provide voting instructions to your broker, your shares will not be voted on:

 

    the proposal to adopt the Transaction Agreement. A broker non-vote will have the same effect as a vote against adoption of the Transaction Agreement;

 

    the Adjournment Proposal. A broker non-vote will have no effect on the outcome of any vote on the proposal to adjourn the special meeting if a quorum is present, but will have the same effect as a vote against if no quorum is present;

 

    the Transaction-Related Compensation Proposal. Broker non-votes will have no effect on the outcome of the Transaction-Related Compensation Proposal;

 

    the LTI Plan Proposal. Broker non-votes will have no effect on the outcome of the LTI Plan Proposal; and

 

    the Executive Officer Performance Goals Proposal. Broker non-votes will have no effect on the outcome of the Executive Officer Performance Goals Proposal.

Voting by Baker Hughes Directors and Executive Officers

At the close of business on the record date for the special meeting, Baker Hughes’ directors and executive officers and their affiliates beneficially owned and had the right to vote [            ] shares of Baker Hughes common stock at the special meeting, which represents approximately [    ]% of the shares of Baker Hughes common stock entitled to vote at the special meeting. The number and percentage of shares of Baker Hughes common stock owned by directors and executive officers of Baker Hughes and its affiliates as of the record date are not expected to be meaningfully different from the number and percentage as of [            ].

It is expected that Baker Hughes’ directors and executive officers and their affiliates will vote their shares:

 

    FOR the adoption of the Transaction Agreement;

 

    FOR the Adjournment Proposal;

 

    FOR the Transaction-Related Compensation Proposal;

 

    FOR the LTI Plan Proposal; and

 

    FOR the Executive Officer Performance Goals Proposal.

 

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However, no director or executive officer has entered into any agreement obligating him or her to vote in any particular way.

Voting at the Special Meeting

Stockholders of record, as well as stockholders who hold their shares in “street name” who obtain a proxy from their broker, may vote in person by ballot at the special meeting.

How to Vote by Proxy

Stockholders of record may vote by submitting their proxies:

 

    by telephone, by calling the toll-free number (800) 690-6903 and following the recorded instructions;

 

    by accessing the Internet website at www.proxyvote.com and following the instructions on the website; or

 

    by mail, by indicating your vote on each proxy card you receive, signing and dating each proxy card and returning each proxy card in the prepaid envelope that accompanied that proxy card.

The Internet and telephone proxy submission procedures are designed to authenticate stockholders and to allow them to confirm that their instructions have been properly recorded.

Stockholders of Baker Hughes who hold their shares in “street name” by a broker, nominee, fiduciary or other custodian or other nominee should refer to the proxy card or other information forwarded by their broker, nominee, fiduciary or other custodian for instructions on how to vote their shares.

Baker Hughes recommends that you submit your proxy even if you plan to attend the special meeting. If you attend the special meeting, you may vote by ballot, thereby canceling any proxy previously submitted. If you properly give your proxy and submit it to Baker Hughes in time to vote, one of the individuals named as your proxy will vote your shares as you have directed. If you hold your shares in “street name,” you will have to obtain a legal proxy in your name from the broker, nominee, fiduciary or other custodian who holds your shares in order to vote in person at the special meeting. You may vote for or against the proposals or abstain from voting.

Proxies Without Instruction

If you are a stockholder of record and submit your proxy, but do not make specific choices with respect to the proposals, your proxy will follow the Baker Hughes board of directors’ recommendations and your shares will be voted:

 

    FOR the proposal to adopt the Transaction Agreement;

 

    FOR the Adjournment Proposal;

 

    FOR the Transaction-Related Compensation Proposal;

 

    FOR the LTI Plan Proposal; and

 

    FOR the Executive Officer Performance Goals Proposal.

Under such circumstances, your proxy will constitute a waiver of your right of appraisal under Section 262 of the DGCL and will nullify any previously delivered written demand for appraisal under Section 262 of the DGCL. A copy of Section 262 of the DGCL is attached as Annex K to this combined proxy statement/prospectus.

 

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Revocation of Proxies

Stockholders may revoke their proxy and/or change their vote at any time before their shares are voted at the special meeting. If you are a stockholder of record, you can do this by:

 

    sending a written notice stating that you revoke your proxy to Baker Hughes Incorporated, 17021 Aldine Westfield Road, Houston, Texas 77073, Attention: Corporate Secretary, that bears a date later than the date of your previously submitted proxy and is received prior to the special meeting;

 

    submitting a valid, later-dated proxy by telephone or Internet that is received prior to [        ] (Central Daylight Time) on [            ], 2017; or

 

    attending the special meeting and voting by ballot in person (your attendance at the special meeting will not, by itself, revoke any proxy that you have previously given).

If you hold your shares through a broker, nominee, fiduciary or other custodian, you must contact your broker, nominee, fiduciary, other custodian or other nominee to change your vote or obtain a “legal proxy” to vote your shares if you wish to cast your vote in person at the meeting.

Solicitation of Proxies

This combined proxy statement/prospectus is furnished in connection with the solicitation of proxies by the Baker Hughes board of directors to be voted at the special meeting.

Baker Hughes will bear all costs and expenses in connection with the solicitation of proxies, including the charges of brokerage houses and other custodians, nominees or fiduciaries for forwarding documents to security owners. Proxies may also be solicited by certain of Baker Hughes’ directors, officers and employees by telephone, electronic mail, letter, facsimile or in person, but no additional compensation will be paid to them (other than reasonable out-of-pocket expenses). Baker Hughes has retained D.F. King to assist in the distribution and solicitation of proxies. Baker Hughes will pay D.F. King fees of approximately $15,000, plus reasonable out-of-pocket expenses, for these services.

Stockholders Should Not Send Stock Certificates With Their Proxies

A letter of transmittal and instructions for the surrender of Baker Hughes stock certificates will be mailed to Baker Hughes stockholders shortly after the effective time of the Transactions, if the Transactions are approved.

Other Business; Adjournments

Under Baker Hughes’ bylaws, the business to be conducted at the special meeting will be limited to the purposes stated in the notice to Baker Hughes stockholders provided with this combined proxy statement/prospectus.

Adjournments may be made for the purpose of, among other things, soliciting additional proxies. To approve the adjournment of the special meeting, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote thereon is required, if a quorum is present. The chairman of the meeting may also (regardless of the outcome of the stockholder vote on adjournment) adjourn the meeting to another place, date and time. Baker Hughes is not required to notify stockholders of any adjournment of 30 days or less if the time and place of the adjourned meeting are announced at the meeting at which the adjournment is taken, unless after the adjournment a new record date is fixed for the adjourned meeting. At any adjourned meeting, Baker Hughes may transact any business that it might have transacted at the original meeting. Proxies submitted by Baker Hughes stockholders for use at the special meeting may be used at any adjournment or postponement of the meeting. Unless the context otherwise requires, references to the special meeting in this combined proxy statement/prospectus are to such special meeting as adjourned or postponed.

 

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Baker Hughes Stockholder Account Maintenance

Baker Hughes’ transfer agent is Computershare Shareowner Services LLC. All communications concerning accounts of Baker Hughes’ stockholders of record, including address changes, name changes, inquiries as to requirements to transfer shares of common stock and similar issues can be handled by calling Computershare Shareowner Services LLC toll-free at (888) 216-8057.

Recommendations to Baker Hughes Stockholders (see page 82)

The Baker Hughes board of directors has reviewed and considered the terms of the Transactions, including the Mergers, and the Transaction Agreement and has unanimously determined that the Transaction Agreement and the Transactions contemplated thereby, including the Mergers, are advisable and in the best interests of Baker Hughes and its stockholders. Accordingly, the Baker Hughes board of directors unanimously recommends that Baker Hughes stockholders vote:

 

    FOR the proposal to adopt the Transaction Agreement and thereby approve the Transactions, including the Mergers;

 

    FOR the Adjournment Proposal;

 

    FOR the Transaction-Related Compensation Proposal;

 

    FOR the LTI Plan Proposal; and

 

    FOR the Executive Officer Performance Goals Proposal.

Baker Hughes stockholders should carefully read this combined proxy statement/prospectus, including any documents incorporated by reference, and the annexes in their entirety for more detailed information concerning the Transaction Agreement and the Transactions contemplated thereby.

 

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THE TRANSACTIONS

The Companies

New Baker Hughes

New Baker Hughes is a Delaware corporation that was formed by Baker Hughes for the purpose of engaging in the Transactions. New Baker Hughes will be a holding company whose principal asset will be the indirect ownership of Common Units representing approximately 37.5% of the interests in Newco LLC. A wholly owned subsidiary of New Baker Hughes will be the managing member of Newco LLC. Immediately after the completion of the Transactions, New Baker Hughes’ equity capital will consist solely of the Class A Common Stock and Class B Common Stock issued pursuant to the Transactions. In the Transaction Agreement, New Baker Hughes represents that it has not conducted any business since its formation, and prior to Closing will have no assets, liabilities or obligations of any nature other than those incident to its formation and pursuant to the Transaction Agreement and the Transactions contemplated thereby. For a description of the capital stock of New Baker Hughes, see “Description of New Baker Hughes Capital Stock” beginning on page 194 of this combined proxy statement/prospectus.

Baker Hughes

Baker Hughes, a Delaware corporation, is a leading supplier of oilfield services, products, technology and systems to the worldwide oil and natural gas industry. Baker Hughes’ approximately 33,000 employees today work in more than 80 countries helping customers find, evaluate, drill, produce, transport and process hydrocarbon resources. Additional information about Baker Hughes and its subsidiaries is included in documents incorporated by reference in this proxy statement/prospectus. See “Where You Can Find Additional Information” beginning on page 250 of this combined proxy statement/prospectus.

GE and GE O&G

General Electric Company, a New York corporation, is a global digital industrial company, transforming industry with software-defined machines and solutions that are connected, responsive and predictive. With products and services ranging from aircraft engines, power generation and oil and gas production equipment to medical imaging, financing and industrial products, GE serves customers in approximately 180 countries and employs approximately 295,000 people worldwide. Since GE’s incorporation in 1892, it has developed or acquired new technologies and services that have considerably broadened and changed the scope of its activities. GE is organized around the GE Store through which each of its businesses shares and accesses the same technology, markets, structure and intellect. Each invention further fuels innovation and application across the industrial sectors in which GE competes. With people, services, technology and scale, GE delivers better outcomes for customers by speaking the language of industry.

GE O&G is part of GE. GE O&G serves segments across the oil and gas industry, from drilling, completion, production and oilfield operations, to transportation as liquefied natural gas (LNG) or via pipelines. GE O&G operates in over 120 countries and employs approximately 34,000 people worldwide. In addition, GE O&G provides industrial power generation and compression solutions to the refining and petrochemicals segments. GE O&G also delivers pipeline integrity solutions and a wide range of sensing, inspection and monitoring technologies. GE O&G exploits technological innovation from other GE segments, such as Aviation and Healthcare, to continuously improve oil and gas industry performance, output and productivity. See “Business—GE O&G Business” beginning on page 201 of this combined proxy statement/prospectus.

Newco 2 and Merger Sub 2

BHI Newco, Inc. (which we refer to as “Newco 2”) and Bear MergerSub 2, Inc. (which we refer to as “Merger Sub 2”) have been formed solely for the purpose of engaging in the Transactions. Neither Newco 2 nor

 

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Merger Sub 2 has conducted any business since its formation, and prior to Closing each will have no assets, liabilities or obligations of any kind other than those incident to its formation and pursuant to the Transaction Agreements. Newco 2 is, and will be prior to Closing, a corporation incorporated in Delaware and wholly owned by Baker Hughes. Merger Sub 2 is, and will be prior to Closing, a corporation incorporated in Delaware and wholly and directly owned by Newco 2.

Newco LLC

Baker Hughes, the surviving entity of the First Merger, will convert into a Delaware limited liability company, Newco LLC. Pursuant to the Transactions, GE will transfer GE O&G to Newco LLC. As a result of the Transactions, Newco LLC will own the combined businesses of Baker Hughes and GE O&G. GE will also transfer $7.4 billion in cash to Newco LLC. In connection with certain restructuring transactions effected at Closing, the contributed cash will be paid to New Baker Hughes and used to fund substantially all of the Special Dividend. Newco LLC will be governed by the Newco LLC Agreement, pursuant to which the business and operations of Newco LLC will be managed by EHHC as the managing member.

General

The Transaction Agreement and related documents provide that, on the terms and subject to the conditions set forth in the Transaction Agreement, among other things:

 

    Formation of New Baker Hughes Entities. Baker Hughes formed New Baker Hughes and Newco 2 as its direct and wholly owned subsidiaries. Newco 2, in turn, formed Merger Sub 2 as its direct wholly owned subsidiary.

 

    Baker Hughes Reorganization. Baker Hughes will undertake certain restructuring transactions to facilitate the Transactions, including converting certain U.S. corporate subsidiaries of Baker Hughes to limited liability companies. As part of the Baker Hughes Reorganization, EHHC will be formed as a Delaware limited liability company, and successor to an existing Baker Hughes subsidiary, and CFC Holdings, Inc., an existing subsidiary of Baker Hughes, will be converted into CFC Holdings, a Delaware limited liability company. As described below, EHHC and CFC Holdings will be wholly owned subsidiaries of New Baker Hughes and members of Newco LLC. EHHC and CFC Holdings (including their predecessors) currently hold substantially all of the foreign operations of Baker Hughes. Causing EHHC and CFC Holdings to be the members of Newco LLC will facilitate the transfer of these operations to Newco LLC and permit Baker Hughes’ consolidated tax group to continue following the Transactions.

 

    GE O&G Reorganization. GE will undertake certain restructuring transactions to separate GE O&G from GE’s other business activities and facilitate the transfer of GE O&G to Newco LLC, including converting certain U.S. corporate subsidiaries of GE that will be transferred to Newco LLC to limited liability companies.

 

    The First Merger. Merger Sub 2 will merge with and into Baker Hughes, with Baker Hughes as the surviving corporation and a direct, wholly owned subsidiary of Newco 2. As a result of the First Merger, each issued and outstanding share of common stock of Baker Hughes will be converted into the right to receive one share of common stock, par value $1.00 per share, of Newco 2 (which we refer to as the “First Step Consideration”).

 

    The Conversion. Immediately following and as part of the plan that includes the First Merger, Newco 2 will cause Baker Hughes, the surviving entity of the First Merger, to be converted into Newco LLC, a Delaware limited liability company. Newco 2 will become the managing member of Newco LLC.

 

   

The Second Merger. Immediately following and as part of the plan that includes the First Merger and the Conversion, Newco 2 will merge with and into New Baker Hughes, with New Baker Hughes as the surviving corporation and New Baker Hughes becoming the managing member of Newco LLC. As a

 

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result of the Second Merger, each issued and outstanding share of common stock of Newco 2 will be converted into the right to receive one share of Class A Common Stock (which we refer to as the “Merger Consideration”). Following the Second Merger and as part of the Baker Hughes Reorganization, described above, EHHC and CFC Holdings will acquire all of the Common Units held by New Baker Hughes, and EHHC will become the managing member of Newco LLC. As managing member of Newco LLC, EHHC will be exclusively vested with all management powers over the business affairs of Newco LLC and will appoint officers to oversee the day-to-day business and operations of Newco LLC. EHHC and CFC Holdings will be holding companies and will have no other assets or liabilities, and New Baker Hughes will be the managing member of EHHC. Accordingly, New Baker Hughes will, as the managing member of EHHC, effectively control Newco LLC.

 

    The Class B Purchase. GE will contribute to New Baker Hughes a nominal amount of cash equal to the product of the number of shares of Class B Common Stock issuable to GE multiplied by the par value of one share of Class B Common Stock in exchange for a number of shares of Class B Common Stock equal to the number of Common Units issued to GE in the Contribution, described immediately below.

 

    The Contribution. Following the Second Merger and the completion of the Baker Hughes Reorganization, GE will transfer to Newco LLC, in exchange for approximately 62.5% of the Common Units, (i) all of the equity interests of the GE O&G holding companies that will hold directly or indirectly all of the assets and liabilities of GE O&G, including any GE O&G operating subsidiaries, and (ii) $7.4 billion in cash.

 

    Special Dividend. New Baker Hughes will distribute as a special dividend an amount equal to $17.50 per share to the holders of record of the Class A Common Stock immediately following the Second Merger.

The Transaction Agreement is attached as Annex A (including Annex A-II) to this combined proxy statement/prospectus. We encourage you to read the Transaction Agreement carefully and fully, as it is the legal document that governs the Transactions.

 

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The following diagram illustrates the structure of New Baker Hughes and its stockholders and a simplified version of its operating subsidiaries upon completion of the Transactions:

 

LOGO

 

* These Common Units will be owned directly by EHHC and CFC Holdings, and EHHC will also be the managing member of Newco LLC.

On November 7, 2016, shortly following the public announcement of the Transactions, GE and Baker Hughes provided additional information that was filed with the SEC that provided, among other things, a calculation by GE and Baker Hughes of the value to be received by holders of Baker Hughes common stock in the Transactions through the Merger Consideration and the Special Dividend that implied a premium of approximately 37% to the share price of Baker Hughes common stock as of October 26, 2016 (one trading day prior to the public news reports that Baker Hughes was engaged in discussions with GE regarding a potential transaction) (sometimes referred to as the “undisturbed share price”). This calculation is more fully described in “Projected Financial Data—Certain Updates and Supplemental Information” beginning on page 97 of this combined proxy statement/prospectus.

Background of the Transactions

The board of directors and senior management team of Baker Hughes regularly review and assess Baker Hughes’ operations, performance, prospects and strategic direction. In connection therewith, they consider potential strategic alternatives, including potential business combinations, intended to strengthen Baker Hughes’ business and maximize stockholder value.

On November 16, 2014, Baker Hughes and Halliburton Company (sometimes referred to as “Halliburton”) entered into a definitive agreement and plan of merger (sometimes referred to as the “Halliburton merger agreement”), under which Halliburton agreed to acquire all outstanding shares of Baker Hughes common stock in a cash and stock transaction (sometimes referred to as the “Halliburton transaction”). Baker Hughes stockholders adopted the Halliburton merger agreement on March 27, 2015. Between November 16, 2014 and March 27, 2015 (i.e., during the period from the signing of the Halliburton merger agreement to the adoption by the Baker Hughes stockholders of the Halliburton merger agreement), Baker Hughes received no indications of interest regarding an alternative business combination transaction.

