Exhibit 10.1
BAKER HUGHES INCORPORATED
ANNUAL INCENTIVE COMPENSATION PLAN
(Amendment and Restatement
Adopted by the Board of
Directors on January 26, 2006)

 

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Exhibit 10.1
BAKER HUGHES INCORPORATED
ANNUAL INCENTIVE COMPENSATION PLAN
(Amendment and Restatement
Adopted by the Board of
Directors on January 26, 2006 )
WITNESSETH:
     WHEREAS, effective October 1, 1994, Baker Hughes Incorporated (“Baker
Hughes”) previously adopted the Baker Hughes Incorporated 1995 Employee Annual
Incentive Compensation Plan (the “Plan”) for the benefit of certain employees of
Baker Hughes and affiliates of Baker Hughes;
     WHEREAS, the Plan is a bonus program exempt from coverage under the
Employee Retirement Income Security Act of 1974, as amended pursuant to
Department of Labor regulation section 2510.3-2(c);
     WHEREAS, Baker Hughes desires to amend and restate the Plan on behalf of
itself and on behalf of the other adopting entities; and
WHEREAS, Baker Hughes desires to change the name of the Plan;
     NOW THEREFORE, the name of the Plan is changed to the “Baker Hughes
Incorporated Annual Incentive Compensation Plan” and the Plan is hereby amended
and restated in its entirety as follows, effective as of January 1, 2005 except
insofar as a later effective date is expressly specified.

 

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Table of Contents

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

 -i-

 

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Table of Contents
(continued)

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

 -ii-

 

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Table of Contents
(continued)

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

 -iii-

 

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BAKER HUGHES INCORPORATED
ANNUAL INCENTIVE COMPENSATION PLAN
(As Amended and Restated
Effective January 1, 2005)
ARTICLE I
DEFINITIONS AND CONSTRUCTION
     1.01 Definitions. The words and phrases defined in this Article shall have
the meaning set out in the definition unless the context in which the word or
phrase appears reasonably requires a broader, narrower or different meaning.
     “Account(s)” means all ledger accounts pertaining to a Participant or
former Participant which are maintained by the Plan Administrator to reflect the
Employer’s obligation to the Participant or former Participant under the Plan.
The Plan Administrator shall establish the following subaccounts and any
additional subaccounts that the Plan Administrator considers necessary to
reflect the entire interest of the Participant or former Participant under the
Plan. Each of the subaccounts listed below and any additional subaccounts
established by the Plan Administrator shall reflect credits and debits made to
such subaccounts for earnings, distributions and forfeitures:
     (a) Banked Account – the Participant’s or former Participant’s banked Final
Award for a given Performance Period.
     (b) Unbanked Account –the Participant’s or former Participant’s Final Award
for a given Performance Period that is not banked pursuant to Article V.
     “Affiliate” means any entity which is a member of the same controlled group
of corporations within the meaning of section 414(b) of the Code or which is a
trade or business (whether or not incorporated) which is under common control
(within the meaning of section 414(c) of the Code), which is a member of an
affiliated service group (within the meaning of section 414(m) of the Code) with
Baker Hughes.
     “Applicable Interest Rate” means the 10-year U.S. Treasury rate plus 25
basis points (0.25%).
     “Award Opportunity” has the meaning specified in Section 3.01 of the Plan.
     “Baker Hughes” means Baker Hughes Incorporated, a Delaware corporation.
     “Baker Value Added” and “BVA” mean, with respect to a Performance Period,
the amount calculated under the following formula:
[[(a) + (b) + (c)] x (1 – (d))] – (e)
where (a) is the Operating Profit Before Tax of the Company for the Performance
Period, (b) is the net interest expense of the Company for the Performance
Period, (c) is the goodwill and non-

