Exhibit 10.4

BAKER HUGHES INCORPORATED

PERFORMANCE AWARD AGREEMENT

January 1, 2004

Name
Grantee

     
Date of Grant:
   
Number of Target Shares:
   
Expiration Date:
  December 31, 2006

GRANT OF PERFORMANCE AWARD

     The Compensation Committee (the “Committee”) of the Board of Directors of
Baker Hughes Incorporated, a Delaware corporation (the “Company”), hereby grants
to you, the above-named grantee, a performance award which shall entitle you to
receive shares of the Company’s Common Stock, $1.00 par value per share (the
“Common Stock”), pursuant to the Baker Hughes Incorporated 2002 Director &
Officer Long-Term Incentive Plan (the “Plan”), on the following terms and
conditions:

     Under this Performance Award Agreement (this “Agreement”), you will have an
opportunity to earn shares of Common Stock based upon the Company’s total
shareholder return for the Performance Period (as that term is defined below) as
compared with the total shareholder returns of the companies whose securities
comprised the Morgan Stanley Oil Services Index traded on the Chicago Board
Options Exchange on December 31, 2003 (the “Oil Services Index Companies”).

     If (a) the Company’s total shareholder return for the three-year period
ending December 31, 2006 (the “Performance Period”), equals or exceeds the
median of the total shareholder returns of the Oil Services Index Companies for
the Performance Period, (b) a Change in Control of the Company has not occurred
on or before December 31, 2006, and (c) you remain in the active employ of the
Company and/or one or more wholly-owned subsidiaries of the Company through the
last day of the Performance Period, then the Company shall issue to you that
number of shares of Common Stock equal to (x) the number of shares of Common
Stock set forth above as the “Number of Target Shares” for your performance
award, multiplied by (y) the applicable “Percentage Target Earned” factor
specified in the table below.

          Percentile Rank of the Company’s Total Shareholder Return for  
Percentage the Performance Period as Compared to the Total Shareholder   Target
Returns of all Oil Services Index Companies

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  Earned

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95th Percentile or more
    200 %
85th Percentile or more, but less than 95th Percentile
    150 %
80th Percentile or more, but less than 85th Percentile
    125 %
70th Percentile or more, but less than 80th Percentile
    100 %
65th Percentile or more, but less than 70th Percentile
    75 %
55th Percentile or more, but less than 65th Percentile
    50 %
50th Percentile or more, but less than 55th Percentile
    25 %
Less than 50th Percentile
    0 %

 

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     If (a) the Company’s total shareholder return for the Performance Period is
less than the median of the total shareholder returns of the Oil Services Index
Companies for the Performance Period, and (b) a Change in Control of the Company
has not occurred on or before December 31, 2006, then the award pursuant to this
Agreement shall lapse and be forfeited as of December 31, 2006.

     Pursuant to Article 3 of the Plan, the Committee shall have the discretion
to calculate three-year total shareholder returns for the Oil Services Index
Companies, including the Company, and to determine the formula to achieve such
calculations.

     Any Common Stock issued pursuant to this Agreement shall be issued as soon
as reasonably practicable after December 31, 2006. You may not sell any shares
of the Common Stock to be issued under this Agreement until such shares are
delivered by the Company and you shall not have any of the rights of a
stockholder with respect to such shares, including, without limitation, the
right to vote such shares, the right to receive any cash or other dividends of
any nature, or the right to exercise any other rights, powers or privileges of a
holder of the shares, until such shares are issued by the Company.

     If a Change in Control of the Company occurs on or before December 31,
2006, your rights to a performance award under this Agreement will be determined
as provided in the Terms and Conditions of Award Agreements (dated January 1,
2004) (the “Terms and Conditions”).

     Your performance award is granted pursuant to and governed by the terms of
the Plan, this Agreement and the Terms and Conditions.

             

  BAKER HUGHES INCORPORATED        
 
           

 

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  Michael E. Wiley — Chairman & CEO        

 

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BAKER HUGHES INCORPORATED

TERMS AND CONDITIONS
OF
AWARD AGREEMENTS
(January 1, 2004)

1.   TERMINATION OF EMPLOYMENT. The following provisions will apply in the event
your employment with the Company and all wholly-owned subsidiaries of the
Company (collectively, the “Company Group”) terminates on or before December 31,
2006:   1.1           Termination Generally. If your employment with the Company
Group terminates as a result of your retirement on or before December 31, 2006
or for any other reason other than those described in Sections 1.2 through 1.6
below, the performance award granted to you (the “Performance Award”) will be
completely forfeited on the date your employment terminates.   1.2  
        Termination for Cause. If your employment with the Company Group
terminates for Cause, the Performance Award will be completely forfeited on the
date your employment terminates. Termination for Cause includes (without
limitation) fraud, theft, embezzlement committed against the Company Group or
any of its affiliated companies or a customer of the Company Group or any of its
affiliated companies, or for conflict of interest, unethical conduct, dishonesty
affecting the assets, properties or business of the Company Group or any of its
affiliated companies, willful misconduct, or continued material dereliction of
duties.   1.3           Potential or Actual Change in Control During 2004, 2005
or 2006.