 

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During the process of seeking regulatory approvals for the Halliburton transaction, on October 30, 2015, Baker Hughes and GE Oil & Gas UK Limited, a subsidiary of GE, entered into a confidentiality agreement in connection with GE O&G’s consideration of a possible acquisition of, among other things, Baker Hughes’ core completions business, sand control business in the Gulf of Mexico and offshore cementing businesses, in the event such businesses were divested, for antitrust reasons, in connection with the Halliburton transaction. Baker Hughes also entered into similar confidentiality agreements with other strategic companies and financial sponsors that expressed an interest in such acquisitions.

On February 16, 2016, the scope of the confidentiality agreement with GE Oil & Gas UK Limited was amended to cover confidential information related to Baker Hughes’ onshore and offshore global well completions business, Baker Hughes’ global offshore cementing business and certain of Baker Hughes’ offshore global drilling fluids and completion fluids businesses. Following the execution of such confidentiality agreement and the amendment thereto, Baker Hughes and Halliburton engaged in discussions with GE O&G regarding the possible divestitures of such businesses, and Baker Hughes provided GE O&G confidential due diligence materials in connection therewith. On April 30, 2016, Baker Hughes and Halliburton agreed to terminate the Halliburton merger agreement, in accordance with its terms, as a result of the failure of the Halliburton transaction to close on or before April 30, 2016, due to the inability to obtain certain specified antitrust-related approvals that were conditions to the closing of the Halliburton transaction. On May 4, 2016, Halliburton paid $3.5 billion to Baker Hughes, representing the antitrust reverse termination fee required to be paid pursuant to the Halliburton merger agreement.

On May 2, 2016, Lorenzo Simonelli, President and Chief Executive Officer of GE O&G, requested a meeting with Martin Craighead, Chairman and Chief Executive Officer of Baker Hughes, and Kimberly Ross, Senior Vice President and Chief Financial Officer of Baker Hughes, to discuss potential areas of collaboration between Baker Hughes and GE O&G across a range of market segments and product lines. Messrs. Craighead and Simonelli agreed to meet on May 9, 2016.

On May 9, 2016, Mr. Craighead met with Mr. Simonelli to discuss preliminary ideas regarding potential areas of collaboration between Baker Hughes and GE O&G. The parties did not discuss a potential business combination transaction or discuss or exchange economic terms for a potential transaction at that time. On May 17, 2016, Baker Hughes and GE Oil & Gas UK Limited entered into a confidentiality agreement in connection therewith. From time to time, the parties continued their discussions surrounding a potential partnership, joint venture or other form of collaboration between Baker Hughes and GE O&G. In that connection, on July 18, 2016, Messrs. Craighead and Simonelli discussed the potential structural challenges of a product line joint venture or other form of partnership. Also in July 2016, Mr. Simonelli asked Mr. Craighead if, in light of the potential structural challenges of a product line joint venture or other form of partnership, Baker Hughes would be willing to consider selling to GE O&G a Baker Hughes product line or business. In response, Mr. Craighead indicated to Mr. Simonelli that Baker Hughes was not interested in such a proposal. Messrs. Craighead and Simonelli did not discuss or exchange economic terms for a potential transaction at that time.

On July 28, 2016, during a regularly scheduled meeting of the Baker Hughes board of directors, the Baker Hughes board of directors discussed the benefits and potential structural challenges of a product line joint venture or other form of partnership with GE O&G, and the discussions between Baker Hughes and GE O&G generally.

On August 26, 2016, Mr. Simonelli telephoned Mr. Craighead and asked if Baker Hughes would be willing to meet to discuss a broader potential strategic combination of Baker Hughes with GE O&G. Messrs. Craighead and Simonelli agreed to meet on September 8, 2016 to discuss a broader potential strategic relationship between their respective companies.

On September 8, 2016, Messrs. Craighead and Simonelli met to discuss Baker Hughes and GE O&G, the possibility of a broader potential strategic combination of Baker Hughes with GE O&G and related structuring considerations. The parties did not discuss or exchange economic terms for a potential transaction at that time or at any time prior to September 8, 2016.

 

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Also on September 8, 2016, during an informal discussion that was previously scheduled to discuss matters unrelated to GE or GE O&G, members of the board of directors and senior management team of Baker Hughes discussed the meeting between Messrs. Craighead and Simonelli that had taken place earlier in the day and a proposed meeting between Messrs. Craighead, Simonelli and Jeffrey Immelt, the Chairman and Chief Executive Officer of GE, on September 15, 2016.

On September 15, 2016, Messrs. Craighead, Immelt and Simonelli met to discuss Baker Hughes and GE O&G, the oil and gas industry generally, the possibility of a broader potential strategic combination of Baker Hughes with GE O&G and potential antitrust issues in connection therewith. Mr. Immelt proposed that a potential strategic combination would be structured as GE acquiring majority ownership in a new combined company and would not include a transaction that resulted in GE acquiring (whether through the use of cash or shares of GE stock) 100% of the shares of Baker Hughes’ common stock. Messrs. Craighead, Immelt and Simonelli did not discuss or exchange economic terms for the proposed transaction at that time.

Between September 15, 2016 and September 27, 2016, Ms. Ross and Brian Worrell, Vice President and Chief Financial Officer of GE O&G, had telephone conferences from time to time to discuss Baker Hughes and GE O&G, oil price assumptions, potential synergies and the proposed structure more generally. The parties did not discuss or exchange economic terms for a potential transaction during these conferences.

On September 16, 2016, the Baker Hughes board of directors held a special meeting. At the invitation of the Baker Hughes board of directors, members of senior management also were present. The Baker Hughes board of directors discussed the previous day’s meeting between Messrs. Craighead, Immelt and Simonelli, the opportunities and challenges posed by a potential strategic combination of GE O&G with Baker Hughes, as well as the opportunities and challenges associated with Baker Hughes remaining an independent company. The Baker Hughes board of directors also discussed the potential structure of the proposed transaction and that GE was not interested in pursuing a purchase of 100% of the common stock of Baker Hughes. At the conclusion of the meeting, the Baker Hughes board of directors authorized Baker Hughes senior management to continue discussions with GE in order to better understand the GE O&G business and the extent of GE’s interest in a potential strategic combination with Baker Hughes.

On the afternoon of September 16, 2016, Messrs. Craighead and Simonelli continued their discussion regarding the proposed transaction. Messrs. Craighead and Simonelli did not discuss or exchange economic terms for the proposed transaction at that time.

Following the September 16, 2016 meeting of the Baker Hughes board of directors, Baker Hughes selected Goldman Sachs & Co. LLC (sometimes referred to as “Goldman Sachs”), which had served as Baker Hughes’ financial advisor in the Halliburton transaction, as its financial advisor with respect to the proposed transaction with GE. Davis Polk & Wardwell LLP (sometimes referred to as “Davis Polk”), which had served as Baker Hughes’ legal advisor in the Halliburton transaction, and Wilmer Cutler Pickering Hale and Dorr LLP (sometimes referred to as “WilmerHale”), which had served as Baker Hughes’ legal counsel with respect to antitrust matters in the Halliburton transaction, both continued to advise Baker Hughes following the termination of the Halliburton transaction, including with respect to the proposed transaction with GE.

Beginning on September 27, 2016, and on a continuing basis up until the date of the Transaction Agreement, Baker Hughes, GE and their respective advisors conducted business, legal and financial due diligence regarding Baker Hughes and GE O&G, including engaging in due diligence calls and meetings on various topics.

On September 27, 2016, September 28, 2016 and September 29, 2016, representatives of Baker Hughes, GE, including senior management executives and business leaders, and Centerview Partners LLC (sometimes referred to as “Centerview”), financial advisor to GE, held a series of meetings to discuss Baker Hughes and GE O&G, oil price assumptions, potential synergies and the proposed structure more generally. Both Baker Hughes

 

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and GE O&G gave an overview of their respective businesses and engaged in a due diligence discussion concerning their respective businesses and the merits of a potential combination, including preliminary discussions on potential synergies. At these meetings, representatives of GE provided the representatives of Baker Hughes with the GE O&G Forecasts.

On October 4, 2016, representatives of Centerview, Goldman Sachs, Morgan Stanley & Co. LLC (sometimes referred to as “Morgan Stanley”), financial advisor to GE, and GE discussed Baker Hughes and GE O&G, the oil and gas industry generally, the proposed transaction, and how, in particular, to describe the proposed transaction to Baker Hughes and GE stockholders. The representatives of Centerview, Goldman Sachs, Morgan Stanley and GE did not discuss or exchange economic terms for the proposed transaction at that time.

On October 6, 2016, Arnold & Porter LLP (sometimes referred to as “Arnold & Porter”), GE’s legal counsel with respect to antitrust matters, and WilmerHale entered into a joint defense and confidentiality agreement to facilitate the exchange of certain confidential materials. The joint defense and confidentiality agreement was in addition to the confidentiality agreements previously executed between Baker Hughes and GE Oil & Gas UK Limited.

On October 7, 2016, Messrs. Craighead, Immelt and Simonelli met to discuss the proposed transaction. Mr. Immelt initially proposed that GE would contribute the GE O&G business and $6 billion in cash to fund a special cash dividend to Baker Hughes stockholders, and in exchange GE would receive 65% of the equity of the new combined entity; and Baker Hughes stockholders would receive the special dividend and 35%, in the aggregate, of the equity of the new combined entity. After extensive negotiations, Mr. Immelt proposed that GE would contribute GE O&G and $7 billion in cash to fund a special cash dividend to Baker Hughes stockholders, and in exchange GE would receive 65% of the equity of the new combined entity; and Baker Hughes stockholders would receive the special dividend and 35%, in the aggregate, of the equity of the new combined entity. During the meeting, Mr. Immelt indicated to Mr. Craighead that GE did not believe that the proposed transaction posed significant antitrust issues.

On October 8, 2016, the Baker Hughes board of directors held a special meeting. At the invitation of the Baker Hughes board of directors, members of senior management were also present. During the meeting, the Baker Hughes board of directors discussed the meetings and communications between Baker Hughes and GE to date and the financial terms of GE’s October 7, 2016 proposal. The Baker Hughes board of directors also discussed Baker Hughes’ financial position as an independent company and the potential synergies that might result from the proposed combination. While Baker Hughes management was still in the process of estimating potential cost synergies that might result from the proposed combination once Baker Hughes and GE O&G were fully integrated, at that time Baker Hughes management believed more than $1 billion in annual cost synergies might result from the proposed combination. The Baker Hughes board of directors decided to discuss GE’s October 7, 2016 proposal and Baker Hughes’ potential response in further detail at the special meeting of the Baker Hughes board of directors scheduled for October 14, 2016. At the conclusion of the meeting, the Baker Hughes board of directors authorized Baker Hughes senior management to continue discussions with GE.

Also on October 8, 2016, at the direction of Baker Hughes, representatives of Goldman Sachs discussed with representatives of Centerview the financial terms of the proposed transaction. Goldman Sachs and Centerview did not exchange any new economic terms for the proposed transaction at that time.

On October 10, 2016, Messrs. Craighead and Immelt discussed the proposed transaction. During that discussion, Mr. Craighead emphasized the importance of the governance structure of the new combined entity, including protections for Baker Hughes public stockholders following the closing of the proposed transaction, such as the composition of the board of directors of the new combined entity, a standstill on GE’s acquisition of shares of the new combined entity and any squeeze-out transaction (i.e., any proposal by GE or any of its affiliates to acquire all of the shares of the new combined entity held by stockholders that are not affiliated with GE or any of its affiliates) being subject to the approval of a special committee of independent directors and a

 

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majority of the shares held by stockholders that are not GE or affiliated with GE, and GE’s obligation to take actions to resolve antitrust issues and to pay a reverse termination fee to Baker Hughes if the proposed transaction failed to close due to a failure to obtain required antitrust approvals (i.e., an antitrust reverse termination fee).

Also on October 10, 2016, representatives of Baker Hughes, GE, WilmerHale and Arnold & Porter discussed the general approach to antitrust approvals for the proposed transaction. Separately on October 10, 2016, on behalf of Baker Hughes, representatives of Goldman Sachs provided representatives of GE with the Baker Hughes Forecasts.

On October 11, 2016, at the direction of Baker Hughes, representatives of Goldman Sachs discussed with representatives of Centerview the financial terms of the proposed transaction. After extensive negotiations, Centerview proposed that GE would contribute the GE O&G business and $7.4 billion in cash ultimately to fund a special cash dividend to Baker Hughes stockholders, and in exchange GE would receive 65% of the equity of the new combined entity; and Baker Hughes stockholders would receive the special dividend and 35%, in the aggregate, of the equity of the new combined entity.

On October 12, 2016, representatives of Centerview, at the direction of GE, proposed to representatives of Goldman Sachs that the proposed transaction utilize an “Up-C” partnership structure. In the Up-C structure proposed by GE, all of Baker Hughes’ businesses and the GE O&G business would be combined in a new entity that would be treated as a partnership for U.S. federal income tax purposes (sometimes referred to as the “operating partnership”). GE proposed that Baker Hughes would remain a public company that would own a minority interest in, but control, the operating partnership. GE would, in turn, own a majority interest in the operating partnership and control Baker Hughes through its ownership of a special class of Baker Hughes shares that would enjoy voting, but no economic, rights. Utilization of an Up-C structure would allow the parties to achieve the economic equivalent of a consolidated tax group because the operating partnership is not itself subject to entity level tax. GE proposed that GE and Baker Hughes agree to share in the benefits resulting from this functional tax consolidation under a tax matters agreement.

On October 13, 2016, Messrs. Craighead, Immelt and Simonelli met in person to discuss the proposed transaction. After extensive negotiations, Mr. Immelt proposed that GE would contribute the GE O&G business and $7.4 billion in cash ultimately to fund a special cash dividend to Baker Hughes stockholders, and in exchange GE would receive 62.5% of the equity of the new combined entity; and Baker Hughes stockholders would receive the special dividend and 37.5%, in the aggregate, of the equity of the new combined entity. Mr. Craighead emphasized to Mr. Immelt the importance of the new combined entity retaining the Baker Hughes name, and Mr. Craighead and Mr. Immelt agreed that the new combined company would be named “Baker Hughes, a GE Company.” Messrs. Craighead, Immelt and Simonelli also discussed the governance structure of the new combined entity, including protections for Baker Hughes public stockholders following the closing of the proposed transaction, GE’s obligation to take actions to resolve antitrust issues and to pay an antitrust reverse termination fee in certain circumstances, Baker Hughes’ and GE O&G’s operating covenants between signing and closing, and the timing of the proposed transaction.

Late in the evening of October 13, 2016, Messrs. Craighead and Immelt discussed the proposed transaction further. During this discussion, Mr. Immelt told Mr. Craighead that GE’s “best and final” offer was that GE would contribute GE O&G business and $7.4 billion in cash ultimately to fund a special cash dividend to Baker Hughes stockholders, and in exchange GE would receive 62.5% of the equity of the new combined entity; and Baker Hughes stockholders would receive the special dividend and 37.5%, in the aggregate, of the equity of the new combined entity (that is, the same as Mr. Immelt’s proposal earlier that day). During this discussion, Mr. Immelt also confirmed his agreement to Mr. Craighead’s proposal that the new combined company would be named “Baker Hughes, a GE Company.”

On October 14, 2016, the Baker Hughes board of directors held a special meeting. At the invitation of the Baker Hughes board of directors, members of senior management and representatives of Goldman Sachs, Davis

 

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Polk and WilmerHale also were present. During the meeting, the directors and their advisors discussed the meetings and communications between Baker Hughes and GE to date, including that in their discussions, Mr. Craighead had emphasized to Mr. Immelt the importance of the governance structure of the new combined entity. Representatives of Goldman Sachs reviewed its preliminary financial analysis of GE’s proposal, which was based on Baker Hughes management’s projections for Baker Hughes, GE O&G and New Baker Hughes and Baker Hughes management’s estimate of the synergies that might result from the proposed combination, including Baker Hughes management’s estimate that $1.2 billion in annual cost and capital expenditure synergies might result from the proposed combination by 2020. The Baker Hughes board of directors discussed with its advisors Baker Hughes’ strategic alternatives, including other strategic companies or financial sponsors that might be potential counterparties in a business combination transaction with Baker Hughes, continuing as an independent company and potential impediments to such alternatives. Such potential impediments to business combination transactions with other potential counterparties included antitrust concerns, counterparty focus on other business lines and opportunities, transaction size and counterparty equity and debt financing constraints. Such potential impediments to Baker Hughes continuing as an independent company included Baker Hughes’ current, historical and projected financial condition and results of operations on a standalone basis and the highly competitive oilfield services environment. The Baker Hughes board of directors believed that in light of, among other things, (i) the potential opportunity afforded to Baker Hughes shareholders via the Merger Consideration and the Special Dividend compared to Baker Hughes’ long-term strategy on a standalone basis, an outline of which was announced to investors on May 2, 2016 and furnished to the SEC on Form 8-K, (ii) such potential impediments to business combination transactions with other potential counterparties and to Baker Hughes continuing as an independent company, and (iii) the fact that between November 16, 2014 and March 27, 2015 (i.e., during the period from the signing of the Halliburton merger agreement to the adoption by the Baker Hughes stockholders of the Halliburton merger agreement), Baker Hughes had received no indications of interest regarding a business combination transaction, it would be preferable to continue negotiating with GE and to negotiate on a one-on-one basis rather than to conduct a private or public “auction” or sales process of Baker Hughes.

Representatives of WilmerHale reviewed the antitrust approval process in the United States and abroad for the proposed transaction. Representatives of Davis Polk reviewed with the Baker Hughes board of directors its fiduciary duties in considering the proposed transaction. After Goldman Sachs left the meeting, Davis Polk reviewed with the Baker Hughes board of directors a letter from Goldman Sachs, which letter both disclosed certain relationships between GE and Goldman Sachs (including Goldman Sachs’ lending relationships with GE, Goldman Sachs’ investment banking division relationships with GE (including Goldman Sachs’ engagement to assist GE in selling certain other GE business lines) and equity in GE, if any, held by members of the Goldman Sachs team advising Baker Hughes) and confirmed that nothing (including the matters set forth in such letter) would limit Goldman Sachs’ ability to fulfill its responsibilities as financial advisor to Baker Hughes in connection with its engagement. The section “Opinion of Baker Hughes’ Financial Advisor” beginning on page 98 of this combined proxy statement/prospectus, describes certain financial advisors and/or underwriting services Goldman Sachs has provided to GE and/or its affiliates during the two-year period ended October 30, 2016. The Baker Hughes board of directors discussed the letter and concluded that the matters disclosed therein should not impact Goldman Sachs’ ability effectively to act as financial advisor to Baker Hughes or Baker Hughes’ decision to continue to retain Goldman Sachs. Davis Polk also discussed with the Baker Hughes board of directors that certain Davis Polk lawyers, with Baker Hughes’ and GE’s prior consent, were providing tax advice to GE in connection with the proposed transaction, and that a customary ethical wall was in place between the Davis Polk lawyers providing advice to Baker Hughes and the Davis Polk lawyers providing tax advice to GE. At the conclusion of the meeting, the Baker Hughes board of directors authorized Baker Hughes senior management to continue discussions with GE.