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compete amortization of the Company for the Performance Period, (d) is the Tax
Rate for the Performance Period and (e) is the Capital Charge determined for the
Company for the Performance Period. For this purpose, “Adjusted Net Capital
Employed” means the Average Monthly Net Capital Employed for the Performance
Period plus accumulated goodwill amortization plus the value of significant
operating leases; “Average Monthly Net Capital Employed” means the sum of the
capital employed by the Company during each month of the Performance Period to
operate the business of the Company divided by 12; “Capital Charge” means
Adjusted Net Capital Employed multiplied by the Cost of Capital; “Company” means
Baker Hughes and all of its Affiliates in which Baker Hughes directly or
indirectly has a capital investment, or one or more business units of Baker
Hughes and its Affiliates, as specified in the written Award Opportunities;
“Cost of Capital” means the weighted average after-tax cost of debt and cost of
equity for the Company for the Performance Period; “Cost of Sales” means the
cost of products sold and the cost of providing services, including personnel
costs, repair and maintenance costs, freight/custom, depreciation, and other
costs (e.g., commission and royalty) directly relating to the service provided;
“Operating Expenses” means costs incurred in non-manufacturing areas to provide
products and services to customers (e.g., finance and administrative support)
during the Performance Period; “Operating Profit Before Tax” means the revenue
of the Company for the Performance Period minus the Cost of Sales of the Company
for the Performance Period minus the Operating Expenses of the Company for the
Performance Period; and “Tax Rate” means the effective tax rate for the Company
determined in a manner consistent with Baker Hughes tax policies and practices
in effect on the date hereof.
     “Beneficial Owner” or “Beneficial Ownership” shall have the meaning
ascribed to the term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
     “Beneficiary” means the person or persons, or the trust or trusts created
for the benefit of a natural person or persons or the Participant’s estate,
designated by the Participant to receive the benefits payable under the Plan
upon his death in accordance with the beneficiary designation procedures
specified in Section 9.03.
     “Board” means the Board of Directors of Baker Hughes.
     “Cause” means (i) the willful and continued failure by the Participant to
substantially perform the Participant’s duties with the Employer (other than any
such failure resulting from the Participant’s incapacity due to physical or
mental illness) after a written demand for substantial performance is delivered
to the Participant by the Committee, which demand specifically identifies the
manner in which the Committee believes that the Participant has not
substantially performed the Participant’s duties, or (ii) the willful engaging
by the Participant in conduct which is demonstrably and materially injurious to
Baker Hughes or any of the Affiliates, monetarily or otherwise. For purposes of
clauses (i) and (ii) of this definition, (A) no act, or failure to act, on the
Participant’s part shall be deemed “willful” if done, or omitted to be done, by
the Participant in good faith and with reasonable belief that the act, or
failure to act, was in the best interest of the Employer and (B) in the event of
a dispute concerning the application of this provision, no claim by the Employer
that Cause exists shall be given effect unless the Employer establishes to the
Committee by clear and convincing evidence that Cause exists. The Committee’s
determination regarding the existence of Cause shall be conclusive and binding
upon all parties.

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     “Change in Control” means the occurrence of any of the following events:
          (a) the individuals who are Incumbent Directors cease for any reason
to constitute a majority of the members of the Board;
          (b) the consummation of a Merger of Baker Hughes or an Affiliate with
another Entity, unless the individuals and Entities who were the Beneficial
Owners of the Voting Securities of Baker Hughes outstanding immediately prior to
such Merger own, directly or indirectly, at least 50 percent of the combined
voting power of the Voting Securities of any of Baker Hughes, the surviving
Entity or the parent of the surviving Entity outstanding immediately after such
Merger;
          (c) any Person, other than a Specified Owner, becomes a Beneficial
Owner, directly or indirectly, of securities of Baker Hughes representing
30 percent or more of the combined voting power of Baker Hughes’ then
outstanding Voting Securities;
          (d) a sale, transfer, lease or other disposition of all or
substantially all of Baker Hughes’ Assets is consummated (an “Asset Sale”),
unless:
(1) the individuals and Entities who were the Beneficial Owners of the Voting
Securities of Baker Hughes immediately prior to such Asset Sale own, directly or
indirectly, 50 percent or more of the combined voting power of the Voting
Securities of the Entity that acquires such Assets in such Asset Sale or its
parent immediately after such Asset Sale in substantially the same proportions
as their ownership of Baker Hughes’ Voting Securities immediately prior to such
Asset Sale; or
(2) the individuals who comprise the Board immediately prior to such Asset Sale
constitute a majority of the board of directors or other governing body of
either the Entity that acquired such Assets in such Asset Sale or its parent (or
a majority plus one member where such board or other governing body is comprised
of an odd number of directors); or
          (e) The stockholders of Baker Hughes approve a plan of complete
liquidation or dissolution of Baker Hughes.
     “CIC Committee” means (i) the individuals (not fewer than three in number)
who, on the date six months before a Change in Control or a Potential Change in
Control, constitute the Committee, plus (ii) in the event that fewer than three
individuals are available from the group specified in clause (i) above for any
reason, such individuals as may be appointed by the individual or individuals so
available (including for this purpose any individual or individuals previously
so appointed under this clause (ii)); provided, however, that the maximum number
of individuals constituting the CIC Committee shall not exceed six (6).
     “Code” means the Internal Revenue Code of 1986, as amended from time to
time.
     “Committee” means the Compensation Committee of the Board.