(i)           Termination Without Cause or for Good Reason in Connection With a
Potential Change in Control on or Before December 31, 2006. The Company will pay
to you on or before ten (10) business days after the date your employment with
the Company Group terminates cash in an amount equal to the Rank #1 Cash Amount
(as that term is defined below) and thereafter the Company will have no further
obligations to you pursuant to your Performance Award Agreement, if (a) the
Company Group terminates your employment without Cause on or before December 31,
2006, prior to a Change in Control of the Company (whether or not a Change in
Control ever occurs) and such termination is at the request or direction of a
Person who has entered into an agreement with the Company the consummation of
which would constitute a Change in Control of the Company or is otherwise in
connection with or in anticipation of a Change in Control of the Company
(whether or not a Change in Control ever occurs), or (b) you terminate your
employment with the Company Group for Good Reason on or before December 31,
2006, prior to a Change in Control of the Company (whether or not a Change in
Control ever occurs), and such termination or the circumstance or event which
constitutes Good Reason occurs at the request or direction of a Person who has
entered into an agreement with the Company the consummation of which would
constitute a Change in Control of the Company or is otherwise in connection with
or in anticipation of a Change in Control of the Company

Award Agreement
January 1, 2004

 

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    (whether or not a Change in Control ever occurs). For purposes of this
Section 1.3, the term “Rank #1 Cash Amount” means (a) the number of shares of
Common Stock that will be issued to you under the Performance Award if the
Company’s total shareholder return for the Performance Period is ranked in the
95th percentile, multiplied by (b) the last per share sale price of the Common
Stock, as reported in the New York Stock Exchange Composite Transactions, on the
date of grant of the Performance Award.   (ii)           Employment Not
Terminated Before a Change in Control on or Before December 31, 2006. If a
Change in Control of the Company occurs on or before December 31, 2006, and your
employment with the Company Group does not terminate before the date the Change
in Control of the Company occurs, then the Company will pay to you on or before
ten (10) business days after the date the Change in Control of the Company
occurs an amount equal to the Rank #1 Cash Amount, and thereafter the Company
will have no further obligations to you pursuant to your Performance Award
Agreement.

1.4           Divestiture of Business Unit. Notwithstanding any other provision
of the Performance Award Agreement or these Terms and Conditions to the
contrary, if you are a member of the Company’s Strategy and Policy Council on
the date the Company Group divests its ownership of a business unit of the
Company or one or more subsidiaries (a “Unit”) and your employment with the
Company Group terminates in connection with such divestiture (other than for
Cause or death or due to your becoming permanently disabled within the meaning
of Section 1.5), the Company will pay you an amount equal to the product of
(1) and (2) where (1) is the amount of the Performance Award you would have
received under your Performance Award Agreement if your employment with the
Company Group had not been terminated before the end of the Performance Period
and (2) is a fraction, the numerator of which is the number of days from the
beginning of the Performance Period through the date your employment with the
Company Group terminates and the denominator of which is the number of days in
the Performance Period. After your employment with the Company Group terminates,
all determinations regarding the amount payable under this Section 1.4,
including the time at which such amount, if any, will be paid, will continue to
be determined under the Plan, the Performance Award Agreement and these Terms
and Conditions. A “Divestiture” includes the disposition of a Unit to an entity
that the Company does not consolidate in its financial statements, whether the
disposition is structured as a sale or transfer of stock, a merger, a
consolidation or a sale or transfer of assets, or a combination thereof,
provided that a “Divestiture” shall not include a disposition that constitutes a
Change in Control.   1.5           Disability. Notwithstanding any other
provision of the Performance Award Agreement or these Terms and Conditions to
the contrary, if you become permanently disabled while in the active employ of
one or more members of the Company Group, the Company will pay you an amount
equal to the product of (1) and (2) where (1) is the amount of the Performance
Award you would have received under your Performance Award Agreement if you had
not become permanently disabled before the end of the Performance Period and
(2) is a fraction, the numerator of which is the number of days from the
beginning of the Performance Period through the date you became permanently
disabled and the denominator of which is the number of days in the Performance
Period. After you become permanently disabled, all determinations regarding the
amount payable

