Baker Hughes 2007 Annual Report Download - page 39

2007 Proxy Statement 21
•฀ a฀sale,฀transfer,฀lease฀or฀other฀disposition฀of฀all฀or฀substan-
tially all of our assets (as defined in the Change in Control
Agreements) is consummated (an “asset sale”), unless (i) the
individuals and entities who were the beneficial owners of
our voting securities immediately prior to such asset sale
own, directly or indirectly, 50% or more of the combined
voting power of the voting securities of the entity that
acquires such assets in such asset sale or its parent immedi-
ately after such asset sale in substantially the same propor-
tions as their ownership of our voting securities immediately
prior to such asset sale or (ii) the individuals who comprise
our Board of Directors immediately prior to such asset sale
constitute a majority of the board of directors or other
governing body of either the entity that acquired such
assets in such asset sale or its parent (or a majority plus
one member where such board or other governing body
is comprised of an odd number of directors); or
•฀ our฀stockholders฀approve฀a฀plan฀of฀complete฀liquidation฀or฀
dissolution of us.
The Code disallows deductions for certain executive
compensation that is contingent on a change in ownership
or effective control of the Company or a significant portion
of the assets of the Company. Assuming such a control
change had occurred on December 31, 2007, $4,924,529
and $2,149,985 would have been non-deductible executive
compensation for Messrs. Deaton and Ragauss, respectively.
Additionally, if Messrs. Deaton, Ragauss, Clark, Crain and Barr
had incurred a termination of employment in connection with
such control change, $12,564,765, $6,258,759, $5,349,654,
$3,045,817 and $2,760,876 would have been non-deductible
executive compensation, respectively.
Indemnification Agreements
We have entered into an indemnification agreement with
each of our independent, non-management directors and
Senior Executives, which form of agreement has been filed
with the SEC. These agreements provide for us to, among
other things, indemnify such persons against certain liabilities
that may arise by reason of their status or service as directors
or officers, to advance their expenses incurred as a result of a
proceeding as to which they may be indemnified and to cover
such person under any directors’ and officers’ liability insur-
ance policy we choose, in our discretion, to maintain. These
indemnification agreements are intended to provide indemnifi-
cation rights to the fullest extent permitted under applicable
indemnification rights statutes in the State of Delaware and
shall be in addition to any other rights the indemnitee may
have under the Company’s Restated Certificate of Incorpora-
tion, Bylaws and applicable law. We believe these indemnifica-
tion agreements enhance our ability to attract and retain
knowledgeable and experienced Senior Executives and inde-
pendent, non-management directors.
Stock Ownership Policy
The Board of Directors, upon the Compensation Commit-
tee’s recommendation, adopted a Stock Ownership Policy for
our Senior Executives to ensure that they have a meaningful
economic stake in the Company. The Policy is designed to
satisfy an individual Senior Executive’s need for portfolio
diversification, while maintaining management stock owner-
ship at levels high enough to assure our stockholders of
management’s commitment to value creation.
The Compensation Committee annually reviews each
Senior Executive’s compensation and stock ownership levels
to determine whether they are appropriate or if adjustments
need to be made. In 2007, each of the Senior Executives was
in compliance with the Compensation Committee’s required
levels of stock ownership, which currently requires each Senior
Executive to have direct ownership of our Common Stock in at
least the following amounts:
Stock Ownership Level
Officer Position (Multiple of Salary)
Chief Executive Officer 5x
President, Senior Vice Presidents 3x
and Group Presidents
Corporate Vice Presidents reporting 2x
to the PEO and Division Presidents
A Senior Executive has five years to comply with the
ownership requirement starting from the date appointed to
a position noted above. If a Senior Executive is promoted to
a position with a higher Ownership Salary Multiple, the Senior
Executive will have five years from the date of the change in
position to reach the higher expected Stock Ownership Level
but still must meet the prior expected Stock Ownership Level
within the original five years of the date first appointed to
such prior position. For those Senior Executives with the own-
ership requirements reflected in hiring letters, the date of hire
marks the start of the five-year period.
Until a Senior Executive achieves the applicable Stock
Ownership Level, the following applies:
Restricted Stock Awards
Upon vesting of a restricted stock award and after the
payment of the taxes due as a result of vesting, the Senior
Executive is required to hold the net profit shares until the
applicable Stock Ownership Level is met. Net profit shares
are the shares remaining after payment of the applicable taxes
owed as a result of vesting of the restricted stock, including
shares applied as payment of the minimum statutory taxes.