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     “Covered Employee” has the meaning ascribed to that term in Section 162(m).
     “Disability” means the inability of a Participant to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected to
last for a continuous period of not less than 12 months. The Committee’s
determination regarding the existence of Disability shall be conclusive and
binding upon all parties.
     “Domestic Relations Order” has the meaning ascribed to that term in section
414(p) of the Code.
     “Employer” means Baker Hughes and any Affiliate that adopts the Plan
pursuant to the provisions of Article XII.
     “Entity” means any corporation, partnership, association, joint-stock
company, limited liability company, trust, unincorporated organization or other
business entity.
     “Exchange Act” means the Securities Exchange Act of 1934, as amended from
time to time, or any successor act.
     “Final Award” means the actual award earned for a Plan Year by a
Participant as determined by the Committee.
     “Good Reason” for termination by the Participant of his employment means
the occurrence (without the Participant’s express written consent) after any
Change in Control, or prior to a Change in Control under the circumstances
described in clauses (ii) and (iii) of Section 10.04 (treating all references to
“Change in Control” in paragraphs (a) through (f) below as references to a
“Potential Change in Control”), of any one of the following acts by the
Employer, or failures by the Employer to act, unless, in the case of any act or
failure to act described in paragraph (a), (e), (f) or (g) below, such act or
failure to act is corrected prior to the effective date of the Participant’s
termination for Good Reason:
     (a) the assignment to the Participant of any duties or responsibilities
which are substantially diminished as compared to the Participant’s duties and
responsibilities immediately prior to the Change in Control;
     (b) a reduction by the Employer in the Participant’s annual base salary as
in effect on the date hereof or as the same may be increased from time to time,
except for across-the-board salary reductions similarly affecting all
individuals having a similar level of authority and responsibility with the
Employer and all individuals having a similar level of authority and
responsibility with any Person in control of the Employer;
     (c) the relocation of the Participant’s principal place of employment to a
location outside of a 50-mile radius from the Participant’s principal place of
employment immediately prior to the Change in Control or the Employer’s
requiring the Participant to be based anywhere other than such principal place
of employment (or permitted relocation thereof) except for required travel on
the Employer’s business to an extent

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substantially consistent with the Participant’s business travel obligations
immediately prior to the Change in Control;
     (d) the failure by the Employer to pay to the Participant any portion of
the Participant’s current compensation except pursuant to an across-the-board
compensation deferral similarly affecting all individuals having a similar level
of authority and responsibility with the Employer and all individuals having a
similar level of authority and responsibility with any Person in control of the
Employer, or to pay to the Participant any portion of an installment of deferred
compensation under any deferred compensation program of the Employer, within
seven (7) days of the date such compensation is due;
     (e) the failure by the Employer to continue in effect any compensation plan
in which the Participant participates immediately prior to the Change in Control
which is material to the Participant’s total compensation, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or the failure by the Employer to continue the
Participant’s participation therein (or in such substitute or alternative plan)
on a basis not materially less favorable, both in terms of the amount or timing
of payment of benefits provided and the level of the Participant’s participation
relative to other Baker Hughes Participants, as existed immediately prior to the
Change in Control;
     (f) the failure by the Employer to continue to provide the Participant with
benefits substantially similar to those enjoyed by the Participant under any of
the Employer’s pension, savings, life insurance, medical, health and accident,
or disability plans in which the Participant was participating immediately prior
to the Change in Control (except for across the board changes similarly
affecting all individuals having a similar level of authority and responsibility
with the Employer and all individuals having a similar level of authority and
responsibility with any Person in control of the Employer), the taking of any
other action by the Employer which would directly or indirectly materially
reduce any of such benefits or deprive the Participant of any material fringe
benefit or perquisite enjoyed by the Participant at the time of the Change in
Control, or the failure by the Employer to provide the Participant with the
number of paid vacation days to which the Participant is entitled on the basis
of years of service with the Employer in accordance with the Employer’s normal
vacation policy in effect immediately prior to the time of the Change in
Control; or
     (g) if the Participant is party to an individual employment, severance or
other similar agreement with the Employer, any purported termination of the
Participant’s employment which is not effected pursuant to the notice of
termination or other procedures specified therein.
     The Participant shall have the right to terminate his employment for Good
Reason even if he becomes incapacitated due to physical or mental illness. The
Participant’s continued employment shall not constitute consent to, or a waiver
of any rights with respect to, any act or failure to act constituting Good
Reason hereunder.