On the afternoon of October 14, 2016, Mr. Craighead called Mr. Immelt and told him that the Baker Hughes board of directors had authorized Baker Hughes senior management to continue discussions with GE on the basis of GE’s “best and final” offer.

 

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On October 17, 2016, James M. Waterbury, Vice President & Senior Counsel, M&A, of GE, sent William Marsh, Vice President and General Counsel of Baker Hughes, an initial draft of the transaction agreement, and on October 19, 2016, October 20, 2016 and October 21, 2016, Shearman & Sterling LLP (sometimes referred to as “Shearman & Sterling”), GE’s legal advisor, sent Davis Polk initial drafts of the various ancillary agreements to the transaction agreement, including the form of stockholders agreement, which would be entered into at the closing of the proposed transaction and attached as exhibits to the transaction agreement, as well as initial drafts of the term sheets for certain intercompany agreements to be finalized between the signing and closing, and which would also be entered into at the closing of the proposed transaction. Following delivery of the draft transaction agreement and the various ancillary agreements, discussions and negotiations among representatives of Baker Hughes, GE, Davis Polk and Shearman & Sterling continued until the signing of the Transaction Agreement on October 30, 2016, and the parties exchanged numerous revised drafts of the transaction agreement and the various ancillary agreements during this time.

Also on October 21, 2016, Messrs. Waterbury and Marsh discussed the draft stockholders agreement, in particular the protections for Baker Hughes public stockholders following the closing of the proposed transaction, such as a standstill on GE’s acquisition of shares of the new combined entity (GE had proposed a two-year standstill in its draft stockholders agreement of October 20, 2016), restrictions on GE transferring shares of the new combined entity (GE had proposed a two-year transfer restriction in its draft stockholders agreement of October 20, 2016), and any squeeze-out transaction by GE being subject to the approval of a special committee of independent directors and a majority of the shares held by stockholders that are not GE or affiliated with GE (GE had proposed no such approval condition in its draft stockholders agreement of October 20, 2016). Following the October 21, 2016 meeting, through extensive negotiations and exchanges of drafts between representatives of Baker Hughes, Davis Polk, GE and Shearman & Sterling, Baker Hughes and GE agreed to additional or expanded protections for Baker Hughes public stockholders following the closing of the proposed transactions, including additional restrictions on GE’s ability to transfer its shares in the new combined entity after expiration of the two-year lockup period, the expansion of the standstill period from two years to five years, the inclusion of a provision requiring that any squeeze-out transactions by GE be subject to approval by the special committee, and a non-waivable condition that the squeeze-out be approved by a majority of the shares held by non-GE stockholders.

On October 25, 2016, Baker Hughes released its financial results for the third quarter of 2016, reporting an adjusted net loss per diluted share of $1.00 for the third quarter. At the close of trading on October 25, 2016, Baker Hughes’ share price was $54.39.

On October 26, 2016, the Baker Hughes board of directors held its regularly scheduled board meeting. At the invitation of the Baker Hughes board of directors, members of senior management and representatives of Goldman Sachs and Davis Polk also were present for portions of the meeting. Representatives of Goldman Sachs reviewed its preliminary financial analysis of GE’s proposal. Representatives of Davis Polk reviewed material terms of the proposed transaction that continued to be subject to negotiation, including the closing conditions, termination rights and associated termination fees and reverse termination fees, covenants (including Baker Hughes’ and GE O&G’s operating covenants between the signing and closing of the proposed transaction) and the governance structure of the new combined entity, including rights and protections for Baker Hughes public stockholders following the closing of the proposed transaction.

On October 27, 2016 and October 28, 2016, Ms. Ross and Messrs. Worrell, Marsh and Waterbury had various discussions regarding the terms of the proposed transaction, including GE’s covenant to deliver to Baker Hughes certain audited financial statements of GE O&G, the antitrust reverse termination fee, Baker Hughes’ and GE O&G’s operating covenants between the signing and closing of the proposed transaction and the terms upon which GE O&G would be separated from GE and contributed to Newco LLC (including with respect to GE O&G’s required minimum level of working capital). GE initially proposed that, in the event the proposed transaction did not close due to the failure to obtain required antitrust approvals, GE would pay Baker Hughes an antitrust reverse termination fee of $800 million. After extensive negotiations, Messrs. Marsh and Waterbury

 

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agreed to recommend to their respective boards of directors, subject to GE and Baker Hughes reaching agreement on the other terms of the transaction agreement, an antitrust reverse termination fee of $1.3 billion.

On the evening of October 27, 2016, after the closing of trading on NYSE, various media reports noted that Baker Hughes and GE were in talks regarding a potential transaction, and GE issued a press release that evening confirming that GE was in discussions with Baker Hughes regarding partnerships, but noting that nothing was concluded and that the potential partnerships under discussion did not include an outright purchase of Baker Hughes. Baker Hughes’ stock price closed at $59.12 on October 28, 2016, an increase of approximately 8% from the prior day’s close. On October 28, 2016, Mr. Craighead sent an email to Baker Hughes employees confirming that while Baker Hughes had been in discussions with GE, nothing was concluded. Baker Hughes publicly filed this email with the SEC on October 28, 2016.

On the afternoon of October 28, 2016, Messrs. Craighead, Immelt and Simonelli met and confirmed their agreement to recommend to their respective boards of directors the principal transaction terms that had been discussed between the parties, subject to satisfactory completion of the transaction agreement. On the evening of October 28, 2016 and the afternoon of October 29, 2016, Davis Polk and Shearman & Sterling exchanged initial drafts of the disclosure schedules to the Transaction Agreement.

On the morning of October 29, 2016, the Baker Hughes board of directors held a special meeting to discuss recent developments in discussions with GE and the leak of October 27, 2016. At the invitation of the Baker Hughes board of directors, members of senior management and representatives of Goldman Sachs and Davis Polk also were present. Representatives of Goldman Sachs discussed market trading following the leak of discussions between Baker Hughes and GE. Representatives of Davis Polk provided an update to the Baker Hughes board of directors on negotiations with GE, including GE’s covenant to deliver to Baker Hughes certain audited financial statements of GE O&G, the termination fees and reverse termination fees and Baker Hughes’ and GE O&G’s operating covenants between the signing and closing of the proposed transaction.

On the afternoon of October 30, 2016, the Baker Hughes board of directors held a special meeting to review the terms of the proposed transaction with GE O&G. At the invitation of the Baker Hughes board of directors, members of Baker Hughes senior management and representatives of Goldman Sachs, Davis Polk and WilmerHale also were present. Prior to the meeting, copies of the draft transaction agreement and the various ancillary agreements were provided to the directors. Representatives of Davis Polk reviewed with the Baker Hughes board of directors its fiduciary duties in considering the proposed transaction and the material terms of the proposed transaction, including the closing conditions, termination rights and associated termination fees and reverse termination fees, covenants (including Baker Hughes’ and GE O&G’s operating covenants between the signing and closing of the proposed transaction) and the governance structure of the new combined entity, including protections for Baker Hughes public stockholders following the closing of the proposed transaction (such as a five-year standstill on GE’s acquisition of shares of the new combined entity, certain restrictions on GE transferring shares of the new combined entity during the two-year and five-year periods following the closing of the proposed transaction, and any squeeze-out transaction by GE being subject to the approval of a special committee of independent directors and a majority of the shares held by stockholders that are not GE or affiliated with GE), as well as the outstanding issues on the transaction agreement. Representatives of Goldman Sachs reviewed with the Baker Hughes board of directors its financial analysis of the proposed transaction. After discussion among the Baker Hughes board of directors and its advisors, representatives of Goldman Sachs delivered an oral opinion, which was subsequently confirmed in a written opinion dated as of October 30, 2016, that, as of the date of such opinion, and based upon and subject to the factors and assumptions set forth therein, the consideration to be paid to the holders of Baker Hughes common stock pursuant to the transaction agreement was fair, from a financial point of view, to such holders.

The Baker Hughes board of directors was advised by Mr. Craighead and representatives of Goldman Sachs that they had received no indications of interest about a transaction with Baker Hughes following the October 27, 2016 leak. The Baker Hughes board of directors concluded that the terms of the transaction agreement would not

 

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preclude or impede a willing and financially capable third party, were one to exist, from making a superior proposal following the announcement of a transaction with GE.

Following questions from and discussions among the members of the Baker Hughes board of directors and with its advisors regarding the proposed transaction, the directors unanimously determined that it was advisable and in the best interests of Baker Hughes and its stockholders to enter into the transaction agreement, substantially in the form presented, and to consummate the transactions contemplated thereby, and the directors unanimously approved and adopted the transaction agreement, resolved that the transaction agreement be submitted to the stockholders of Baker Hughes and recommended that the stockholders of Baker Hughes approve and adopt the transaction agreement and the transactions.

The Transaction Agreement was executed and delivered, as of October 30, 2016.

Early in the morning on October 31, 2016, and prior to the commencement of trading on NYSE, Baker Hughes and GE issued a joint press release announcing the Transactions. Baker Hughes and GE each publicly filed the press release with the SEC on October 31, 2016.

Pursuant to the Transaction Agreement, the parties agreed to cooperate in determining the structure for the Transactions and restructuring transactions in furtherance thereof to be undertaken by Baker Hughes. Following execution and delivery of the Transaction Agreement on October 30, 2016, the parties and their advisors discussed from time to time potential alternative structures for the Transactions and in particular the Baker Hughes Reorganization. As discussed above in “The Transactions” beginning on page 71 of this combined proxy statement/prospectus, the Baker Hughes Reorganization contemplated the conversion of certain U.S. subsidiaries of Baker Hughes to limited liability companies. As a result, these entities would be treated as disregarded entities or partnerships for U.S. federal income tax purposes, creating a tax-efficient structure for Newco LLC’s U.S. operations. The parties and their advisors determined that the changes to the Transactions reflected in the Amendment dated as of March 27, 2017 were needed to more efficiently accomplish these conversions. The changes also permit EHHC and CFC Holdings to be the members of Newco LLC and therefore facilitate the transfer of Baker Hughes’ foreign operations to Newco LLC and permit Baker Hughes’ consolidated tax group to continue following the Transactions.

In connection with these discussions, following the approval of the Baker Hughes board of directors and GE, the parties executed and delivered the Amendment to Transaction Agreement and Plan of Merger, dated as of March 27, 2017, among GE, Baker Hughes, New Baker Hughes, Bear MergerSub, Inc., Newco 2 and Merger Sub 2 to, among other things, provide for the transaction structure described in this combined proxy statement/prospectus and make corresponding changes to the Transaction Agreement and the various ancillary agreements, as well as to increase the size of the New Baker Hughes Board from nine to eleven directors.

Recommendation of the Board of Directors and its Reasons for the Transactions

The Baker Hughes board of directors, with the advice and assistance of its financial and legal advisors, oversaw the negotiation of, evaluated, and unanimously approved the Transaction Agreement, the Mergers and the other Transactions contemplated thereby. The Baker Hughes board of directors unanimously recommends that the Baker Hughes stockholders vote FOR the adoption of the Transaction Agreement.

In reaching the decisions to approve the Transaction Agreement and the Transactions contemplated thereby and to recommend that the Baker Hughes stockholders vote to adopt the Transaction Agreement, including the amendment, and approve the Transactions, the Baker Hughes board of directors consulted extensively with its financial and legal advisors and Baker Hughes’ management, and considered a number of potential strategic alternatives to the proposed Transactions. After such discussions and considering such alternatives, the Baker Hughes board of directors unanimously determined the proposed Transactions to be in the best interests of Baker Hughes and its stockholders. The Baker Hughes board of directors’ decision to approve the Transactions and the

 

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Transaction Agreement and to recommend to Baker Hughes’ stockholders that they vote for the adoption of the Transaction Agreement was based on a number of factors. These factors included, without limitation, the following (which are not necessarily presented in order of relative importance):

Strategic Rationale; Stockholder Value

The Baker Hughes board of directors considered a number of factors pertaining to the strategic rationale for the Transactions and the value to be received by Baker Hughes’ stockholders pursuant to the Transaction Agreement, including but not limited to the following:

 

    The current, historical and projected financial condition and results of operations of Baker Hughes on a standalone basis, including the risk-adjusted probabilities associated with achieving Baker Hughes’ long-term strategic plan as a standalone company amid greater industry volatility as compared to the opportunity afforded to Baker Hughes stockholders via the Merger Consideration and the Special Dividend.

 

    The risks and challenges facing the industry more broadly, which include (1) volatility of oil and natural gas prices; (2) decreased demand for oil and natural gas due to weakening global economic growth; and (3) a highly competitive oilfield services environment.

 

    The Baker Hughes board of directors’ analysis of other potential strategic alternatives for Baker Hughes, including continuing on as an independent company and the potential to acquire, be acquired or combine with other third parties.

 

    The financial analyses reviewed and discussed with the Baker Hughes board of directors and the written opinion from Goldman Sachs, Baker Hughes’ financial advisor, to the Baker Hughes board of directors, dated as of October 30, 2016, that, as of such date and based on and subject to the factors and assumptions set forth in that opinion, the Merger Consideration and the Special Dividend to be paid to the holders of Baker Hughes common stock pursuant to the Transaction Agreement was fair, from a financial point of view, to such holders. The full text of the written opinion of Goldman Sachs is attached to this combined proxy statement/prospectus as Annex I.

 

    The fact that Goldman Sachs and Baker Hughes’ legal advisors were involved throughout the negotiations and updated the Baker Hughes board of directors directly and regularly, which provided the Baker Hughes board of directors with outside perspectives on the negotiation in addition to those of management.

 

    The Baker Hughes board of directors’ belief that it was preferable to negotiate on a one-on-one basis with GE rather than to conduct a private or public “auction” or sale process of Baker Hughes, particularly in light of (1) the Baker Hughes board of directors’ belief after consultation with Goldman Sachs, that the level of interest from credible third parties at a valuation in excess of the per share Merger Consideration and Special Dividend was not likely to be significant, (2) the Baker Hughes board of directors’ belief that the terms of the Transaction Agreement were consistent with market practice and would not preclude or deter a willing and financially capable third party, were one to exist, from making a superior proposal following the announcement of a transaction with GE, and (3) the fact that between November 16, 2014 and March 27, 2015 (i.e., during the period from the signing of the Halliburton merger agreement to the adoption by the Baker Hughes stockholders of the Halliburton merger agreement), Baker Hughes had received no indications of interest regarding a business combination transaction.

 

    The historical and current market prices of Baker Hughes common stock and the financial performance of GE O&G.

 

   

The fact that after extensive negotiations, it was agreed that GE would contribute the GE O&G business and $7.4 billion in cash, and in exchange GE would receive 62.5% of the equity of the new combined entity, and Baker Hughes stockholders would receive the Special Dividend and 37.5%, in the

 

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aggregate, of the equity of the new combined entity, up from GE’s initial proposal that GE would contribute the GE O&G business and $6 billion in cash, and in exchange GE would receive 65% of the equity of the new combined entity, and Baker Hughes stockholders would receive the special cash dividend and 35%, in the aggregate, of the equity of the new combined entity.

 

    The fact that the Special Dividend of $17.50 per share is equal to more than 30% of the undisturbed share price of Baker Hughes common stock, giving Baker Hughes stockholders an opportunity to realize value at Closing for a portion of their investment in Baker Hughes common stock.

 

    The fact that a considerable portion of the consideration is payable in stock of New Baker Hughes, which affords Baker Hughes stockholders the opportunity to participate in the future earnings and expected growth of New Baker Hughes and any future appreciation in the value of the Class A Common Stock should the Baker Hughes stockholders decide to retain the Class A Common Stock payable in the Transactions.

 

    The Baker Hughes board of directors’ belief that the Transactions could be accretive to earnings per share of New Baker Hughes and will be accretive to cash flow per share of New Baker Hughes, and that New Baker Hughes will have a strong investment grade credit profile and substantial financial flexibility.

 

    The fact that New Baker Hughes will have access to the GE Store, a centralized resource where GE employees mix and match technology, tools, and ideas to create solutions for customers.

 

    The fact that the New Baker Hughes Board, immediately after Closing, will include six GE designees and five Baker Hughes designees, with Jeff Immelt, GE Chairman and Chief Executive Officer, serving as New Baker Hughes Chairman and Martin Craighead, Baker Hughes Chairman and Chief Executive Officer, serving as New Baker Hughes Vice Chairman. The successor Baker Hughes directors will be chosen by the Governance & Nominating Committee of the New Baker Hughes Board, which will be comprised of a majority of Baker Hughes directors who meet certain independence requirements. Such governance arrangements were viewed as a factor in favor of the Transactions because New Baker Hughes will maintain the experience and knowledge that the Baker Hughes directors possess regarding oversight of Baker Hughes’ business and operations and such Baker Hughes directors will have an opportunity to provide an important governance counterbalance to the GE designees.

 

    The Baker Hughes board of directors’ belief that an “Up-C” structure (1) permitted GE to achieve the economic equivalent of tax consolidation because Newco LLC, the operating partnership in which GE would hold its economic interest, would not itself be subject to U.S. federal income tax and thus was the only structure GE was willing to use, in a transaction in which the Baker Hughes stockholders would receive the Special Dividend of $17.50 per share and 37.5%, in the aggregate, of the equity of the new combined entity, (2) would allow GE post-closing, if it wished to do so, to transfer its interest to GE shareholders in a tax efficient manner through a “spin-off” or “split-off” transaction, which transaction the Baker Hughes board of directors recognized would result in New Baker Hughes becoming an independent company with an increased public float, (3) could allow New Baker Hughes to be included in the S&P 500 Index because GE would own less than 50% of the publicly traded Class A shares, notwithstanding GE’s majority interest in Newco LLC, (4) had been used in several precedent transactions, (5) would not result in incremental tax costs to New Baker Hughes, because GE agreed to indemnify New Baker Hughes against any incremental tax costs of the “Up-C” structure and (6) would allow New Baker Hughes to share in certain tax benefits as described in the section titled “Certain Agreements Related to the Transactions—Tax Matters Agreement.”

