Baker Hughes 2004 Annual Report Download - page 40

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Pre-Approval฀Policies฀and฀Procedures
The฀Audit/Ethics฀Committee฀has฀adopted฀guidelines฀for฀
the฀pre-approval฀of฀audit฀and฀permitted฀non-audit฀services฀by฀
the฀Company’s฀independent฀auditor.฀The฀Audit/Ethics฀Commit-
tee฀will฀consider฀annually฀and,฀if฀appropriate,฀approve฀the฀pro-
vision฀of฀audit฀services฀by฀its฀independent฀auditor฀and฀consider฀
and,฀if฀appropriate,฀pre-approve฀the฀provision฀of฀certain฀
defined฀audit฀and฀non-audit฀services.฀The฀Audit/Ethics฀Com-
mittee฀will฀also฀consider฀on฀a฀case-by-case฀basis฀and,฀if฀appro-
priate,฀approve฀specific฀engagements฀that฀are฀not฀otherwise฀
pre-approved.฀The฀“Guidelines฀for฀Pre-Approval฀of฀Audit฀and฀
Non-Audit฀Fees฀of฀the฀Independent฀Auditor”฀adopted฀by฀the฀
Audit/Ethics฀Committee฀on฀January฀27,฀2004฀is฀attached฀as฀
Annex฀E฀to฀this฀Proxy฀Statement.฀Any฀proposed฀engagement฀
with฀estimated฀non-audit฀fees฀of฀$15,000฀or฀more฀that฀does฀
not฀fit฀within฀the฀definition฀of฀a฀pre-approved฀service฀may฀be฀
presented฀to฀the฀Chairman฀of฀the฀Audit/Ethics฀Committee฀for฀
pre-approval.฀The฀Chairman฀of฀the฀Audit/Ethics฀Committee฀will฀
report฀any฀specific฀approval฀of฀services฀at฀its฀next฀regular฀meet-
ing.฀The฀Audit/Ethics฀Committee฀will฀review฀a฀summary฀report฀
detailing฀all฀services฀being฀provided฀to฀the฀Company฀by฀its฀
Independent฀Auditor.฀All฀of฀the฀fees฀and฀services฀described฀
above฀under฀“audit฀fees,”฀“audit-related฀fees,”฀“tax฀fees”฀and฀
“all฀other฀fees”฀were฀approved฀under฀the฀Guidelines฀for฀Pre-
Approval฀of฀Audit฀and฀Non-Audit฀Fees฀of฀the฀Independent฀
Auditor฀and฀pursuant฀to฀Section฀202฀of฀SOX.
PROPOSAL฀NO.฀3฀
AMENDMENT฀TO฀COMPANY’S฀RESTATED฀฀
CERTIFICATE฀OF฀INCORPORATION
The฀Board฀of฀Directors฀has฀determined฀the฀Company’s฀
Restated฀Certificate฀of฀Incorporation฀(“Restated฀Certificate”)฀
should฀be฀amended฀to฀repeal฀the฀provisions฀that฀provide฀for฀
the฀classification฀of฀the฀Board฀of฀Directors.฀In฀particular,฀Article฀
Eleventh฀of฀the฀Restated฀Certificate฀provides฀for฀the฀classifica-
tion฀of฀the฀Board฀of฀Directors฀into฀three฀classes,฀Class฀I,฀Class฀II฀
and฀Class฀III฀with฀each฀director฀serving฀for฀a฀term฀of฀three฀
years฀and฀contains฀provisions฀concerning฀the฀apportionment฀
of฀newly฀created฀directorships฀into฀director฀classes฀and฀the฀
removal฀of฀directors฀and฀Article฀Thirteenth฀of฀the฀Restated฀
Certificate฀references฀the฀classification฀of฀the฀Board฀of฀Direc-
tors.฀The฀Board฀has฀unanimously฀adopted฀a฀resolution฀to฀
amend฀Article฀Eleventh฀and฀the฀appropriate฀portions฀of฀Article฀
Thirteenth฀and฀otherwise฀approve฀the฀amendment,฀declaring฀
it฀advisable฀and฀recommending฀such฀amendment฀to฀the฀Com-
pany’s฀stockholders.