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     For purposes of any determination regarding the existence of Good Reason,
any claim by the Participant that Good Reason exists shall be presumed to be
correct unless the Employer establishes to the Committee by clear and convincing
evidence that Good Reason does not exist. The Committee’s determination
regarding the existence of Good Reason shall be conclusive and binding upon all
parties.
     “Incumbent Director” means –
          (a) a member of the Board on January 25, 2006 or
          (b) an individual-
     (1) who becomes a member of the Board after January 25, 2006;
     (2) whose appointment or election by the Board or nomination for election
by Baker Hughes’ stockholders is approved or recommended by a vote of at least
two-thirds of the then serving Incumbent Directors (as defined herein); and
     (3) whose initial assumption of service on the Board is not in connection
with an actual or threatened election contest.
     “Initial Payment Date” has the meaning ascribed to that term in
Section 7.01.
     “Involuntary Separation From Service” means a Participant’s Separation From
Service as a result of the elimination of his job or a reduction in force.
     “Key Employee” means a key employee of Baker Hughes or an Affiliate who, in
the opinion of the Chief Executive Officer of Baker Hughes, is in a position to
significantly contribute to the growth and profitability of Baker Hughes and the
Affiliates.
     “Merger” means a merger, consolidation or similar transaction.
     “OA Level” means the over achievement level of performance applicable to
the Award.
     “Participant” means an individual who is or was a Key Employee who has been
granted an Award Opportunity or who has unpaid Accounts.
     “Performance Goals” means one or more of the criteria described in
Section 3.02 on which the performance goals applicable to an Award Opportunity
are based.
     “Performance Period” means the 12-month period to which the Performance
Goals apply. A Performance Period shall coincide with a Plan Year.
     “Person” shall have the meaning ascribed to the term in section 3(a)(9) of
the Exchange Act and used in sections 13(d) and 14(d) thereof, including a
“group” as defined in section 13(d) thereof, except that the term shall not
include (a) Baker Hughes or any of the Affiliates, (b) a trustee or other
fiduciary holding Baker Hughes securities under an employee benefit plan of
Baker Hughes or any of the Affiliates, (c) an underwriter temporarily holding
securities pursuant