 

    The fact that, for a period of five years beginning upon Closing, GE will be subject to a customary standstill with respect to the acquisition of New Baker Hughes stock (with certain customary exceptions).

 

    The fact that, following Closing, any proposal by GE or any of its affiliates to acquire all of the shares of Common Stock held by stockholders that are not affiliated with GE or its affiliates must be subject to review, evaluation and approval of a committee of independent directors and submitted for approval to the stockholders of New Baker Hughes, with a non-waivable condition that a majority of the shares held by stockholders that are not GE or affiliated with GE approve the transaction.

 

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    The fact that GE will be subject to certain transfer restrictions following the Closing Date, except with respect to transfers to affiliates of GE, including that: (i) for a period of two years following the Closing Date, GE and its affiliates will be prohibited from transferring any shares of Common Stock; (ii) following the two-year anniversary of Closing, subject to certain exceptions, GE may not transfer any shares of Common Stock to any person or group if such person or group would beneficially own more than 15% of the voting power of the outstanding shares of Common Stock (other than pursuant to widely distributed public offerings, including spin-off and split-off transactions) after such transfer, unless approved by the Conflicts Committee; and (iii) following the fifth anniversary of the Closing Date, GE and its affiliates will be permitted to transfer all (but not less than all) of their shares of Class A Common Stock to a third party (or, if applicable, all of their Paired Interests), only if, among other things, (A) the buyer agrees to purchase all shares of Common Stock held by non-GE stockholders that are not affiliated with GE or its affiliates for the same consideration and on otherwise substantially the same terms and conditions and (B) if the transaction does not result in the buyer owning 100% of the Common Stock, the buyer either (x) agrees to assume GE’s obligations under the Stockholders Agreement or (y) enters into a stockholders agreement with New Baker Hughes containing substantially the same terms and conditions as those contained in the Stockholders Agreement.

 

    The fact that any transaction entered into following Closing between New Baker Hughes or any of its subsidiaries on the one hand, and GE or any of its affiliates (other than New Baker Hughes and its subsidiaries) on the other hand, is required to be on arm’s-length terms and in the best interest of New Baker Hughes.

 

    The fact that, for a certain period of time following the Closing Date, GE has agreed it will not compete in certain oil and gas activities and other discrete oil and gas related segments.

 

    The fact that Baker Hughes’ and New Baker Hughes’ rights under the Transaction Agreement and other Transaction Documents are enforceable by a committee of independent directors, and material amendments of or waivers under such agreements require the prior approval of such committee of independent directors.

 

    The fact that the Baker Hughes name is retained and the anticipated positive reaction in the market and from Baker Hughes stakeholders.

 

    The Baker Hughes board of directors’ belief that New Baker Hughes will generate significant free cash flow, allowing the return of cash to the combined investor base through dividends, share repurchases and similar actions.

 

    The Baker Hughes board of directors’ belief that the Transactions will combine the digital solutions, manufacturing expertise and technology from GE O&G and the track record of success Baker Hughes has in the oilfield services sector; create the second largest player in the oilfield equipment and services industry that has operations in more than 120 countries; and have strong, complementary competitive scope across the industry, from fullstream oil and gas manufacturing and technology solutions spanning across subsea and drilling, rotating equipment, imaging, sensing, drilling, evaluation, completion and production.

 

    The Baker Hughes board of directors’ belief that New Baker Hughes will have a diversified portfolio that can deliver through the oil and gas cycle, and that there is a large pool of synergies that will improve operating margins and drive organic growth.

 

    The Baker Hughes board of directors’ belief that the Transactions will result in New Baker Hughes becoming the partner and employer of choice for the industry.

 

    The view that GE O&G and Baker Hughes share a similar culture and value system, sharing a commitment to exceeding customer expectations.

 

   

The Baker Hughes board of directors’ belief that the transactions will potentially result in meaningful annual cost and revenue synergies once Baker Hughes and GE O&G are fully integrated, and that such

 

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annual cost synergies would equal approximately $1.2 billion and that additional EBITDA derived from such annual revenue synergies would equal approximately $400 million.

 

    The fact that in the event the Transaction Agreement is terminated by Baker Hughes as a result of GE’s material breach of its regulatory covenants which breach results in the regulatory closing condition being incapable of being satisfied, GE would be required to pay Baker Hughes a termination fee of $1.3 billion.

 

    The recommendation of Baker Hughes’ senior management team in favor of the Transactions.

Terms of the Transaction Agreement

The Baker Hughes board of directors considered the terms and conditions of the Transaction Agreement, including but not limited to the following:

 

    The Baker Hughes board of directors’ belief that the terms of the Transaction Agreement, taken as a whole, increase the degree of certainty that the Transactions will be completed, including the fact that:

 

    GE is required to take all actions necessary to obtain regulatory approvals, including agreeing to divestitures (including divestitures of certain specified businesses), unless the assets, business or product lines subject to such actions (excluding the specified businesses) would account for more than $200 million of the 2015 revenue of GE, Baker Hughes, New Baker Hughes and/or any of their respective subsidiaries, or any combination thereof;

 

    GE has agreed to pay a fee of $1.3 billion if the Transaction Agreement terminates in certain circumstances due to a failure to obtain required antitrust approvals or due to GE’s material breach of its antitrust covenants which breach results in the antitrust closing condition being incapable of being satisfied;

 

    there are limited circumstances in which GE may terminate the Transaction Agreement; and

 

    the Transaction Agreement contains no financing condition.

 

    The Baker Hughes board of directors’ belief that the terms of the Transaction Agreement, including Baker Hughes’ representations, warranties and covenants and the conditions to each party’s obligations, are reasonable.

 

    The fact that the Transaction Agreement provides that, under certain circumstances, and subject to certain conditions, Baker Hughes is permitted to furnish information to and conduct negotiations with a third party in connection with an unsolicited proposal for a business combination or acquisition of Baker Hughes that constitutes or is reasonably likely to lead to a superior proposal (as defined in the Transaction Agreement).

 

    The fact that the Baker Hughes board of directors, subject to certain conditions, has the right to change its recommendation in support of the Transactions in response to an intervening event, even if there is no competing or superior proposal, if the Baker Hughes board of directors determines that the failure to take such action would likely be inconsistent with its fiduciary duties to Baker Hughes stockholders under applicable law.

 

    The fact that the Baker Hughes board of directors has the right to terminate the Transaction Agreement to enter into a definitive agreement related to a superior proposal, subject to giving GE notice and an opportunity to propose changes to the Transaction Agreement, and the payment of the Baker Hughes Termination Fee.

 

    The fact that the Baker Hughes board of directors, after discussing the Baker Hughes Termination Fee with its advisors, believed that such fee was consistent with market practice and would not preclude or deter a willing and financially capable third party, were one to exist, from making a superior proposal following the announcement of a transaction with GE.

 

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    The fact that a vote of Baker Hughes’ stockholders on the Transaction Agreement is required under Delaware law, and that if the Transactions are approved by Baker Hughes’ stockholders and consummated, those Baker Hughes stockholders who do not vote in favor of the adoption of the Transactions will have the right to demand appraisal of the fair value of their shares under Delaware law.

 

    The fact that GE is required to deliver to Baker Hughes the Comparable GE O&G Audited Financial Statements no later than April 15, 2017 (or April 30, 2017 in the case of the September 30, 2016 audited financials), and if such audited financials differ from the unaudited financial statements of GE O&G provided to Baker Hughes in a manner that is material to the intrinsic value of GE O&G in a manner that is adverse, Baker Hughes may terminate the Transaction Agreement and, in the event of such termination, GE would be required to reimburse Baker Hughes for certain expenses (up to $40 million).

 

    The expectation that Baker Hughes stockholders will not recognize gain or loss for U.S. federal income tax purposes as a result of the Mergers and the Conversion.

 

    Baker Hughes’ ability to specifically enforce GE’s obligations under the Transaction Agreement, including GE’s obligations to complete the Transactions.

Risks and Potentially Negative Factors

In addition to the above factors, the Baker Hughes board of directors also identified and considered a number of uncertainties, risks and other potentially negative factors in its consideration of the Transactions and the Transaction Agreement, including without limitation:

 

    The fact that the Transactions may not be completed in a timely manner, or at all, despite the parties’ efforts and even if the requisite approval is obtained from Baker Hughes stockholders, if required antitrust approvals are not obtained or if obtaining antitrust approval would require GE agreeing to divestitures of assets, businesses or product lines (excluding certain specified businesses) that account for more than $200 million of the 2015 revenue of GE, Baker Hughes, New Baker Hughes and/or any of their respective subsidiaries, or any combination thereof.

 

    The fact that Baker Hughes negotiated exclusively with GE rather than conducting a public or private “auction” or sales process of Baker Hughes.

 

    The fact that audited financial statements for GE O&G were not available at the time of signing the Transaction Agreement.

 

    The risks and costs to Baker Hughes if the Transactions are not completed, including the diversion of management and employee attention, potential employee attrition and the potential effect on Baker Hughes’ business and relations with customers, suppliers and vendors.

 

    The costs to be incurred in connection with the Transactions.

 

    The restrictions on the conduct of Baker Hughes’ business prior to completion of the Transactions, which could delay or prevent Baker Hughes from undertaking material strategic opportunities that might arise pending completion of the Transactions to the detriment of the Baker Hughes stockholders.

 

    The risk of not realizing all of the anticipated strategic and other benefits between GE O&G and Baker Hughes, including, without limitation, the challenges of combining the businesses, operations and workforces of GE O&G and Baker Hughes, the risk that expected operating efficiencies and cost savings may not be realized or will cost more to achieve than anticipated, and the risk that divestitures required by antitrust authorities may decrease the anticipated strategic and other benefits of the Transactions, including the Mergers, to New Baker Hughes.

 

    The risk that because an “Up-C” structure is a complex acquisition structure, it might be difficult for investors to understand.

 

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    The expectation that the Special Dividend will generally be taxable as a dividend to Baker Hughes stockholders for U.S. federal income tax purposes.

 

    The fact that Baker Hughes’ directors and executive officers may have interests in the Transactions that are different from, or in addition to, those of Baker Hughes’ stockholders generally, including certain interests arising from the employment and compensation arrangements of Baker Hughes’ executive officers, and the manner in which they would be affected by the Transactions.

The Baker Hughes board of directors weighed these positive and negative factors, realizing that future results are uncertain, including any future results considered or expected in the factors noted above. In addition, many of the non-financial factors considered were highly subjective. As a result, in view of the number and variety of factors they considered, the Baker Hughes board of directors did not consider it practicable and did not attempt to quantify or otherwise assign relative weights to the specific factors it considered. Rather, the Baker Hughes board of directors made its determination based on the totality of the information it considered. Individually, each director may have given greater or lesser weight to a particular factor or consideration.

The Baker Hughes board of directors believed that, overall, the potential benefits of the Transactions to Baker Hughes and its stockholders outweighed the risks described above.

The foregoing discussion of the information and factors considered by the Baker Hughes board of directors is forward-looking in nature. This information should be read in light of the factors described under the section entitled “Cautionary Note Regarding Forward-Looking Statements” beginning on page 64 of this combined proxy statement/prospectus.

Leadership of New Baker Hughes

Upon Closing, the New Baker Hughes Board will consist of eleven directors, six of whom will be designated by GE (Jeffrey R. Immelt, the Chairman and Chief Executive Officer of GE, W. Geoffrey Beattie, Jamie S. Miller, James J. Mulva, John G. Rice and Lorenzo Simonelli) and five of whom will be designated by Baker Hughes (Gregory D. Brenneman, Clarence P. Cazalot, Jr., Lynn L. Elsenhans, J. Larry Nichols and Martin Craighead, the Chief Executive Officer of Baker Hughes). The successor Baker Hughes directors will be chosen by the Governance & Nominating Committee of the New Baker Hughes Board, which will be comprised of a majority of Baker Hughes directors who meet certain independence requirements. GE only has the right to designate directors to the New Baker Hughes Board for so long as GE and its affiliates either beneficially own at least 50% of the Common Stock or are required to consolidate New Baker Hughes’ financial results with GE’s financial results. At least one Company Independent Director must be on the New Baker Hughes Audit Committee, at least one non-GE designee must be on the Compensation Committee and at least one Company Independent Director must be on all other New Baker Hughes Board committees. GE and its affiliates are required to vote in favor of all Baker Hughes directors. For additional information regarding the new directors of New Baker Hughes, please see “Directors of New Baker Hughes” beginning on page 234 of this combined proxy statement/prospectus.

Jeffrey R. Immelt, the current Chairman and Chief Executive Officer of GE, will serve as Chairman of the New Baker Hughes Board. Martin Craighead, the current Chairman and Chief Executive Officer of Baker Hughes, will serve as Vice Chairman of the New Baker Hughes Board. Lorenzo Simonelli, the current President and Chief Executive Officer of GE O&G, will serve as President and Chief Executive Officer of New Baker Hughes. Brian Worrell, the current Vice President and Chief Financial Officer of GE O&G, will serve as Chief Financial Officer of New Baker Hughes. For additional information regarding the new executive officers of New Baker Hughes, please see “Executive Officers and Executive Compensation—Executive Officers of New Baker Hughes” beginning on page 241 of this combined proxy statement/prospectus.

 

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Indemnification and Insurance

The Transaction Agreement provides for the continuation of existing indemnification in favor of the current and former directors, officers and employees of Baker Hughes and its subsidiaries as provided in the organizational and governing documents of Baker Hughes and its subsidiaries or under indemnification agreements between such persons and Baker Hughes and its subsidiaries as in effect prior to date of the Transaction Agreement for a period of not less than six years after Closing, with such indemnification obligations being guaranteed by Newco LLC. The Transaction Agreement also contains certain obligations related to the purchase of directors’ and officers’ liability insurance and fiduciary liability insurance tail policies with respect to matters existing or occurring at or prior to Closing for persons who are currently covered under Baker Hughes’ existing policies. These interests are described in detail below at “The Transaction Agreement—Director and Officer Indemnification and Insurance.”

The Baker Hughes board of directors was aware of the interests described in this section and below under “The Transactions—Recommendation of the Board of Directors and its Reasons for the Transactions” beginning on page 82 of this combined proxy statement/prospectus and considered them, among other matters, in approving the Transaction Agreement and making its recommendation that the Baker Hughes stockholders adopt the Transaction Agreement.

Projected Financial Data

Certain Financial Forecasts of GE O&G

GE does not, as a matter of course, disclose long-term projections in respect of GE O&G due to, among other reasons, the unpredictability and uncertainty of the underlying assumptions and estimates. The unaudited, non-public financial projections concerning GE O&G for the fiscal years 2016 through 2020 described below (sometimes referred to as the “GE O&G Forecasts”), were not prepared with a view to public disclosure and are included in this combined proxy statement/prospectus only because such information was made available, in whole or in part, to Baker Hughes and Goldman Sachs, its financial advisor, in connection with their review of the Transactions and for purposes of Goldman Sachs’ financial analyses and opinion. Goldman Sachs’ financial analyses and opinion are described below under the heading “Opinion of Baker Hughes’ Financial Advisor” beginning on page 98 of this combined proxy statement/prospectus. As described more fully below, however, GE did publicly disclose certain forecasted financial information concerning GE O&G and New Baker Hughes in connection with public announcements regarding the Transactions.

The GE O&G Forecasts and the Estimated Synergies (as described below under the heading “Projected Financial Data—Estimated Synergies”) were not prepared with a view to compliance with GAAP, the published guidelines of the SEC regarding projections and forward-looking statements, or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither Baker Hughes’ nor GE’s independent registered public accounting firms, nor any other independent registered public accounting firm, has compiled, examined, or performed any procedures with respect to the GE O&G Forecasts or the Estimated Synergies, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, these GE O&G Forecasts and Estimated Synergies. The GE O&G Forecasts and Estimated Synergies were prepared solely for internal use of GE and Baker Hughes and their respective financial advisors and are subjective in many respects.

The development of the GE O&G Forecasts and Estimated Synergies entailed numerous assumptions about GE O&G’s industry, markets, products and services at a point in time. Although the GE O&G Forecasts and Estimated Synergies are presented with numerical specificity, the GE O&G Forecasts and Estimated Synergies reflect assumptions, estimates and judgments as to future events made by the management of GE O&G that it believed were reasonable at the time the GE O&G Forecasts and Estimated Synergies were prepared, taking into account the relevant information available to GE O&G’s management at the time.

 

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Important factors that may affect actual results and cause the results to be different from the GE O&G Forecasts and Estimated Synergies include: the ultimate timing, outcome and results of integrating the operations of GE O&G and Baker Hughes, general economic, regulatory and industrial conditions, changes in customer behavior, accuracy of certain accounting assumptions, changes in actual or projected cash flows, competitive pressures, changes in the demand for or price of oil and/or natural gas, changes in tax laws or accounting rules, changes in government regulations and regulatory requirements, particularly those related to offshore oil and natural gas exploration, radioactive sources, explosives, chemicals, hydraulic fracturing services and climate-related initiatives, impairment of oil and natural gas properties, structural changes in the oil and natural gas industry, costs and availability of resources and other matters described in the section “Risk Factors” beginning on page 44 of this combined proxy statement/prospectus. As the GE O&G Forecasts and Estimated Synergies are forward-looking statements, see also “Cautionary Note Regarding Forward-Looking Statements” beginning on page 64 of this combined proxy statement/prospectus. In addition, these GE O&G Forecasts and Estimated Synergies do not take into account any circumstances or events occurring after the date that they were prepared and, accordingly, do not give effect to the Transactions or any changes to GE O&G’s operations or strategy that may be implemented after completion of the Transactions. See the section entitled “Projected Financial Data—Estimated Synergies” beginning on page 91 of this combined proxy statement/prospectus for information regarding projected synergies. For the aforementioned reasons, the inclusion of GE O&G Forecasts and Estimated Synergies in this combined proxy statement/prospectus should not be regarded as an indication that the GE O&G Forecasts and Estimated Synergies will be necessarily predictive of actual future events, and they should not be relied on as such. Actual results may be materially different from those contained in the GE O&G Forecasts and Estimated Synergies.