Award Agreement
January 1, 2004

 

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    under this Section 1.5, including the time at which such amount, if any,
will be paid, will continue to be determined under the Plan, the Performance
Award Agreement and these Terms and Conditions. For purposes of this
Section 1.5, you will be “permanently disabled” if you qualify for long-term
disability benefits under a long-term disability program sponsored by the
Company.   1.6           Death. Notwithstanding any other provision of the
Performance Award Agreement or these Terms and Conditions to the contrary, if
you die while in the active employ of one or more members of the Company Group,
the Company will pay you an amount equal to the product of (1) and (2) where
(1) is the amount of the Performance Award you would have received under your
Performance Award Agreement if you had not died before the end of the
Performance Period and (2) is a fraction, the numerator of which is the number
of days from the beginning of the Performance Period through the date of your
death and the denominator of which is the number of days in the Performance
Period. After your death, all determinations regarding the amount payable under
this Section 1.6, including the time at which such amount, if any, will be paid,
will continue to be determined under the Plan, the Performance Award Agreement
and these Terms and Conditions.   2.   PROHIBITED ACTIVITY. Notwithstanding any
other provision of these Terms and Conditions or the Performance Award
Agreement, if you engage in a “Prohibited Activity,” as described below, while
employed by one or more members of the Company Group or within two years after
the date your employment with the Company Group terminates, then your right to
receive Common Stock, to the extent still outstanding at that time, shall
immediately thereupon be completely forfeited. If the Committee receives an
allegation that you have engaged in a Prohibited Activity, the Committee, in its
discretion, may extend the date by which the Company will issue Common Stock
under this Agreement for up to two months to allow the Committee and its
representatives to investigate the allegations. If the Committee determines that
you did not engage in a Prohibited Activity, the Committee will instruct the
Company to immediately issue the Common Stock to be issued under the Performance
Award. A “Prohibited Activity” shall be deemed to have occurred, as determined
by the Committee in its sole and absolute discretion, if Grantee:

(i)           divulges any non-public, confidential or proprietary information
of the Company or of its past, present or future affiliates (collectively, the
“Baker Hughes Group”), but excluding information that (a) becomes generally
available to the public other than as a result of Grantee’s public use,
disclosure, or fault, or (b) becomes available to Grantee on a non-confidential
basis after Grantee’s employment termination date from a source other than a
member of the Baker Hughes Group prior to the public use or disclosure by
Grantee, provided that such source is not bound by a confidentiality agreement
or otherwise prohibited from transmitting the information by a contractual,
legal or fiduciary obligation; or   (ii)           directly or indirectly,
consults or becomes affiliated with, conducts, participates or engages in, or
becomes employed by, any business that is competitive with the business of any
member of the Baker Hughes Group, wherever from time to time conducted
throughout the world, including situations where Grantee solicits or
participates in or assists in any way in the solicitation or

Award Agreement
January 1, 2004

 

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    recruitment, directly or indirectly, of any employees of any member of the
Baker Hughes Group.

3.   TAX WITHHOLDING. To the extent the receipt of Common Stock or other
payments pursuant to the Performance Award results in taxable income to you, the
Company is authorized to withhold from any remuneration payable to you any tax
required to be withheld by reason of such taxable income, including (without
limitation) shares of the Common Stock sufficient to satisfy the withholding
obligation based on the last per share sales price of the Common Stock for the
trading day immediately preceding the date that the withholding obligation
arises, as reported in the New York Stock Exchange Composite Transactions.   4.
  NONTRANSFERABILITY. The Performance Award is not transferable by you otherwise
than by will or by the laws of descent and distribution.   5.   LIMIT OF
LIABILITY. Under no circumstances will the Company be liable for any indirect,
incidental, consequential or special damages (including lost profits) of any
form incurred by any person, whether or not foreseeable and regardless of the
form of the act in which such a claim may be brought, with respect to the Plan
or the Company’s role as Plan sponsor.   6.   MISCELLANEOUS. The Performance
Award is granted pursuant to and is subject to all of the provisions of the
Plan, including amendments to the Plan, if any. In the event of a conflict
between these Terms and Conditions and the Plan provisions, the Plan provisions
will control. The term “you” and “your” referred to the Grantee named in the
Performance Award Agreement. Capitalized terms that are not defined herein shall
have the meaning ascribed to such terms in the Plan or the Performance Award
Agreement.

Award Agreement
January 1, 2004