6

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to an offering of those securities or (d) a corporation owned, directly or
indirectly, by the stockholders of Baker Hughes in substantially the same
proportions as their ownership of stock of Baker Hughes.
     “Plan” means the Baker Hughes Incorporated Annual Incentive Compensation
Plan, as amended from time to time.
     “Plan Administrator” means Baker Hughes, acting through its delegates. Such
delegates shall include the Administrative Committee, the Investment Committee
and any individual Plan Administrator appointed by the Board with respect to the
employee benefit plans of Baker Hughes and its Affiliates, each of which shall
have the duties and responsibilities assigned to it from time to time by the
Board. As used in the Plan, the term “Plan Administrator” shall refer to the
applicable delegate of Baker Hughes as determined pursuant to the actions of the
Board.
     “Plan Year” means the twelve-consecutive month period commencing January 1
of each year.
     “Potential Change in Control” means the occurrence of any of the following
events:
     (a) the Employer enters into an agreement, the consummation of which would
result in the occurrence of a Change in Control;
     (b) the Employer or any Person publicly announces an intention to take or
to consider taking actions which, if consummated, would constitute a Change in
Control;
     (c) any Person becomes the Beneficial Owner, directly or indirectly, of
securities of Baker Hughes representing 15 percent or more of either the then
outstanding shares of common stock of Baker Hughes’ or the combined voting power
of Baker Hughes’ then outstanding securities (not including in the securities
beneficially owned by such Person any securities acquired directly from Baker
Hughes or the Affiliates); or
     (d) the Board adopts a resolution to the effect that, for purposes of this
Agreement, a Potential Change in Control has occurred.
     “Profit After Tax” means revenues minus cost of sales (the cost of products
sold and the cost of providing services, including personnel costs, repair and
maintenance costs, freight/custom, depreciation, and other costs (e.g.,
commission and royalty) directly relating to the service provided) minus
operating expenses (costs incurred in non-manufacturing areas to provide
products and services to customers (e.g., finance and administrative support))
minus income taxes.
     “Retirement” means a Participant’s voluntary Separation From Service when
he has attained at least 55 years of age and has at least ten (10) years of
service with Baker Hughes and the Affiliates. For this purpose, “year of
service” means a year of service for vesting purposes under the Baker Hughes
Incorporated Thrift Plan, whether or not the Participant is a participant in
such plan.
     “Section 162(m)” means section 162(m) of the Code and the Department of
Treasury

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rules and regulations issued thereunder.
     “Section 409A” means section 409A of the Code and the Department of
Treasury rules and regulations issued thereunder.
     “Separation From Service” has the meaning ascribed to that term in
Section 409A.
     “Specified Employee” means as of any date, a person who is a “specified
employee” within the meaning of Section 409A.
     “Specified Owner” means any of the following:
     (a) Baker Hughes;
     (b) an Affiliate of Baker Hughes;
     (c) an employee benefit plan (or related trust) sponsored or maintained by
Baker Hughes or any Affiliate of Baker Hughes;
     (d) a Person that becomes a Beneficial Owner of Baker Hughes’ outstanding
Voting Securities representing 30 percent or more of the combined voting power
of Baker Hughes’ then outstanding Voting Securities as a result of the
acquisition of securities directly from Baker Hughes and/or its Affiliates; or
     (e) a Person that becomes a Beneficial Owner of Baker Hughes’ outstanding
Voting Securities representing 30 percent or more of the combined voting power
of Baker Hughes’ then outstanding Voting Securities as a result of a Merger if
the individuals and Entities who were the Beneficial Owners of the Voting
Securities of Baker Hughes outstanding immediately prior to such Merger own,
directly or indirectly, at least 50 percent of the combined voting power of the
Voting Securities of any of Baker Hughes, the surviving Entity or the parent of
the surviving Entity outstanding immediately after such Merger in substantially
the same proportions as their ownership of the Voting Securities of Baker Hughes
outstanding immediately prior to such Merger.
     “Voting Securities” means the outstanding securities entitled to vote
generally in the election of directors or other governing body.
     1.02 Number and Gender. Wherever appropriate herein, words used in the
singular shall be considered to include the plural and words used in the plural
shall be considered to include the singular. The masculine gender, where
appearing in the Plan, shall be deemed to include the feminine gender.
     1.03 Headings. The headings of Articles and Sections herein are included
solely for convenience, and if there is any conflict between such headings and
the text of the Plan, the text shall control.