No one has made or makes any representation to any stockholder regarding the information included in these GE O&G Forecasts and Estimated Synergies and GE has not made any representation to Baker Hughes regarding the information included in these GE O&G Forecasts and Estimated Synergies. The GE O&G Forecasts and Estimated Synergies are not included in this combined proxy statement/prospectus in order to induce any stockholder to vote in favor of the Transactions or any of the other proposals to be voted on at the special meeting or to influence any stockholder to make any investment decision with respect to the Transactions. Except to the extent required by applicable federal securities laws, GE, Baker Hughes and New Baker Hughes do not intend, and expressly disclaim any responsibility, to update or otherwise revise the GE O&G Forecasts or Estimated Synergies to reflect circumstances existing after the date when prepared or to reflect the occurrence of future events even in the event that any of the assumptions underlying the GE O&G Forecasts or Estimated Synergies are shown to be in error.

In light of the foregoing factors and the uncertainties inherent in the GE O&G Forecasts and Estimated Synergies, Baker Hughes stockholders are cautioned not to unduly rely on the GE O&G Forecasts and Estimated Synergies included in this combined proxy statement/prospectus.

Certain of the measures included in the GE O&G Forecasts may be considered non-GAAP financial measures, as noted below. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by GE are not reported by all of GE’s competitors in the oil and gas industry and may not be comparable to similarly titled amounts used by other companies. GE encourages you to review all of GE O&G’s financial statements included in the sections “Selected Historical and Pro Forma Condensed Combined Financial Data” and “Financial Statements of GE O&G” beginning on page 39 and FS-1, respectively, of this combined proxy statement/prospectus in their entirety and to not rely on any single financial measure.

 

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Forecasted Financial Information

The table below presents a summary of the GE O&G Forecasts as provided by GE to Baker Hughes and Goldman Sachs, in each case, prior to the execution of the Transaction Agreement.

 

     GE O&G Forecasts
(In billions)
 
     Year Ended December 31,  
     2016E      2017E      2018E      2019E      2020E  

Revenue

   $ 14.5      $ 13.5      $ 15.1      $ 17.3      $ 18.2  

EBITDA(1)*

   $ 2.2      $ 2.0      $ 2.6      $ 3.0      $ 3.3  

Free Cash Flow(2)

   $ 0.8      $ 1.3      $ 1.0      $ 1.2      $ 1.7  

 

* Unlevered and normalized for items such as, but not limited to, restructuring, impacts from geopolitical events, currency devaluations or impairments.
(1)  EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure, as it excludes amounts, or is subject to adjustments that effectively exclude amounts, included in the most directly comparable measure calculated and presented in accordance with GAAP in financial statements. EBITDA was used by management of GE O&G to provide additional information in order to provide them with an alternative method for assessing GE O&G’s financial condition and operating results (including in comparison to other similar companies). These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. EBITDA should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP or as a measure of a company’s profitability or liquidity.
(2)  Free Cash Flow is defined as operating cash flows less capital expenditures plus proceeds from disposal of assets but not including proceeds from disposition of principal business units. In this context, Free Cash Flow was used by management of GE O&G to provide additional information with respect to available cash and liquidity. These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. Free Cash Flow should not be considered in isolation or as a substitute for cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP or as a measure of a company’s profitability or liquidity.

Estimated Synergies

Prior to the execution of the Transaction Agreement, GE, in collaboration with Baker Hughes, prepared certain estimates of annual cost and revenue synergies expected to be realized following the Closing, which are referred to in this section as the “Estimated Synergies.” The Estimated Synergies are not reflected in the GE O&G Forecasts. These Estimated Synergies include the following: (i) approximately $400 million in annual savings from sourcing and procurement improvements by 2020; (ii) approximately $200 million in annual savings from manufacturing and service footprint rationalization by 2020; (iii) approximately $200 million in annual savings from process optimization by 2020; (iv) approximately $400 million in annual savings from SG&A consolidation by 2020; and (v) approximately $400 million in additional EBITDA derived from annual revenue synergies. This information should be read in light of the risks described under “Risk Factors” beginning on page 44 of this combined proxy statement/prospectus.

Certain Financial Forecasts of Baker Hughes

Baker Hughes does not as a matter of course make public projections as to future earnings or other results of operations, other than providing estimates for certain financial items on a near-term basis on its regular earnings calls. In addition, for internal purposes and in connection with the process leading to the Transaction Agreement,

 

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the management of Baker Hughes prepared certain projections of future financial and operating performance of Baker Hughes for the years 2016 through 2020 (sometimes referred to as the “Baker Hughes Forecasts”). The management of GE prepared and provided to Baker Hughes the GE O&G Forecasts, to which the management of Baker Hughes made a limited adjustment (the GE O&G Forecasts as so adjusted, are sometimes referred to as the “Baker Hughes Forecasts for GE O&G”). The projections of Revenue, EBITDA and Free Cash Flow in the GE O&G Forecasts and the Baker Hughes Forecasts for GE O&G set forth below are similar because the modest adjustment made by Baker Hughes management is rounded to the same numbers in most cases. As described more fully below in the section “Projected Financial Data—Certain Updates and Supplemental Information” beginning on page 97 of this combined proxy statement/prospectus, Baker Hughes did publicly disclose certain forecasted financial information concerning Baker Hughes and New Baker Hughes in connection with public announcements regarding the Transactions.

The management of Baker Hughes, after discussions with GE, also estimated the timing and amount of New Baker Hughes projected realization of annual savings from cost and capital expenditure synergies (sometimes referred to as the “Baker Hughes Synergies”). The Baker Hughes Synergies and the impact of potential divestitures in connection with the Transactions are not reflected in the Baker Hughes Forecasts or the Baker Hughes Forecasts for GE O&G. In addition, the management of Baker Hughes prepared certain projections of future financial and operating performance of New Baker Hughes for the years 2016 through 2020 by combining the Baker Hughes Forecasts, the Baker Hughes Forecasts for GE O&G and the Baker Hughes Synergies, and increasing the assumed tax rate of New Baker Hughes (compared to the assumed tax rate in the Baker Hughes Forecasts) and the Baker Hughes Forecasts for GE O&G (such projections, as so adjusted, are sometimes referred to as the “New Baker Hughes Forecasts”). The New Baker Hughes Forecasts solely reflect the financial performance of Newco LLC. New Baker Hughes will hold indirectly, through certain wholly owned subsidiaries, approximately 37.5% of the Common Units of Newco LLC at Closing and will consolidate the financial results of Newco LLC. We sometimes refer to all of the forecasts and synergies described above as the “forward-looking financial information.”

The forward-looking financial information is included in this combined proxy statement/prospectus solely because it was among the financial information made available, in whole or in part, to the Baker Hughes board of directors, GE (only in the case of the Baker Hughes Forecasts) and Baker Hughes’ financial advisor, Goldman Sachs, in connection with their respective evaluations of the Transactions. The forward-looking financial information was not prepared with a view toward public disclosure or with a view toward complying with GAAP, the published guidelines of the SEC regarding projections and forward-looking statements, or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The development of the forward-looking financial information entailed numerous assumptions about Baker Hughes’ and GE O&G’s industry, markets, products and services at a point in time, and the forward-looking information is subjective in many respects. Although the forward-looking financial information is presented with numerical specificity, the information reflects assumptions, estimates and judgments as to future events made by the management of Baker Hughes. In the view of the management of Baker Hughes, the forward-looking financial information was prepared on a reasonable basis and reflected the best then-currently available estimates and judgments at the time of its preparation, and presented at the time of its preparation, to the best of Baker Hughes’ management’s knowledge and belief, reasonable projections of the future financial performance of Baker Hughes, GE O&G and New Baker Hughes. Neither Baker Hughes’ nor GE’s independent registered public accounting firms, nor any other independent registered public accounting firm, has compiled, examined, or performed any procedures with respect to the forward-looking financial information, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the forward-looking financial information.

Important factors that may affect actual results and cause the results to be different from the forward-looking financial information include: the ultimate timing, outcome and results of integrating the operations of GE O&G and Baker Hughes, general economic, regulatory and industrial conditions, changes in customer

 

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behavior, accuracy of certain accounting assumptions, changes in actual or projected cash flows, competitive pressures, changes in the demand for or price of oil and/or natural gas, changes in tax laws or accounting rules, changes in government regulations and regulatory requirements, particularly those related to offshore oil and natural gas exploration, radioactive sources, explosives, chemicals, hydraulic fracturing services and climate-related initiatives, impairment of oil and natural gas properties, structural changes in the oil and natural gas industry, costs and availability of resources and other matters described in the section “Risk Factors” beginning on page 44 of this combined proxy statement/prospectus. As the Baker Hughes Forecasts, the Baker Hughes Forecasts for GE O&G and the Baker Hughes Synergies are forward-looking statements, see also “Cautionary Note Regarding Forward-Looking Statements” beginning on page 64 of this combined proxy statement/prospectus. In addition, the forward-looking financial information is not fact and does not take into account any circumstances or events occurring after the date that it was prepared and, accordingly, does not give effect to any changes to New Baker Hughes’ operations or strategy that may be implemented after completion of the Transactions and, for the Baker Hughes Forecasts and the Baker Hughes Forecasts for GE O&G, does not give effect to the Transactions. For the aforementioned reasons, the inclusion of the forward-looking information in this combined proxy statement/prospectus should not be regarded as an indication that the forward-looking information will be necessarily predictive of actual future events, and it should not be relied on as such. Actual results may be materially different from those contained in the forward-looking information.

No one has made or makes any representation to any stockholder regarding the forward-looking financial information and Baker Hughes has not made any representation to GE regarding the information included in the forward-looking financial information. The forward-looking financial information is not included in this combined proxy statement/prospectus in order to induce any stockholder to vote in favor of the Transactions or any of the other proposals to be voted on at the special meeting or to influence any stockholder to make any investment decision with respect to the Transactions. Except to the extent required by applicable federal securities laws, GE, Baker Hughes and New Baker Hughes do not intend, and expressly disclaim any responsibility, to update or otherwise revise the forward-looking financial information to reflect circumstances existing after the date when prepared or to reflect the occurrence of future events even in the event that any of the assumptions underlying the forward-looking financial information are shown to be in error.

In light of the foregoing factors and the uncertainties inherent in the forward-looking financial information, Baker Hughes stockholders are cautioned not to unduly rely on the forward-looking financial information included in this combined proxy statement/prospectus.

Certain of the measures included in the forward-looking financial information may be considered non-GAAP financial measures, as noted below. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by Baker Hughes are not reported by all of Baker Hughes’ competitors in the oil and gas industry and may not be comparable to similarly titled amounts used by other companies. Baker Hughes encourages you to review the financial statements included in the section “Selected Historical and Pro Forma Condensed Combined Financial Data” beginning on page 39 of this combined proxy statement/prospectus and Baker Hughes’ publicly-filed reports in their entirety and to not rely on any single financial measure.

 

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The following table presents a summary of the Baker Hughes Forecasts. The Baker Hughes Forecasts were reviewed with the Baker Hughes board of directors. The Baker Hughes Forecasts were also provided to Goldman Sachs for use in its financial analyses and opinion (summarized below in the section entitled “Opinion of Baker Hughes’ Financial Advisor” beginning on page 98 of this combined proxy statement/prospectus), and, with the exception of the Baker Hughes Forecasts for 2020, were provided to GE.

 

     Baker Hughes Forecasts
(
In billions)
 
     Year Ended December 31,  
     2016E      2017E      2018E      2019E      2020E  

Revenue

   $ 9.9      $ 10.3      $ 12.1      $ 14.1      $ 15.1  

EBITDA(1)(*)

   $ 0.5      $ 1.7      $ 2.5      $ 3.3      $ 3.6  

Capital Expenditures

   $ 0.3      $ 0.6      $ 0.7      $ 0.9      $ 0.9  

Free Cash Flow(2)

   $ 4.0      $ 0.6      $ 0.9      $ 1.2      $ 1.6  

 

* Unlevered and normalized for items such as, but not limited to, restructuring, impairments and impacts related to a merger agreement terminated in 2016.
(1) EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure, as it excludes amounts, or is subject to adjustments that effectively exclude amounts, included in the most directly comparable measure calculated and presented in accordance with GAAP in financial statements. EBITDA was used by management of Baker Hughes to provide additional information in order to provide them with an alternative method for assessing Baker Hughes’ financial condition and operating results (including in comparison to other similar companies). These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. EBITDA should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP or as a measure of a company’s profitability or liquidity.
(2) Free Cash Flow is defined as operating cash flows less capital expenditures plus proceeds from disposal of assets (if any). Free Cash Flow was used by Baker Hughes’ management to provide additional information with respect to available cash and liquidity. These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. Free Cash Flow should not be considered in isolation or as a substitute for cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP or as a measure of a company’s profitability or liquidity. The estimates of Free Cash Flow contained in the Baker Hughes Forecasts are sometimes referred to as “Baker Hughes’ Free Cash Flows,” the estimates of Free Cash Flow contained in the Baker Hughes Forecasts for GE O&G are sometimes referred to as “GE O&G Free Cash Flows” and the estimates of Free Cash Flow contained in the New Baker Hughes Forecasts are sometimes referred to as “New Baker Hughes Free Cash Flows.”

 

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The following table presents a summary of the Baker Hughes Forecasts for GE O&G. The Baker Hughes Forecasts for GE O&G were reviewed with the Baker Hughes board of directors. The Baker Hughes Forecasts for GE O&G were also provided to Goldman Sachs for use in its financial analyses and opinion (summarized below in the section entitled “Opinion of Baker Hughes’ Financial Advisor” beginning on page 98 of this combined proxy statement/prospectus).

 

     Baker Hughes Forecasts for GE O&G
(
In billions)
 
     Year Ended December 31,  
     2016E      2017E      2018E      2019E      2020E  

Revenue

   $ 14.5      $ 13.5      $ 15.1      $ 17.3      $ 18.2  

EBITDA(1)(**)

   $ 2.2      $ 2.0      $ 2.5      $ 3.0      $ 3.3  

Capital Expenditures

   $ 0.4      $ 0.4      $ 0.4      $ 0.4      $ 0.5  

Free Cash Flow(2)

   $ 0.8      $ 1.3      $ 1.0      $ 1.2      $ 1.7  

 

** Unlevered and normalized for items such as, but not limited to, restructuring, impacts from geopolitical events, currency devaluations or impairments.
(1) EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure, as it excludes amounts, or is subject to adjustments that effectively exclude amounts, included in the most directly comparable measure calculated and presented in accordance with GAAP in financial statements. EBITDA was used by management to provide additional information in order to provide them with an alternative method for assessing financial condition and operating results (including in comparison to other similar companies). These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. EBITDA should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP or as a measure of a company’s profitability or liquidity.
(2) Free Cash Flow is defined as operating cash flows less capital expenditures plus proceeds from disposal of assets (if any). Free Cash Flow was used by Baker Hughes’ management to provide additional information with respect to available cash and liquidity. These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. Free Cash Flow should not be considered in isolation or as a substitute for cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP or as a measure of a company’s profitability or liquidity. The estimates of Free Cash Flow contained in the Baker Hughes Forecasts are sometimes referred to as “Baker Hughes’ Free Cash Flows,” the estimates of Free Cash Flow contained in the Baker Hughes Forecasts for GE O&G are sometimes referred to as “GE O&G Free Cash Flows” and the estimates of Free Cash Flow contained in the New Baker Hughes Forecasts are sometimes referred to as “New Baker Hughes Free Cash Flows.”

 

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The following table presents a summary of the New Baker Hughes Forecasts. The New Baker Hughes Forecasts were reviewed with the Baker Hughes board of directors. The New Baker Hughes Forecasts were also provided to Goldman Sachs for use in its financial analyses and opinion (summarized below in the section entitled “Opinion of Baker Hughes’ Financial Advisor” beginning on page 98 of this combined proxy statement/prospectus).

 

     New Baker Hughes Forecasts
(
In billions)
 
     Year Ended December 31,  
     2016E      2017E      2018E      2019E      2020E  

Revenue

   $ 24.4      $ 23.8      $ 27.2      $ 31.4      $ 33.0  

EBITDA(1)

   $ 2.7      $ 4.0      $ 5.6      $ 7.1      $ 8.1  

Capital Expenditures

   $ 0.7      $ 0.9      $ 1.0      $ 1.2      $ 1.3  

Free Cash Flow(2)

   $ 4.8      $ 2.1      $ 2.4      $ 3.0      $ 4.1  

 

(1)  EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure, as it excludes amounts, or is subject to adjustments that effectively exclude amounts, included in the most directly comparable measure calculated and presented in accordance with GAAP in financial statements. EBITDA was used by Baker Hughes’ management to provide additional information in order to provide them with an alternative method for assessing Baker Hughes’, GE O&G’s and New Baker Hughes’ financial condition and operating results (including in comparison to other similar companies). These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. EBITDA should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP or as a measure of a company’s profitability or liquidity.

 

(2) Free Cash Flow is defined as operating cash flows less capital expenditures plus proceeds from disposal of assets (if any). Free Cash Flow was used by Baker Hughes’ management to provide additional information with respect to available cash and liquidity. These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. Free Cash Flow should not be considered in isolation or as a substitute for cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP or as a measure of a company’s profitability or liquidity. The estimates of Free Cash Flow contained in the Baker Hughes Forecasts are sometimes referred to as “Baker Hughes’ Free Cash Flows,” the estimates of Free Cash Flow contained in the Baker Hughes Forecasts for GE O&G are sometimes referred to as “GE O&G Free Cash Flows” and the estimates of Free Cash Flow contained in the New Baker Hughes Forecasts are sometimes referred to as “New Baker Hughes Free Cash Flows.”

Baker Hughes Synergies

The following table presents a summary of the Baker Hughes Synergies, which were reviewed with the Baker Hughes board of directors and provided to Goldman Sachs for use in its financial analyses and opinion (summarized below in the section entitled “Opinion of Baker Hughes’ Financial Advisor” beginning on page 98 of this combined proxy statement/prospectus).

     Baker Hughes Synergies
(In millions)
 
     Year Ended December 31,  
     2017E      2018E      2019E      2020E  

Cost Synergies

   $ 300      $ 700      $ 900      $ 1,100  

Capital Expenditure Synergies

   $ 25      $ 100      $ 100      $ 100  

Total Cost and Capital Expenditure Synergies

   $ 325      $ 800      $ 1,000      $ 1,200  

 

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Certain Updates and Supplemental Information

Following the preparation of the forecasted financial information for GE O&G, Baker Hughes and New Baker Hughes described above, and in connection with the public announcement of the Transactions, GE and Baker Hughes prepared, made available to investors and filed with the SEC on October 31, 2016 and November 7, 2016, certain financial information that updates and supplements certain of the forward-looking financial information described above.