If฀the฀Company’s฀stockholders฀approve฀the฀proposed฀
amendment,฀the฀classified฀board฀will฀be฀eliminated,฀directors฀
will฀thereafter฀at฀each฀annual฀meeting฀be฀elected฀for฀a฀one-
year฀term฀ending฀on฀the฀date฀of฀the฀Annual฀Meeting฀of฀Stock-
holders฀following฀the฀annual฀meeting฀at฀which฀the฀director฀
was฀elected฀and฀will฀serve฀until฀their฀successors฀are฀elected฀
and฀qualified.฀In฀addition,฀any฀director฀appointed฀in฀the฀future฀
as฀a฀result฀of฀a฀newly฀created฀position฀or฀to฀fill฀a฀vacancy฀on฀
the฀Company’s฀Board฀of฀Directors฀will฀hold฀office฀only฀until฀
the฀next฀Annual฀Meeting฀of฀Stockholders.฀Each฀of฀the฀direc-
tors฀have฀agreed฀to฀shorten฀their฀existing฀terms฀and฀stand฀for฀
re-election฀at฀the฀2006฀Annual฀Meeting฀of฀Stockholders฀for฀a฀
one-year฀term฀ending฀on฀the฀following฀annual฀meeting฀if฀the฀
proposed฀amendment฀is฀approved฀by฀the฀stockholders฀and฀the฀
amendment฀is฀filed฀in฀Delaware.฀If฀approved,฀the฀proposed฀
amendment฀will฀also฀delete฀the฀existing฀provision฀in฀Article฀
Eleventh฀that฀specified฀directors฀may฀not฀be฀removed฀except฀
for฀cause.฀Under฀Delaware฀law,฀directors฀of฀companies฀that฀
do฀not฀have฀classified฀boards฀may฀be฀removed฀by฀the฀stock-
holders฀with฀or฀without฀cause,฀by฀the฀affirmative฀vote฀of฀the฀
holders฀of฀a฀majority฀of฀the฀outstanding฀shares฀then฀entitled฀
to฀vote฀generally฀in฀the฀election฀of฀directors.฀
The฀Company฀believes฀that฀the฀election฀of฀directors฀to฀
staggered฀terms฀has฀promoted฀good฀corporate฀governance฀by฀
providing฀the฀stability฀to฀develop฀and฀execute฀long-term,฀stra-
tegic฀planning.฀The฀staggered฀election฀of฀directors฀has฀also฀
assured฀that฀the฀Company฀has฀had฀directors฀with฀a฀historical฀
perspective฀of฀the฀Company฀and฀its฀operations,฀and฀that฀per-
spective฀has฀provided฀the฀in-depth฀knowledge฀for฀continuity฀
in฀pursuing฀the฀Company’s฀strategic฀goals.฀The฀Board฀believes฀
that฀the฀Company’s฀Board฀is฀knowledgeable฀about฀manage-
ment฀and฀the฀Company’s฀plans.฀
A฀non-binding฀proposal฀to฀declassify฀the฀Board฀was฀
first฀introduced฀by฀a฀stockholder฀in฀2000.฀In฀2003฀and฀2004,฀
the฀stockholder฀again฀introduced฀such฀proposal.฀In฀2005,฀
Mr.฀Harold฀J.฀Mathis,฀Jr.฀again฀submitted฀such฀proposal,฀but฀
has฀withdrawn฀it฀as฀a฀result฀of฀this฀proposal฀by฀the฀Company’s฀
Board฀of฀Directors.฀The฀Company฀stated฀in฀its฀2004฀Proxy฀
Statement฀that฀if฀the฀stockholder฀proposal฀to฀declassify฀the฀
Board฀of฀Directors฀received฀at฀least฀the฀same฀support฀by฀the฀
stockholders฀of฀all฀of฀the฀outstanding฀shares฀at฀its฀2004฀Annual฀
Meeting฀as฀it฀did฀at฀the฀2003฀Annual฀Meeting,฀the฀Board฀of฀
Directors฀would฀introduce฀and฀support฀a฀binding฀proposal฀at฀
the฀2005฀Annual฀Meeting฀to฀amend฀the฀Company’s฀Restated฀
Certificate฀in฀order฀to฀eliminate฀the฀provision฀classifying฀the฀
Company’s฀Board.฀The฀stockholder฀proposal฀received฀90.38%฀
of฀the฀votes฀cast฀for฀or฀against฀the฀proposal฀at฀the฀2004฀Annual฀
Meeting,฀which฀equated฀to฀72.50%฀of฀all฀of฀the฀outstanding฀
shares฀of฀Common฀Stock.฀In฀2003,฀the฀stockholder฀proposal฀
received฀84.88%฀of฀the฀votes฀cast฀for฀or฀against฀the฀proposal,฀
which฀equates฀to฀68.82%฀of฀all฀the฀outstanding฀shares฀of฀฀
Common฀Stock.
In฀order฀to฀eliminate฀the฀class฀structure฀of฀the฀Board,฀the฀
Company’s฀Restated฀Certificate฀must฀be฀amended,฀which฀
requires฀the฀affirmative฀vote฀of฀75%฀of฀the฀total฀voting฀power฀
of฀all฀shares฀of฀stock฀of฀the฀Company฀entitled฀to฀vote฀in฀the฀
election฀of฀directors,฀and฀filed฀with฀the฀Secretary฀of฀State฀of฀
the฀State฀of฀Delaware.฀
The฀text฀of฀the฀proposed฀amendment฀and฀related฀amend-
ments฀to฀the฀Restated฀Certificate฀is฀attached฀as฀Annex฀F฀to฀
this฀Proxy฀Statement.฀If฀the฀proposal฀is฀approved฀by฀the฀stock-
holders,฀conforming฀amendments฀will฀be฀made฀to฀the฀bylaws.
Recommendation฀of฀the฀Board฀of฀Directors฀
Your฀Board฀of฀Directors฀recommends฀a฀vote฀FOR฀the฀
approval฀of฀the฀proposal฀to฀eliminate฀the฀classification฀of฀
the฀Board฀of฀Directors฀and฀the฀related฀amendments฀to฀the฀
Restated฀Certificate.
24฀฀฀฀Baker฀Hughes฀Incorporated