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ARTICLE II
PARTICIPATION
     2.01 Eligibility. Eligibility for participation in the Plan shall be
limited to those Key Employees who, by the nature and scope of their position,
contribute to the overall results or success of the Employers.
     2.02 Participation. Participation in the Plan shall be determined annually
based upon the recommendation of the Chief Executive Officer of Baker Hughes and
the approval of the Committee. Employees approved for participation shall be
notified in writing of their selection, and of their Performance Goals and
related Award Opportunities, as soon after approval as is practicable.
     2.03 Partial Plan Year Participation. The Committee may, upon
recommendation of the Chief Executive Officer of Baker Hughes, allow an
individual who becomes eligible after the beginning of a Plan Year to
participate in the Plan for that year. In such case, the Participant’s Final
Award normally shall be prorated based on the number of full months of
participation. However, the Committee may, based upon the recommendation of the
Chief Executive Officer of Baker Hughes, authorize an unreduced Final Award.
     2.04 Termination of Approval. The Committee may withdraw its approval for
participation in the Plan for a Participant at any time. In the event of such
withdrawal, the individual concerned shall cease to be a Participant as of the
date designated by the Committee and he shall be notified of such withdrawal as
soon as practicable following such action. Further, such individual shall cease
to have any right to a Final Award for the Plan Year in which such withdrawal is
effective; provided, however, that the Committee may, in its sole discretion,
authorize a prorated award based on the number of full months of participation
prior to the effective date of such withdrawal. Notwithstanding the foregoing,
the Committee may not withdraw its approval for participation in the Plan during
the pendency of a Potential Change in Control and for a period of six (6) months
after the cessation thereof.
ARTICLE III
AWARD OPPORTUNITIES AND
PERFORMANCE GOALS
     3.01 Award Opportunities. The Committee shall establish, in writing, over
achievement, expected value, and entry value incentive award levels (the “Award
Opportunities”) for each Participant who is eligible to participate in the Plan
for the Performance Period. The established Award Opportunities may vary in
relation to the responsibility level of the Participant. Except in the case of a
Covered Employee, if a Participant changes job levels or salary grades during
the Plan Year, the Award Opportunities may be adjusted by the Committee, in its
sole discretion, to reflect the amount of time at each job level and/or in each
salary grade.
     3.02 Performance Goals. The Committee shall establish, in writing,
Performance Goals for each Participant for a Plan Year. A Performance Goal may
be based on one or more business criteria that apply to the Participant, one or
more business units of Baker Hughes and the Affiliates, or Baker Hughes and the
Affiliates as a whole, with reference to one or more of

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the following: earnings per share, total shareholder return, cash return on
capitalization, increased revenue, revenue ratios, net income, stock price,
market share, return on equity, return on assets, return on capital, return on
capital compared to cost of capital, return on capital employed, return on
invested capital, shareholder value, net cash flow, operating income, earnings
before interest and taxes, cash flow, cash flow from operations, cost
reductions, cost ratios, Profit After Tax and Baker Value Added. Performance
Goals may also be based on performance relative to a peer group of companies.
Unless otherwise stated, a Performance Goal need not be based upon an increase
or positive result under a particular business criterion and could include, for
example, maintaining the status quo or limiting economic losses (measured, in
each case, by reference to specific business criteria). All items of gain, loss
or expense for the Performance Period determined to be extraordinary, unusual in
nature, infrequent in occurrence, related to the acquisition or disposal of a
segment of a business, or related to a change in accounting principle, all as
determined in accordance with standards established by Opinion No. 30 of the
Accounting Principles Board (APB Opinion No. 30), other applicable accounting
rules, or consistent with Baker Hughes accounting policies and practices on the
date the Committee establishes the Performance Goals may be included or excluded
in calculating whether a Performance Goal has been achieved. In the case of a
Participant other than a Participant who is or during the Performance Period may
become a Covered Employee, nonfinancial objectives may also be included in a
Participant’s Performance Goals but may not represent more than 20 percent of
the Participant’s expected value Award Opportunity. No Participant who is a
Covered Employee, or who the Committee expects may become a Covered Employee
during the next three Plan Years, may have any portion of his Final Award based
on nonfinancial, subjective Performance Goals.
     3.03 Time of Establishment of Award Opportunities and Performance Goals.
Performance Goals and Award Opportunities for a Participant for a Plan Year must
be established by the Committee prior to the earlier to occur of (a) 90 days
after the commencement of the period of service to which the Performance Goal
relates or (b) the lapse of 25 percent of the period of service, and in any
event while the outcome is substantially uncertain.
     3.04 Adjustment of Performance Goals. The Committee shall have the right to
adjust the Performance Goals (either up or down) during the Plan Year if it
determines that external changes or other unanticipated business conditions have
materially affected the fairness of the goals and unduly influenced the ability
to meet them. Notwithstanding the foregoing, no such adjustment shall be made
with respect to an individual who is a Covered Employee to the extent the same
is considered an upward discretionary increase in the amount of the Final Award
for such individual (within the meaning of Section 162(m)).
     3.05 Individual Award Cap. Effective for Final Awards earned for
Performance Periods commencing on and after January 1, 2006, the maximum annual
Final Award any individual may receive under the Plan is $4,000,000.
ARTICLE IV
FINAL AWARD DETERMINATIONS
     4.01 Final Award Determinations. As soon as practicable after the end of
each Plan Year, Final Awards shall be computed for each Participant as
determined by the Committee. The