These updates and supplements included: (i) forecasted 2018 EBITDA for GE O&G of $2.4 billion, (ii) forecasted 2018 EBITDA for Baker Hughes of $2.4 billion, (iii) forecasted 2018 and 2020 free cash flow of New Baker Hughes of $1.7 billion and $3.6 billion, respectively, (iv) forecasted 2018 and 2020 revenue of New Baker Hughes of $28 billion and $34 billion, respectively, (v) forecasted 2018 and 2020 EBITDA of New Baker Hughes of $5.2 billion and $8 billion respectively, and (vi) the timing and amount of New Baker Hughes projected realization of annual savings from cost synergies of $0.6 billion in the aggregate by 2018.

The material assumptions used in preparing, and disclosed as part of, such updates and supplements were: (i) the Closing occurring in mid-2017; (ii) price per barrel of oil of $45-$60, with a slow recovery to $60 per barrel in 2019; (iii) $1.2 billion of cost and $400 million of revenue related synergies to be realized by 2020; (iv) no incremental indebtedness incurred by New Baker Hughes; (v) the Baker Hughes business achieving approximately 60% of its peak 2014 EBITDA in 2020; and (vi) a New Baker Hughes free cash flow conversion rate of approximately 90% by 2020. These assumptions are, to the extent applicable, broadly consistent with assumptions used in the preparation of the earlier forecasted financial information for GE O&G, Baker Hughes and New Baker Hughes described above, except that they were updated to reflect the impact of longer-cycle projects timing, aligned with a decline in general market capital expenditure expectations.

These updates were made, due to, among other factors, a decline in general market outlook that occurred between the date of the preparation of the forward-looking financial information described above and the date of preparation of the updated forward-looking financial information.

Neither Baker Hughes nor GE O&G has further revised or amended this updated and supplemental forecasted financial information since the date of its publication, nor do they intend to do so.

In addition, the November 7, 2016, presentation also included a calculation by GE and Baker Hughes that the value to be received by Baker Hughes stockholders in the Transactions via the Merger Consideration (and their resulting approximately 37.5% ownership interest in New Baker Hughes) and the Special Dividend implied a premium of approximately 37% to Baker Hughes’ undisturbed share price.

For purposes of this calculation GE and Baker Hughes derived (i) an equity value of New Baker Hughes of approximately $51.9 billion by adding (1) the equity value of Baker Hughes of approximately $23.4 billion implied by its market capitalization (calculated using the undisturbed share price) and (2) the equity value of GE O&G of approximately $28.5 billion implied by applying trading multiples (11.8x EBITDA) of selected comparable public oilfield services and equipment companies (FMC Technologies, Inc., Dril-Quip, Inc., National Oilwell Varco Corporation, The Weir Group and Flowserve Corporation) to GE O&G’s forecasted 2018 EBITDA of $2.4 billion, and (ii) a net present value of cost and revenue related synergies anticipated to arise from the combination of Baker Hughes and GE O&G of approximately $13.7 billion by applying a 10% discount rate and 3% perpetuity growth rate for New Baker Hughes to total annual cost and revenue synergies that are anticipated to equal approximately $1.6 billion in fiscal year 2020. As a result, GE and Baker Hughes derived a total value of New Baker Hughes of approximately $65.6 billion, or approximately $76 per share of Baker Hughes common stock on a fully diluted basis as compared to the undisturbed share prices of $54.76.

The approximately 37% premium to Baker Hughes stockholders was then calculated taking 37.5% of the total value of New Baker Hughes of approximately $65.6 billion, adding the Special Dividend, resulting in $32.0 billion, and calculating the premium of 37% over the equity value of Baker Hughes of $23.4 billion.

 

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Opinion of Baker Hughes’ Financial Advisor

On October 30, 2016, at a meeting of the Baker Hughes board of directors, Goldman Sachs rendered its oral opinion, subsequently confirmed in writing, to the effect that, as of October 30, 2016, the date of its opinion and based upon and subject to the factors and assumptions set forth therein, the Merger Consideration together with the Special Dividend to be paid to the holders of Baker Hughes common stock (other than GE and its affiliates) pursuant to the Transaction Agreement was fair from a financial point of view to such holders. The full text of the written opinion of Goldman Sachs, dated October 30, 2016, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex I to this combined proxy statement/prospectus.

Goldman Sachs provided advisory services and its opinion for the information and assistance of the Baker Hughes board of directors in connection with its consideration of the Transactions. The Goldman Sachs opinion does not constitute a recommendation as to how any holder of Baker Hughes common stock should vote with respect to the Transactions or any other matter.

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

    the Transaction Agreement;

 

    annual reports to stockholders and Annual Reports on Form 10-K of Baker Hughes and GE for the five years ended December 31, 2015;

 

    certain interim reports to stockholders and Quarterly Reports on Form 10-Q of Baker Hughes and GE;

 

    certain other communications from Baker Hughes and GE to their respective stockholders;

 

    certain publicly available research analyst reports for Baker Hughes and GE;

 

    unaudited consolidated financial statements for GE O&G for the two years ended December 31, 2015 and for the nine-month period ended September 30, 2016; and

 

    certain internal financial analyses and forecasts for GE O&G prepared by its management; certain internal financial analyses and forecasts for Baker Hughes prepared by its management and for GE O&G prepared by the management of Baker Hughes, which are referred to as the “Baker Hughes Forecasts” and the “Baker Hughes Forecasts for GE O&G,” certain operating synergies projected by the management of Baker Hughes to result from the Transactions, which are referred to as the “Baker Hughes Synergies,” and certain financial analyses and forecasts for New Baker Hughes prepared by the management of Baker Hughes, which are referred to as the “New Baker Hughes Forecasts,” in each of the foregoing cases, as approved for Goldman Sachs’ use by Baker Hughes. For information regarding preparation of the Baker Hughes Forecasts, the Baker Hughes Forecasts for GE O&G and the New Baker Hughes Forecasts, see section titled “The Transactions—Projected Financial Data—Certain Financial Forecasts of Baker Hughes” beginning on page 91 of this combined proxy statement/prospectus. Baker Hughes management adjusted the New Baker Hughes Forecasts, for purposes of Goldman Sachs’ analyses, by assuming that the maximum amount of divestitures GE may be required to make under the Transaction Agreement are made immediately prior to Closing for cash, and such cash, to the extent required by the Transaction Agreement, is retained by New Baker Hughes. References to the “New Baker Hughes Forecasts” in this section refer to the New Baker Hughes Forecasts as so adjusted and references to “New Baker Hughes Free Cash Flows” refer to free cash flow estimates contained in the New Baker Hughes Forecasts as so adjusted.

Goldman Sachs also held discussions with members of the senior management of Baker Hughes regarding its assessment of the strategic rationale for, and the potential benefits of, the Transactions and the past and current business operations, financial condition, and future prospects of Baker Hughes and with members of the senior managements of Baker Hughes and GE O&G regarding their assessment of the past and current business

 

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operations, financial condition and future prospects of GE O&G; reviewed the reported price and trading activity for the shares of Baker Hughes common stock; compared certain financial and stock market information for Baker Hughes and financial information for GE O&G with similar financial and stock market information for certain other companies the securities of which are publicly traded; and performed such other studies and analyses, and considered such other factors, as it deemed appropriate.

For purposes of rendering its opinion, Goldman Sachs, with the consent of Baker Hughes, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it, without assuming any responsibility for independent verification thereof. In that regard, Goldman Sachs assumed with the consent of Baker Hughes that the Baker Hughes Forecasts, the Baker Hughes Forecasts for GE O&G, the Baker Hughes Synergies and the New Baker Hughes Forecasts were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Baker Hughes. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of Baker Hughes, GE, GE O&G, New Baker Hughes, Newco LLC or any of their respective subsidiaries and it was not furnished with any such evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Transactions will be obtained without any adverse effect on Baker Hughes, GE O&G, New Baker Hughes or Newco LLC or on the expected benefits of the Transactions in any way meaningful to its analysis. Goldman Sachs has also assumed that the Transactions will be consummated on the terms set forth in the Transaction Agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis.

Goldman Sachs’ opinion does not address the underlying business decision of Baker Hughes to engage in, or the relative merits of, the Transactions as compared to any strategic alternatives that may be available to Baker Hughes; nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addresses only the fairness from a financial point of view, as of the date of the opinion, of the Merger Consideration together with the Special Dividend to be paid to the holders of Baker Hughes common stock (other than GE and its affiliates) pursuant to the Transaction Agreement. Goldman Sachs’ opinion does not express any view on, and does not address, any other term or aspect of the Transaction Agreement or the Transactions or any term or aspect of any other agreement or instrument contemplated by the Transaction Agreement or entered into or amended in connection with the Transactions, including the Contribution, the GE O&G reorganization, the Baker Hughes reorganization, the Conversion, the contribution by GE of the Class B Stock Purchase Price, the acquisition by GE of Class B Common Stock, any allocation of the Merger Consideration and the Special Dividend, the fairness of the Transactions to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of Baker Hughes, New Baker Hughes or Newco LLC; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Baker Hughes, or class of such persons, in connection with the Transactions, whether relative to the Merger Consideration and Special Dividend to be paid to the holders of shares (other than shares owned by Baker Hughes or GE and its affiliates) and appraisal shares of Baker Hughes common stock pursuant to the Transaction Agreement or otherwise. Goldman Sachs’ opinion does not express any opinion as to the prices at which Class A Common Stock will trade at any time or as to the impact of the Transactions on the solvency or viability of Baker Hughes, GE, New Baker Hughes or Newco LLC, or the ability of Baker Hughes, GE, New Baker Hughes or Newco LLC to pay their respective obligations when they come due. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to it as of, the date of the opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

The following is a summary of the material financial analyses delivered by Goldman Sachs to the Baker Hughes board of directors in connection with rendering the opinion described above. The following summary,

 

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however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before October 28, 2016, the last trading day before the public announcement of the Transactions and is not necessarily indicative of current market conditions.

Comparative Current Public Trading Valuations

Goldman Sachs reviewed certain publicly available information regarding companies in the oilfield equipment industry and in the oilfield services industry listed below which are referred to as the selected companies:

 

    Oilfield Equipment Industry:

 

    National Oilwell Varco Inc.

 

    FMC Technologies, Inc.

 

    Oilfield Services Industry:

 

    Schlumberger N.V. (Schlumberger Limited)

 

    Halliburton Company

 

    Weatherford International public limited company

Although none of the selected companies are directly comparable to Baker Hughes or GE O&G, these companies were selected because Goldman Sachs deemed them comparable, based on its experience and professional judgment, to Baker Hughes and GE O&G, considering among other reasons, they have certain operational and financial characteristics, which, for purposes of its analyses, Goldman Sachs considered to be similar to those of Baker Hughes and GE O&G.

 

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Using median estimates from Institutional Brokers’ Estimate System (sometimes referred to as “IBES”), Goldman Sachs calculated enterprise value (sometimes referred to as “EV”) (calculated as the market capitalization, taking into account in-the-money options and other equity awards and convertible securities) plus the book value of debt and preferred equity, less cash and cash equivalents and short-term investments, plus book value of minority interests) for each of the selected companies as of October 28, 2016, as a multiple of such company’s estimated earnings before interest, taxes, depreciation and amortization (sometimes referred to as “EBITDA”), which is referred to below as “EV/ EBITDA,” for 2016E through 2019E, using IBES estimates. Goldman Sachs also calculated EV/EBITDA for 2016E through 2019E for Baker Hughes as of October 26, 2016 (one trading day prior to the public news reports that Baker Hughes was engaged in discussions with GE regarding a potential transaction), which is referred to as the “undisturbed date,” using estimates from IBES and as of October 28, 2016 (the last trading day prior to public announcement of the Transaction Agreement) using the Baker Hughes Forecasts. The results of this analysis are shown in the table below.

 

EV/EBITDA

 
     2016E      2017E      2018E      2019E  

Oilfield Equipment Industry

           

National Oilwell Varco Inc.

     55.3x        26.1x        12.0x        7.9x  

FMC Technologies, Inc.

     13.7x        13.5x        11.3x        9.6x  

Median

     34.5x        19.8x        11.7x        8.7x  

Oilfield Services Industry

           

Schlumberger N.V. (Schlumberger    Limited)

     19.0x        15.6x        11.1x        8.7x  

Halliburton Company

     24.0x        15.2x        9.2x        7.0x  

Weatherford International public limited company

     39.7x        14.0x        8.2x        5.8x  

Baker Hughes—IBES

     55.1x        17.8x        10.5x        7.3x  

Median

     31.9x        15.4x        9.8x        7.1x  

Baker Hughes

           

Baker Hughes (undisturbed date)—IBES

     51.9x        16.6x        9.7x        6.8x  

Baker Hughes Forecasts

     51.2x        15.2x        10.1x        7.7x  

Using its experience and professional judgment, Goldman Sachs made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of each of Baker Hughes and GE O&G and the selected companies and selected a reference range of multiples of estimated 2018 EV/EBITDA of 8.2x to 10.3x for Baker Hughes and of 10.2x to 12.2x for GE O&G as shown in the table below. Using the estimates of 2018 EBITDA for Baker Hughes from IBES and the reference range of 2018 EV/EBITDA of 8.2x to 10.3x for Baker Hughes, Goldman Sachs calculated an implied equity value of approximately $20 billion to $25 billion for Baker Hughes. Using the estimates of 2018 EBITDA for GE O&G from the Baker Hughes Forecasts for GE O&G and the reference range of 2018 EV/EBITDA of 10.2x to 12.2x for GE O&G, Goldman Sachs calculated an implied equity value of approximately $25 billion to $30 billion for GE O&G. Using the Baker Hughes Forecasts, estimates for Baker Hughes from IBES and the Baker Hughes Forecasts for GE O&G, Goldman Sachs then calculated the additional reference ranges of implied EV/EBITDA multiples for 2016E through 2019E shown in the table below.

 

IMPLIED ESTIMATED EV/EBITDA REFERENCE RANGES

Year

   Baker Hughes
Forecasts
   Baker Hughes
IBES
   Baker Hughes
Forecasts for
GE O&G

2016E

   40.3x – 50.5x    43.4x – 54.4x    11.6x – 13.9x

2017E

   11.9x –15.0x    14.0x – 17.6x    13.0x –15.5x

2018E

   7.9x – 10.0x    8.2x – 10.3x    10.2x –12.2x

2019E

   6.0x – 7.6x    5.8x – 7.2x    8.7x – 10.3x

 

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Illustrative Discounted Cash Flow Analysis

Using the Baker Hughes Forecasts and the Baker Hughes Forecasts for GE O&G, Goldman Sachs performed an illustrative discounted cash flow analysis on each of Baker Hughes and GE O&G on a standalone basis and an illustrative discounted cash flow analysis on New Baker Hughes on a pro forma basis assuming consummation of the Transactions.

Baker Hughes Standalone

Using the Baker Hughes Forecasts, financial information from Capital IQ and market data, Goldman Sachs performed an illustrative discounted cash flow analysis on a standalone basis to generate ranges for the implied present value per share of Baker Hughes common stock. Using discount rates ranging from 9.0% to 11.0%, reflecting estimates of the weighted average cost of capital of Baker Hughes, Goldman Sachs discounted to present values, as of September 30, 2016, estimates of Baker Hughes’ Free Cash Flows (as defined and set forth in the Baker Hughes Forecasts) for the period September 30, 2016 to December 31, 2020, assuming mid-year convention and illustrative terminal values using perpetuity growth rates ranging from 2.0% to 4.0%. The range of perpetuity growth rates was estimated by Goldman Sachs using its professional judgment and experience and taking into account market expectations regarding long-term real growth of gross domestic product and inflation. Goldman Sachs then calculated the implied value per share of Baker Hughes common stock by dividing the equity value by the number of fully diluted outstanding shares of Baker Hughes according to the Baker Hughes Forecasts. This analysis indicated a range of equity values of $17.8 billion to $29.4 billion and an illustrative range of present values of $41.66 to $68.47 per share of Baker Hughes common stock.

GE O&G Standalone

Goldman Sachs also performed an illustrative discounted cash flow analysis of GE O&G on a standalone basis using the Baker Hughes Forecasts for GE O&G, financial information from Capital IQ and market data to generate reference ranges for the equity value of GE O&G. Using discount rates ranging from 8.0% to 10.0%, reflecting estimates of the weighted average cost of capital of GE O&G, Goldman Sachs calculated an illustrative range of implied equity values for GE O&G by discounting to present values, as of September 30, 2016, estimates of GE O&G’s Free Cash Flows (as defined and set forth in the Baker Hughes Forecasts for GE O&G) for the period October 1, 2017 to December 31, 2020, assuming a mid-year convention and terminal values using perpetuity growth rates ranging from 2.0% to 4.0%. The range of perpetuity growth rates was estimated by Goldman Sachs using its professional judgment and experience and taking into account market expectations regarding long-term real growth of gross domestic product and inflation. This analysis indicated an illustrative range of equity values of $17.8 billion to $34.2 billion for GE O&G.

New Baker Hughes Pro forma Assuming Closing

Using the New Baker Hughes Forecasts, Goldman generated reference ranges for the implied value per share of Baker Hughes common stock following Closing. Using discount rates ranging from 8.0% to 10.0%, reflecting estimates of the pro forma weighted average cost of capital of New Baker Hughes, Goldman Sachs calculated an illustrative range of implied enterprise values for New Baker Hughes by discounting to present values, as of September 30, 2016, estimates of New Baker Hughes Free Cash Flows for the period September 30, 2016 to December 31, 2020, excluding GE O&G Free Cash Flows generated during the period beginning September 30, 2016 and ending September 30, 2017, assuming a mid-year convention and terminal values using perpetuity growth rates ranging from 2.0% to 4.0%. The range of perpetuity growth rates was estimated by Goldman Sachs using its professional judgment and experience and taking into account market expectations regarding long-term real growth of gross domestic product and inflation. This analysis indicated an illustrative range of present values of $52.31 to $81.06 per share of Baker Hughes common stock excluding the Baker Hughes Synergies, and a range of $60.59 to $97.24 per share of Baker Hughes common stock including the Baker Hughes Synergies.

 

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Relative Contribution Analysis

Goldman Sachs analyzed the implied equity value contribution of Baker Hughes and GE O&G to New Baker Hughes, excluding the Baker Hughes Synergies, using actual and estimated financial metrics, including public trading values, discounted cash flow, EBITDA and EBITDA minus capital expenditures, which is referred to as EBITDA minus capital expenditures, using the Baker Hughes Forecasts, the Baker Hughes Forecasts for GE O&G, the GE O&G balance sheet and the Baker Hughes balance sheet. The analyses were conducted assuming payment of the Special Dividend.

To calculate the implied equity value contribution of Baker Hughes and GE O&G to New Baker Hughes using public trading values, Goldman Sachs used the illustrative equity value ranges of $20.0 billion to $25.0 billion for Baker Hughes and $25.0 billion to $30.0 billion for GE O&G, in each case, derived as described above in “Opinion of Baker Hughes’ Financial Advisors—Comparative Current Public Trading Valuations.” Goldman Sachs also derived the implied equity contribution using discounted cash flow, using an illustrative mid-point estimated weighted average cost of capital of 10.0% for Baker Hughes and 9.0% for GE O&G. The following table presents the results of these analyses.

 

Metric

   Baker Hughes Equity
Value Contribution to New
Baker Hughes
(%)
     GE O&G Equity Value
Contribution
to New Baker Hughes
(%)
 

Public Trading Value

     25.0 – 35.0        65.0 – 75.0  

Discounted Cash Flow

     26.8 – 37.7        62.3 – 73.2  

Goldman Sachs also calculated the implied equity contribution using EBITDA and EBITDA minus capital expenditures for estimated years 2016, 2017, 2018 and 2019. The following table presents the results of these analyses:

 

Metric

   Baker Hughes Equity
Value Contribution to New
Baker Hughes
(%)
     GE O&G Equity Value
Contribution

to New Baker Hughes
(%)
 

EBITDA

     

2016E

     12.9        87.1  

2017E

     32.7        67.3  

2018E

     35.7        64.3  

2019E

     37.7        62.3  

EBITDA – Capital Expenditures

     

2016E

     6.2        93.8  

2017E

     29.2        70.8  

2018E

     33.0        67.0  

2019E

     35.0        65.0  

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company used in the above analyses as a comparison is directly comparable to either Baker Hughes or GE O&G.

Goldman Sachs prepared these analyses for purposes of providing its opinion to the Baker Hughes board of directors to the effect that, as of October 30, 2016, the date of its written opinion, and based upon and subject to

 

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the factors and assumptions therein, the Merger Consideration together with the Special Dividend to be paid to holders of Baker Hughes common stock (other than GE and its affiliates) pursuant to the Transaction Agreement was fair from a financial point of view to such holders. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Baker Hughes, GE, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecasted.

The Merger Consideration and the Special Dividend to be paid to holders of Baker Hughes common stock were determined through arm’s-length negotiations between Baker Hughes and GE and were approved by the Baker Hughes board of directors. Goldman Sachs did not recommend any specific amount of consideration to Baker Hughes or the Baker Hughes board of directors or that any specific amount of consideration constituted the only appropriate consideration for the Transactions.

Goldman Sachs’ opinion to the Baker Hughes board of directors was one of many factors taken into consideration by the Baker Hughes board of directors in making its determination to approve the Transactions. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex I to this combined proxy statement/prospectus.

Goldman Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests, or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of Baker Hughes, GE, any of their respective affiliates and third parties, or any currency or commodity that may be involved in the Transactions. Goldman Sachs acted as financial advisor to Baker Hughes in connection with, and participated in certain of the negotiations leading to, the Transactions. Goldman Sachs expects to receive fees for its services in connection with the Transactions, the principal portion of which is contingent upon Closing, and Baker Hughes has agreed to reimburse certain of Goldman Sachs’ expenses arising, and indemnify Goldman Sachs against certain liabilities that may arise, out of its engagement. Goldman Sachs has provided certain financial advisory and/or underwriting services to Baker Hughes and/or its affiliates from time to time for which the Investment Banking Division of Goldman Sachs has received and may receive, compensation, including having acted as financial advisor to Baker Hughes in connection with the announced sale of Baker Hughes to Halliburton Company in November 2014 (withdrawn April 2016). During the two-year period ended October 30, 2016, Goldman Sachs received compensation for financial advisory and/or underwriting services provided by its Investment Banking Division to Baker Hughes and/or its affiliates of approximately $27.7 million. Goldman Sachs has also provided certain financial advisory and/or underwriting services to GE and/or its affiliates from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, including having, during the two-year period ended October 30, 2016, acted as joint bookrunner in connection with a public offering by GE Capital Corporation (sometimes referred to as “GE Capital”), an affiliate of GE, of its Floating Rate Senior Notes due 2020, Floating Rate Senior Notes due 2017, and 2.200% Guaranteed Global Notes due 2020 (total aggregate principal amount $500 million) in January 2015; as financial advisor to GE Capital in connection with the acquisition by GE Capital Aviation Services Inc., a subsidiary of GE Capital, of The Milestone Aviation Group LLC in January 2015; as financial advisor to GE Energy Financial Services Inc. (“GE Energy Financial”), a subsidiary of GE, in connection with its acquisition of a 49% stake in EGPNA Renewable Energy Partners LLC in March 2015; as financial advisor to GE Energy Financial in connection with its divestiture of its stake in Linden Cogen Holdings LLC in September 2015; as financial advisor to GE Capital in connection with its split-off of its 84.6% interest in Synchrony Financial in November 2015; as financial advisor

 

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to GE Capital in connection with its divestiture of its transportation finance business in December 2015; as financial advisor to GE in connection with its divestiture of its embedded technology and systems business in December 2015; as financial advisor to GE in connection with its divestiture of its meters business in December 2015; as financial advisor to GE Capital in connection with its divestiture of its 23.3% stake in Hyundai Capital Services in January 2016; as financial advisor to GE Capital in connection with its divestiture of its commercial lending and leasing business in March 2016; as joint bookrunner with respect to an initial public offering of 293,711,565 shares of MONETA Money Bank by GE Capital EMEA Limited, a subsidiary of GE, in May 2016; as financial advisor to GE in connection with its divestiture of its appliance business in June 2016; as financial advisor to GE in connection with its announced acquisition of SLM Solutions Group AG in September 2016; and as joint bookrunner in connection with a secondary public offering of 125,000,000 shares of MONETA Money Bank by GE Capital EMEA Limited in September 2016. During the two-year period ended October 30, 2016, Goldman Sachs received compensation for financial advisory and or underwriting services provided by its Investment Banking Division to GE and/or its affiliates of approximately $118.3 million. Goldman Sachs may also in the future provide financial advisor and/or underwriting services to Baker Hughes, GE, New Baker Hughes, Newco LLC and their respective affiliates for which the Investment Banking Division of Goldman Sachs may receive compensation.

On September 16, 2016, Baker Hughes board of directors selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the Transactions. Pursuant to a letter agreement, dated October 28, 2016, Baker Hughes formally engaged Goldman Sachs to act as its financial advisor in connection with the Transactions. The engagement letter between Baker Hughes and Goldman Sachs provides for compensation to be paid to Goldman Sachs that is estimated, based on information available as of May 23, 2017 at approximately $39 million, as it may be reduced in accordance with the terms of such engagement letter, and will be calculated based on the five trading days prior per the engagement letter. Upon the public announcement of the Transaction Agreement, Baker Hughes paid Goldman Sachs $5 million of the compensation and the remainder is payable upon Closing. The amount of compensation to be paid to Goldman Sachs upon Closing depends on the implied per share value of the Merger Consideration to be paid to holders of Baker Hughes common stock pursuant to the Transaction Agreement. In addition, Baker Hughes has agreed to reimburse Goldman Sachs for certain of its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.

Accounting Treatment

The Transactions will be accounted for as a business combination in accordance with GAAP, with GE O&G treated as the “acquirer” and Baker Hughes treated as the “acquired” company for financial reporting purposes. Accordingly, the assets and liabilities of Baker Hughes will be recorded, as of the completion of the Transactions, at their respective fair values, with the excess of purchase price over the fair value of the identifiable net assets recorded as goodwill. The reported financial condition and results of operations of New Baker Hughes issued after completion of the Transactions will only reflect the assets, liabilities and results of operations of GE O&G (as the predecessor to New Baker Hughes) through the date of the Transactions. The assets, liabilities and results of operations of Baker Hughes (including the impact of purchase accounting, which will result in increased amortization and depreciation expense for acquired assets, among other impacts) will only be reflected from the date of the Transactions. New Baker Hughes’ assets, liabilities and results of operations will not be restated retroactively to reflect the historical financial position or results of operations of Baker Hughes.

Regulatory Matters Relating to the Transactions

Under the terms of the Transaction Agreement, the Transactions cannot be completed until the waiting period applicable to the consummation of the Transactions under the HSR Act has expired or been terminated and all other specified required approvals have been obtained or any applicable waiting period thereunder has expired or been terminated.

 

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Under the HSR Act and the rules promulgated thereunder by the FTC, the Transactions cannot be completed until each of GE and Baker Hughes has filed a notification and report form with the FTC and the Antitrust Division of the DOJ under the HSR Act and the applicable waiting period has expired or been terminated. Each of GE and Baker Hughes filed an initial notification and report on February 2, 2017. On March 6, 2017, the DOJ issued a request for additional information under the HSR Act.

At any time before or after consummation of the Transactions, notwithstanding the termination of the waiting period under the HSR Act, the Antitrust Division of the DOJ or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest including seeking to enjoin the completion of the Transactions or seeking divestiture of substantial assets of GE or Baker Hughes. At any time before or after the completion of the Transactions, and notwithstanding the termination of the waiting period under the HSR Act, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the Transactions or seeking divestiture of substantial assets of GE and Baker Hughes. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

The Transaction Agreement provides that the Transactions are subject to approval by government authorities in other jurisdictions under the antitrust/competition and foreign investment laws of those jurisdictions. Under the Transaction Agreement, the parties’ obligations to complete the Transactions are conditioned on the receipt or making, as the case may be, of all antitrust/competition or foreign investment law approvals or filings required by the laws of the United States, the European Union, Australia, Brazil, Canada, China, Colombia, Ecuador, India, Israel, Kazakhstan, Kenya, Mexico, Pakistan, Russia, Saudi Arabia, Serbia, South Africa and Turkey, to the extent filings are required in any or all of these jurisdictions. In addition, the parties’ obligations to complete the Transactions are also conditioned on (i) the expiration of any other waiting or other time periods, and the receipt of any additional regulatory clearances which, to avoid significant adverse effects, GE reasonably determines to be required as a result of a material change in fact or law, subject to Baker Hughes’ consent, which consent may not be unreasonably withheld, or as otherwise agreed by GE and Baker Hughes, and (ii) submitted antitrust/competition filings in all of the jurisdictions listed above.

There can be no assurance that all of the regulatory approvals described above will be sought or obtained and, if obtained, there can be no assurance as to the timing of any approvals, the ability of GE or Baker Hughes to obtain the approvals on satisfactory terms (including without exceeding the detriment limit (as described below)) or the absence of any litigation challenging such approvals. There can also be no assurance that the DOJ, the FTC or any other governmental entity or any private party will not attempt to challenge the Transactions on antitrust grounds and, if such a challenge is made, there can be no assurance as to the result.

Under the terms of the Transaction Agreement, each of GE and Baker Hughes has agreed to cooperate and use its reasonable best efforts to take or cause to be taken all actions that are necessary, proper or advisable to consummate and make effective the Transactions contemplated by the Transaction Agreement as promptly as practicable, including:

 

    use its reasonable best efforts to satisfy the conditions to Closing;

 

    use its reasonable best efforts to obtain all necessary actions or nonactions, waivers, authorizations, expirations or terminations of waiting periods, clearances, consents and approvals from governmental entities and the making of all necessary registrations and filings and the taking of all steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by any governmental entity;

 

    use its reasonable best efforts to obtain all necessary consents, approvals or waivers from third parties;

 

    use its reasonable best efforts to defend any lawsuits or other legal proceedings, whether judicial or administrative, challenging the Transaction Agreement or the consummation of the Transactions contemplated thereby;

 

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    make its respective required filings (and filings considered by GE to be advisable after consulting with, and considering in good faith the views of, Baker Hughes) under the HSR Act, the EC Merger Regulation and any other regulatory laws, and thereafter promptly make any other required submissions under the HSR Act or other such laws;

 

    use its reasonable best efforts to respond to and comply as promptly as GE deems advisable with and expeditiously achieve substantial compliance with any request for information regarding the Transactions or any such filings for any governmental entity charged with enforcing, applying, administering, or investigating any regulatory law;

 

    promptly notify the other party of any communication concerning the Transactions from any governmental entity (subject to appropriate confidentiality agreements);

 

    use its reasonable best efforts to cooperate with the other party to determine the required regulatory filings and timely make such filings;

 

    consult with the other party before agreeing to participate in a meeting with any governmental entity relating to any filings or investigations concerning the Transaction Agreement and invite the other party to attend such meetings (subject to appropriate confidentiality agreements and provided that GE and its representatives are permitted to meet with governmental entities regarding the sale of a GE business if such sale is not required by the governmental entity as a potential remedy and the consent or waiver of Baker Hughes is sought);

 

    promptly furnish the other party with drafts of any submission to a governmental entity and provide any necessary information and reasonable assistance as may be requested in connection with the preparation of necessary filings (subject to appropriate confidentiality agreements); and

 

    deliver to the other party’s outside counsel complete copies of all documents provided to any governmental entity as part of any filing (subject to appropriate confidentiality agreements).

GE has agreed to take any action, including with respect to any request that certain assets, businesses or product lines be divested or held separate or subject to conduct remedies, limitations or other actions, as may be necessary to resolve such objections, if any, that the FTC, the DOJ, the European Commission, state antitrust enforcement authorities or competition authorities of any other nation or other jurisdiction, may assert in connection with obtaining antitrust clearance for the Transactions so as to enable Closing to occur as soon as reasonably possible, and, in any event, no later than the outside date (initially January 30, 2018, but subject to extension as described in “The Transaction Agreement—Termination and Termination Fees” beginning on page 146 of this combined proxy statement/prospectus). GE, however, is not required (although it could so choose) to divest or hold separate, or agree to any conduct, remedy or similar antitrust action regarding any assets, businesses or product lines if such assets, businesses or product lines accounted for, in the aggregate, more than the detriment limit of $200 million of revenue for the twelve months ended December 31, 2015, except that any divestiture or other antitrust action in respect of certain specified businesses is not subject to or included in the calculation of the detriment limit. If reaching agreement with the antitrust authorities would require GE to divest or take other action regarding such specified assets, businesses or product lines in excess of the detriment limit, GE has the option to either divest or take other action with respect to the larger amount or continue to attempt to obtain approval of the antitrust authorities until the outside date. In addition, GE would be required to pay Baker Hughes an antitrust termination fee of $1.3 billion if the Transaction Agreement is terminated by:

 

    either party as a result of the failure of the Transactions to occur on or before the outside date (as it may be extended) due to the failure to achieve certain specified antitrust and regulatory approvals if all other closing conditions have been satisfied (other than any such conditions that by their nature cannot be satisfied until the Closing Date but subject to such conditions being capable of being satisfied if the Closing Date were the date);

 

    either party as a result of any antitrust or regulatory-related final, non-appealable order or injunction that temporarily or permanently prohibits Closing from occurring; or

 

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    Baker Hughes as a result of GE’s material breach of its obligations to obtain regulatory approvals such that the antitrust/regulatory-related condition to Closing is incapable of being satisfied.

GE is entitled to direct the defense to any antitrust investigation or litigation, but must consult with and consider in good faith the view of Baker Hughes. GE has the right to litigate or appeal any proposed antitrust remedial action. However, if such proceedings conclude prior to the outside date with an order restricting the Transactions, or if no order has been issued in such proceedings prior to the outside date, then GE must take such actions as are necessary to achieve antitrust approval prior to the outside date, except that GE is not required to take any action that would exceed the detriment limit. Baker Hughes is required to take any actions requested by GE to obtain any required regulatory clearances, but Baker Hughes is not required to agree to any divestitures or other remedy unless conditioned on the Transactions closing.

Baker Hughes currently intends to submit the proposals in respect of the Transactions to its stockholders at a special meeting noted above in “Information About the Special Meeting and Voting” beginning on page 65 of this combined proxy statement/prospectus. It is possible that a governmental entity will not have approved the Transactions by the date of such special meeting, which could delay or prevent completion of the Transactions for a significant period of time after Baker Hughes stockholders have approved the proposals relating to the Transactions. Any delay in the completion of the Transactions could diminish the anticipated benefits of the Transactions or result in additional transaction costs, loss of revenue or other effects associated with uncertainty surrounding the Transactions. In addition, it is possible that, among other things, a governmental entity could condition its approval of the Transactions upon GE and Baker Hughes entering into an agreement to divest businesses or assets, or could restrict the operations of New Baker Hughes in accordance with specified business conduct rules. See “Risk Factors” beginning on page 44 of this combined proxy statement/prospectus. A governmental entity also could impose significant additional costs on New Baker Hughes. Acceptance of any such conditions could diminish the benefits of the Transactions to New Baker Hughes and result in additional costs, loss of revenue or other effects. Alternatively, rejection of such conditions could result in GE and Baker Hughes litigating with a governmental entity, which could delay the Transactions or cause the Transactions to be abandoned.

No additional stockholder approval is expected to be required for any decision by Baker Hughes after the special meeting is held relating to any divestitures or other terms and conditions necessary to resolve any regulatory objections to the Transactions and possibly to proceed with consummation of the Transactions.

As more fully described in “The Transaction Agreement—Termination and Termination Fees” beginning on page 146 of this combined proxy statement/prospectus, the Transaction Agreement may be terminated by GE or Baker Hughes if the Transactions are not consummated on or before the outside date, and the party seeking to terminate the Transaction Agreement has not breached its obligations under the Transaction Agreement that proximately caused the failure of the Transactions to be completed on or before the outside date, except that if the only antitrust/competition or other regulatory conditions under the Transaction Agreement that have not been satisfied by such date are those relating to approvals under certain specified foreign investment laws and/or absence of injunctions under such laws, either GE or Baker Hughes may unilaterally extend the outside date on one or more occasions until no later than April 30, 2018.

Litigation Relating to the Transactions

On May 10, 2017, a putative class action complaint challenging the Transactions was filed on behalf of purported Baker Hughes stockholders in the U.S. District Court for the Southern District of Texas. The complaint is captioned Booth Family Trust v. Baker Hughes Inc., et al., Civil Action No. 4:17-cv-01457 (S.D. Tex. 2017). The complaint asserts, among other things, claims under Sections 14(a) and 20(a) of the Exchange Act against Baker Hughes and the members of its board of directors and challenges the adequacy of the disclosures made in the version of this combined proxy statement/prospectus filed on May 9, 2017. In addition to certain unspecified damages and reimbursement of costs, the plaintiff seeks to enjoin the consummation of the Transactions, or in

 

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the event the Transactions are consummated, to rescind the Transactions or to obtain rescissory damages. The defendants believe that the claims asserted against them in the lawsuit are without merit and intend to defend vigorously against all claims asserted.