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Committee shall certify in writing the extent to which the Performance Goals
established pursuant to Section 3.02 and any other material terms of an award
were in fact satisfied.
     In determining the Final Award, the Committee, in its sole discretion, may
increase or decrease calculated amounts to reflect factors regarding performance
during the Plan Year which were not, in the sole opinion of the Committee,
appropriately reflected in the Final Award calculation. Notwithstanding the
foregoing, the Final Award to an individual who is a Covered Employee will not
be subject to upward discretionary adjustment by the Committee. Downward
discretionary adjustment for Covered Employees will be permitted.
     4.02 Separation From Service Due to Death, Disability, or Retirement. If a
Participant incurs a Separation From Service by reason of death, Disability, or
Retirement, the Final Award, determined in accordance with Section 4.01, shall
be reduced so that it reflects only participation prior to the Separation From
Service. This reduction shall be determined by multiplying the Final Award by a
fraction, the numerator of which is the months of participation through the date
of the Separation From Service rounded up to whole months, and the denominator
of which is twelve (12).
     4.03 Employment Transfers. If a Participant transfers from one division to
another division within Baker Hughes and the Affiliates, the Final Award for the
Participant’s time at the Participant’s former division will be prorated for the
number of whole months rounded to the nearest whole month of the Plan Year the
Participant was at that division. The Final Award will be determined as soon as
practicable after the end of the Plan Year and will be based on the financial
results at the close of the Plan Year. The Final Award will be paid at the same
time the other Final Awards for that division are paid. If a Participant is
eligible for a Final Award in his new position, the Final Award will be based on
the months left in the Plan Year, on his new base salary level and Award
Opportunities, as determined by the Committee based upon the recommendation of
the Chief Executive Officer of Baker Hughes.
     4.04 Disposition of Business. If the Participant’s Employer or division is
disposed of during the Plan Year and such disposition does not qualify as a
Change in Control, payment of the Participant’s Final Award shall be determined
in accordance with the following alternatives:
     (a) If the acquirer offers employment to the Participant and assumes the
obligations under the Plan, either directly or indirectly, and the Participant
accepts such offer of employment, the Participant’s Final Award will not be
forfeited but the Employer shall not be obligated to pay the Final Award and
such obligation shall be that of the acquiring party in accordance with the
Final Award parameters.
     (b) If the acquirer does not assume the obligations under the Plan, whether
or not the Participant is offered and accepts employment, then the Participant’s
Final Award will not be forfeited and the Participant will receive a prorated
Final Award for the portion of the Plan Year that the Participant was employed
by the Employer prior to the date of the consummation of the sale of the
Employer or division, to be paid at the same time other Final Awards are paid
under the Plan. The computation shall be made on the basis of the number of
whole months rounded to the nearest whole month of the Plan Year that the
Participant was in active service with the Employer.