Appraisal Rights

In connection with the Transactions, record holders of Baker Hughes common stock who comply with the procedures summarized below will be entitled to appraisal rights if the Transactions are completed. Under Section 262 of the DGCL, as a result of completion of the Transactions, holders of shares of Baker Hughes common stock, with respect to which appraisal rights are properly demanded and perfected and not withdrawn or lost, are entitled, in lieu of receiving the Merger Consideration and the Special Dividend, to have the “fair value” of their shares at Closing (exclusive of any element of value arising from the accomplishment or expectation of the Transactions), judicially determined and paid to them in cash by complying with the provisions of Section 262 of the DGCL. Baker Hughes is required to send a notice to that effect to each stockholder not less than 20 days prior to the special meeting. This combined proxy statement/prospectus constitutes that notice to you.

The following is a brief summary of Section 262 of the DGCL, which sets forth the procedures for demanding and perfecting statutory appraisal rights. This summary is qualified in its entirety by reference to Section 262 of the DGCL, a copy of the text of which is attached to this combined proxy statement/prospectus as Annex K. The following summary does not constitute any legal or other advice nor does it constitute a recommendation that stockholders exercise their appraisal rights under Section 262 of the DGCL.

A stockholder who desires to exercise appraisal rights must (i) not vote in favor of the adoption of the Transaction Agreement and thereby approve the Transactions, (ii) deliver in the manner set forth below a written demand for appraisal of the stockholder’s shares to the Corporate Secretary of Baker Hughes before the vote on the adoption of the Transaction Agreement at the special meeting at which the proposal to adopt the Transaction Agreement will be submitted to Baker Hughes’ stockholders, (iii) continuously hold the shares of record from the date of making the demand through the Closing Date, and (iv) otherwise comply with the requirements of Section 262 of the DGCL. Within ten days after Closing, the surviving corporation must provide notice of the effective time to all stockholders who have complied with Section 262 of the DGCL and not voted in favor of the Transactions.

Only a holder of record of Baker Hughes common stock is entitled to demand an appraisal of the shares registered in that holder’s name. If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, such demand must be executed by or for the fiduciary. If shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand must be executed by or for all joint owners. An authorized agent, including an agent of two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner and expressly disclose that, in exercising the demand, the agent is acting as agent for the record owner.

A record owner, such as a broker, who holds shares as a nominee for others may exercise appraisal rights with respect to the shares held for all or less than all beneficial owners of shares as to which the holder is the record owner. In that case, the written demand must set forth the number of shares covered by the demand. Where the number of shares is not expressly stated, the demand will be presumed to cover all shares outstanding in the name of the record owner.

Beneficial owners who are not record owners and who intend to exercise appraisal rights must act promptly to cause the record holder to follow the steps summarized herein properly and in a timely manner to perfect appraisal rights. Shares held through brokerage firms, banks and other financial institutions are frequently deposited with and held of record in the name of a nominee of a central security depositary. Any holder of shares desiring to demand and perfect appraisal rights with respect to such shares who holds such shares through a

 

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brokerage firm, bank or other financial institution is responsible for ensuring that the demand for appraisal is made by the record holder. The stockholder must instruct such firm, bank or institution that the demand for appraisal must be made by the record holder of the shares, which might be the nominee of a central security depositary if the shares have been so deposited.

As required by Section 262 of the DGCL, a demand for appraisal must be in writing and must reasonably inform Baker Hughes of the identity of the record holder (which might be a nominee as described above) and of such holder’s intention to seek appraisal of such shares.

Stockholders of record who elect to demand appraisal of their shares must mail or deliver their written demand to: Baker Hughes Incorporated, 17021 Aldine Westfield Road, Houston, Texas 77073, Attention: Corporate Secretary. The written demand must be delivered to Baker Hughes prior to the taking of the vote on the Transactions by the stockholders of Baker Hughes. Neither voting (in person or by proxy) against, abstaining from voting on or failing to vote on the proposal to adopt the Transaction Agreement will alone suffice to constitute a written demand for appraisal within the meaning of Section 262 of the DGCL. In addition, the stockholder seeking to demand appraisal must not vote its shares of stock in favor of adoption of the Transaction Agreement. Because a proxy that does not contain voting instructions will, unless revoked, be voted in favor of adoption of the Transaction Agreement, it will constitute a waiver of the stockholder’s right of appraisal and will nullify any previously delivered written demand for appraisal. Therefore, a stockholder who wishes to exercise appraisal rights must, in addition to demanding and perfecting its appraisal rights in accordance with Section 262 of the DGCL, vote against the adoption of the Transaction Agreement, abstain from voting on the adoption of the Transaction Agreement or refrain from executing and submitting the enclosed proxy card.

Within 120 days after Closing, but not thereafter, either the surviving corporation following the Transactions, or any stockholder who has timely and properly demanded appraisal of such stockholder’s shares and who has complied with the requirements of Section 262 of the DGCL and is otherwise entitled to appraisal rights may commence an appraisal proceeding by filing a petition in the Delaware Court of Chancery, with a copy served on the surviving corporation in the case of a petition filed by a stockholder, demanding a determination of the fair value of the shares of all stockholders who have properly demanded appraisal.

There is no present intent on the part of the surviving corporation to file an appraisal petition and stockholders seeking to exercise appraisal rights should not assume that the surviving corporation will file such a petition or that the surviving corporation will initiate any negotiations with respect to the fair value of such shares. Accordingly, stockholders who desire to have their shares appraised should initiate any petitions necessary for the perfection of their appraisal rights within the time periods and in the manner prescribed in Section 262 of the DGCL. Within 120 days after Closing, any stockholder who has theretofore complied with the applicable provisions of Section 262 of the DGCL will be entitled, upon written request, to receive from the surviving corporation a statement setting forth the aggregate number of shares of common stock not voting in favor of the Transactions, and with respect to which demands for appraisal were received by the surviving corporation and the number of holders of such shares. A person who is the beneficial owner of shares held in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition or request from the corporation the statement described in the previous sentence. Such statement must be mailed within ten days after the written request therefor has been received by the surviving corporation.

If a petition for an appraisal is timely filed, at the hearing on such petition, the Delaware Court of Chancery will determine which stockholders are entitled to appraisal rights. The Delaware Court of Chancery may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Delaware Court of Chancery may dismiss the proceedings as to such stockholder. Given that Baker Hughes common stock is listed on NYSE and will be so listed immediately before Closing, the Delaware Court of Chancery is required to dismiss the appraisal proceedings as to all holders of Baker Hughes common stock who are otherwise entitled to

 

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appraisal rights unless either (i) the total number of shares entitled to appraisal exceeds 1% of the outstanding shares of Baker Hughes common stock eligible for appraisal or (ii) the value of the consideration provided in the Transactions for the total number of shares entitled to appraisal exceeds $1 million. Where proceedings are not dismissed, the appraisal proceeding shall be conducted, as to the shares of common stock owned by such stockholders, in accordance with the rules of the Delaware Court of Chancery, including any rules specifically governing appraisal proceedings.

After a hearing on such petition, the Delaware Court of Chancery will determine which stockholders are entitled to appraisal rights and thereafter will appraise the shares owned by those stockholders, determining the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the Transactions, together with interest to be paid, if any, upon the amount determined to be the fair value. Section 262 of the DGCL provides that, unless the Delaware Court of Chancery in its discretion determines otherwise for good cause shown, interest on an appraisal award, from Closing through the date of payment of the judgment, shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharges) as established from time to time during the period between Closing and the date of payment of the judgment. At any time before the entry of judgment in an appraisal proceeding, the surviving corporation of the merger may pay to each stockholder entitled to appraisal an amount in cash, in which case interest shall accrue thereafter as provided in Section 262 of the DGCL only upon the sum of (i) the difference, if any, between the amount so paid and the fair value of the shares as determined by the Delaware Court of Chancery, and (ii) interest theretofore accrued, unless paid at that time.

In determining fair value, the Delaware Court of Chancery is required to take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court stated that in making this determination of fair value the court must consider “market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts which were known or which could be ascertained as of the date of merger and which throw any light on future prospects of the merged corporation.” Section 262 of the DGCL provides that fair value is to be determined “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. The Delaware Supreme Court, in Weinberger v. UOP, Inc., construed Section 262 of the DGCL to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

Stockholders considering seeking appraisal should bear in mind that the fair value of their shares determined by the Delaware Court of Chancery under Section 262 of the DGCL could be more than, the same as, or less than the Merger Consideration and the Special Dividend they are entitled to receive pursuant to the Transaction Agreement if they do not seek appraisal of their shares, and that opinions of investment banking firms as to the fairness from a financial point of view of the consideration payable in a transaction are not opinions as to, and do not address, fair value under Section 262 of the DGCL. Neither GE nor Baker Hughes anticipates offering more than the applicable Merger Consideration and Special Dividend to any Baker Hughes stockholder exercising appraisal rights, and reserve the right to assert, in any appraisal proceeding, that for purposes of Section 262 of the DGCL, the “fair value” of a share of Baker Hughes common stock is less than the applicable Merger Consideration and Special Dividend.

The cost of the appraisal proceeding may be determined by the Delaware Court of Chancery and charged upon the parties as the Delaware Court of Chancery deems equitable in the circumstances. However, costs do not include attorneys’ and expert witness fees. Each dissenting stockholder is responsible for his or her attorneys’

 

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and expert witness fees, although upon application of a stockholder seeking appraisal rights, the Delaware Court of Chancery may order that all or a portion of the expenses incurred by such stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, be charged pro rata against the value of all shares entitled to appraisal. In the absence of such a determination of assessment, each party bears its own expenses.

Any stockholder who has duly demanded appraisal in compliance with Section 262 of the DGCL will not, after Closing, be entitled to vote for any purpose any shares subject to such demand or to receive payment of dividends or other distributions on such shares, except for dividends or distributions payable to stockholders of record at a date prior to Closing.

At any time within 60 days after Closing, any stockholder who has demanded appraisal and who has not commenced an appraisal proceeding or joined that proceeding as a named party, shall have the right to withdraw such stockholder’s demand for appraisal and to accept the Special Dividend and Class A Common Stock as provided for in the Transaction Agreement by delivering to the surviving corporation a written withdrawal of such stockholder’s demand for appraisal and acceptance of the Merger Consideration and Special Dividend. After this period, the stockholder may withdraw such stockholder’s demand for appraisal only with the consent of the surviving corporation. If no petition for appraisal is filed with the Delaware Court of Chancery within 120 days after Closing, all stockholders’ rights to appraisal shall cease and all stockholders shall be entitled only to receive the Merger Consideration and Special Dividend as provided for in the Transaction Agreement. Inasmuch as the parties to the Transaction Agreement have no obligation to file such a petition, and have no present intention to do so, any stockholder who desires that such petition be filed must file it on a timely basis. No appraisal proceeding in the Delaware Court of Chancery shall be dismissed as to any stockholders without the approval of the Delaware Court of Chancery, and that approval may be conditioned upon such terms as the Delaware Court of Chancery deems just. However, the preceding sentence will not affect the right of any stockholder who has not commenced an appraisal proceeding or joined the proceeding as a named party to withdraw such stockholder’s demand for appraisal and to accept the terms offered in the Transactions, within 60 days after Closing.

The foregoing is a brief summary of Section 262 of the DGCL that sets forth the procedures for demanding statutory appraisal rights. This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Section 262 of the DGCL, a copy of the text of which is attached as Annex K to this combined proxy statement/prospectus.

A stockholder’s failure to comply with all the procedures set forth in Section 262 of the DGCL may result in the loss of such stockholder’s statutory appraisal rights. Consequently, if you wish to exercise your appraisal rights, you should consider consulting a legal advisor.

Federal Securities Laws Consequences; Stock Transfer Restrictions

The registration statement of which this combined proxy statement/prospectus is a part does not cover any resales of the Class A Common Stock to be received by the stockholders of Baker Hughes upon completion of the Transactions, and no person is authorized to make any use of this combined proxy statement/prospectus in connection with any such resale.

All shares of Class A Common Stock received by Baker Hughes stockholders pursuant to the Transactions will be freely transferable, except that shares of Class A Common Stock received by persons who are deemed to be “affiliates” of New Baker Hughes under the Securities Act may not be resold by such persons except to the extent permitted by Rule 144 under the Securities Act. Persons who may be deemed to be affiliates of New Baker Hughes for such purposes generally include individuals or entities that control, are controlled by or are under common control with, New Baker Hughes, as the case may be, and include directors and certain executive officers of New Baker Hughes.

 

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Stock Exchange Listing

Application will be made to list the shares of Class A Common Stock on NYSE. It is a condition to the Transactions that the shares of Class A Common Stock issuable pursuant to the Transactions be approved for listing on NYSE, subject only to official notice of issuance. Shares of Class A Common Stock are expected to be traded on NYSE under the symbol “BHGE” immediately following the completion of the Transactions. If the Transactions are completed, Baker Hughes common stock will cease to be listed on NYSE and its shares will be deregistered under the Exchange Act.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS

The following are the material U.S. federal income tax consequences of the Transactions to certain beneficial owners of Baker Hughes common stock. This discussion is based on the Code, applicable Treasury regulations, administrative interpretations and court decisions as in effect as of the date of this combined proxy statement/prospectus, all of which may change, possibly with retroactive effect.

This discussion assumes that you hold Baker Hughes common stock as a capital asset (generally, assets held for investment). It does not describe all of the tax consequences that may be relevant to you in light of your particular circumstances, including alternative minimum tax and Medicare contribution tax consequences, and tax consequences that may apply if you are a person subject to special rules, such as:

 

    a financial institution, regulated investment company or insurance company;

 

    a tax-exempt organization;

 

    a dealer or broker in securities, commodities or foreign currencies;

 

    a stockholder that exercises appraisal rights;

 

    a stockholder that holds Baker Hughes common stock as part of a hedge, appreciated financial position, straddle, conversion, or other risk reduction transaction;

 

    a stockholder whose functional currency is not the U.S. dollar;

 

    a stockholder that beneficially owns five percent or more of Baker Hughes common stock;

 

    a stockholder that holds Baker Hughes common stock in a tax-deferred account, such as an individual retirement account or a plan qualifying under Section 401(k) of the Code; or

 

    a stockholder that acquired Baker Hughes common stock pursuant to the exercise of compensatory options or otherwise as compensation.

If you are a partnership for U.S. federal income tax purposes, the U.S. federal income tax treatment of your partners will generally depend on the status of the partners and your activities. A partner in a partnership holding Baker Hughes common stock should consult its tax advisor regarding the tax consequences of the Transactions.

This discussion does not address any estate or gift or other non-income tax consequences or any state or local, or non-U.S. tax consequences of the Transactions. You should consult your tax advisor to determine the particular U.S. federal, state or local or non-U.S. income or other tax consequences of the Transactions to you.

U.S. Federal Income Tax Treatment of the Transactions

Subject to the discussion in the immediately succeeding paragraph, the discussions set forth in “U.S. Federal Income Tax Consequences to U.S. Holders” and “U.S. Federal Income Tax Consequences to Non-U.S. Holders” below represent the opinion of Davis Polk, counsel to Baker Hughes, as to the material U.S. federal income tax consequences of the Transactions to holders of Baker Hughes common stock.

Davis Polk’s opinion is based upon the Code, the Treasury Regulations thereunder, and administrative and judicial interpretations thereof, all as in effect on the date hereof. This opinion relies on (1) representations and covenants made by Baker Hughes and GE, including those contained in certificates of officers of Baker Hughes and GE, all of which Davis Polk has assumed to be true, and (2) certain other assumptions, including an assumption that the Transactions will be completed in the manner contemplated by the Transaction Agreement. The Code, Treasury Regulations, administrative and judicial interpretations and other authorities are subject to change at any time and, in some circumstances, with retroactive effect. Any change in any of the authorities upon

 

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which Davis Polk’s opinion is based, or any change in any facts from those set forth or assumed for purposes of the opinion, could affect the validity of the opinion, and the tax consequences of the Transactions could differ from those described herein. Consummation of the Transactions is not conditioned on the continued validity of the opinion. Furthermore, no assurance can be given that the Internal Revenue Service will agree with the opinion or that, if the Internal Revenue Service were to take a contrary position, such position ultimately would not be sustained by the courts.

U.S. Federal Income Tax Consequences to U.S. Holders

This section applies to you if you are a U.S. Holder. You are a U.S. Holder if for U.S. federal income tax purposes you are a beneficial owner of Baker Hughes common stock that is:

 

    a citizen or individual resident of the United States;

 

    a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or

 

    an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

You will not recognize gain or loss as a result of the Mergers and the Conversion. Your aggregate tax basis in the shares of Class A Common Stock received will be the same as your tax basis in the shares of Baker Hughes common stock exchanged. The holding period of the shares of Class A Common Stock you receive will include the holding period of the shares of Baker Hughes common stock exchanged.

The Special Dividend will be characterized as a dividend for U.S. federal income tax purposes to the extent paid out of New Baker Hughes’ current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Baker Hughes does not expect that the Special Dividend will exceed New Baker Hughes’ current and accumulated earnings and profits. To the extent that the Special Dividend exceeds New Baker Hughes’ current and accumulated earnings and profits, the excess will first reduce your basis in the Class A Common Stock you received, but not below zero, and then will be treated as gain from the sale of the Class A Common Stock.

If you are a non-corporate U.S. Holder, the amount of the Special Dividend with respect to the Class A Common Stock you receive that is treated as a dividend for U.S. federal income tax purposes generally will be eligible under current law for a reduced rate of taxation if certain holding period and other requirements are satisfied. To the extent that the Special Dividend with respect to such Class A Common Stock qualifies for such reduced rate of taxation and constitutes an “extraordinary dividend” (generally, where the amount of the dividend exceeds 10% of your tax basis in your stock), any loss on the sale or exchange of such stock, to the extent of such Special Dividend, will be treated as long-term capital loss. You should consult your tax advisor regarding the possible applicability of the extraordinary dividend provisions of the Code with respect to the Special Dividend and the potential effect of such provisions on any losses with respect to the Class A Common Stock you receive.

If you are a corporate U.S. Holder, the amount of the Special Dividend with respect to the Class A Common Stock you receive that is treated as a dividend for U.S. federal income tax purposes will be eligible for the dividends-received deduction if you meet certain holding period and other applicable requirements.