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     (c) If the acquirer offers employment to the Participant and assumes the
obligations under the Plan, either directly or indirectly, and the Participant
rejects such employment, the Participant shall forfeit his Final Award for the
Performance Period then in progress pursuant to Section 4.05.
     4.05 Separation From Service for Other Reasons. Except as specified in
Article X or Section 4.04, if a Participant incurs a Separation From Service for
any reason other than Retirement, Disability or death, all of the Participant’s
rights to any unpaid Final Award shall be forfeited.
ARTICLE V
BANKING OF AWARDS
     5.01 General Banking Procedures. Except as specified in Section 5.02, if
Performance Goals applicable to a Final Award that are designated by the
Committee as company Performance Goals are achieved at a level in excess of the
OA Level, the amount of the Final Award that is attributable to exceeding the OA
Level will be banked and paid at the times specified in Section 7.02. To the
extent that a Final Award for a Performance Period is banked, it shall be
credited to the Participant’s Banked Account for the Performance Period
effective as of the Initial Payment Date.
     5.02 Exceptions. No portion of a Final Award will be banked pursuant to
Section 5.01 if (a) the amount that would be banked is $2,000 or less, (b) the
Participant incurs a Separation From Service and the Participant is described in
clause (b) of Section 4.04, (c) a Change in Control occurs during the
Performance Period, (c) applicable local laws prohibit banking of the Final
Award or (d) written procedures adopted by the Committee prior to the
Performance Period specify that the Final Award will not be banked.
ARTICLE VI
DEEMED INVESTMENT OF FUNDS
     Amounts deemed credited to a Participant’s Banked Account for a Performance
Period shall be deemed to be credited with interest at the annual rate equal to
the Applicable Interest Rate commencing as of the Initial Payment Date. For the
period commencing on the Initial Payment Date and ending on the day before the
first anniversary of the Initial Payment Date the Applicable Interest Rate will
be based on the rate in effect as of the Initial Payment Date. For the period
commencing on the first anniversary of the Initial Payment Date and ending on
the second anniversary of the Initial Payment Date the Applicable Interest rate
will be based on the rate in effect as of the first anniversary of the Initial
Payment Date.
ARTICLE VII
PAYMENT OF BENEFITS
     7.01 Time of Payment of Unbanked Final Award. Except to the extent that a
Final Award is banked pursuant to Article V, or except as specified in
Article X, a Participant’s Final Award, to the extent not forfeited pursuant to
Article VIII, shall be paid to him on March 15 following the Performance Period
(the “Initial Payment Date”).

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     7.02 Time of Payment of Banked Final Award. To the extent that a
Participant’s Final Award is banked pursuant to this Article V, fifty percent
(50%) of the amount then credited to the Participant’s Banked Account for the
Performance Period, to the extent not forfeited pursuant to Article VIII, shall
be distributed to the Participant on the first anniversary of the Initial
Payment Date of the Final Award. The remaining portion of the amount credited to
the Participant’s Banked Account for the Performance Period, to the extent not
forfeited pursuant to Article VIII, shall be distributed to the Participant on
the second anniversary of the Initial Payment Date. Notwithstanding the
foregoing, (a) if a Participant incurs an Involuntary Separation From Service or
if he incurs a Separation From Service due to Retirement, any amounts credited
to his Banked Account(s) shall be paid to him on the earlier of (1) the date of
the Participant’s Separation From Service if the Participant is not a Specified
Employee or the date that is six months following his Separation From Service if
the Participant is a Specified Employee, or (2) the date the amount would
otherwise be paid under this Section 7.02; (b) if the Participant incurs a
Disability, any amounts credited to his Banked Accounts will be paid to him on
the date the date of the Participant’s Disability; or (c) if the Participant
dies, any amounts credited to his Banked Accounts will be paid as specified in
Section 9.02. Further, notwithstanding the foregoing, (a) upon the occurrence of
a Change in Control all amounts that are credited to the Participant’s Banked
Accounts that are not deferred compensation within the meaning of Section 409A
shall be paid to the Participant; (b) upon the occurrence of a Change in control
that constitutes a “Change in Control” within the meaning of Section 409A all
amounts that are credited to the Participant’ Banked Accounts shall be paid to
the Participant.
     7.03 Form of Payment of Benefits. All benefit payments shall be made in
cash.
     7.04 Account Debits. Any benefit payments made to a Participant, or former
Participant, or for his benefit pursuant to any provision of the Plan shall be
debited to such Participant’s or former Participant’s Accounts.
     7.05 Unclaimed Benefits. In the case of a benefit payable on behalf of a
Participant or former Participant, if the Plan Administrator is unable, after
reasonable efforts, to locate the Participant, the former Participant or the
beneficiary to whom such benefit is payable, upon the Plan Administrator’s
determination thereof, such benefit shall be forfeited to the Employer.
Notwithstanding the foregoing, if subsequent to any such forfeiture the
Participant, the former Participant or beneficiary to whom such benefit is
payable makes a valid claim for such benefit, such forfeited benefit (without
any adjustment for earnings or loss) shall be restored to the Plan by the
Employer and paid in accordance with the Plan.
     7.06 Statutory Benefits. If any benefit obligations are required to be paid
under the Plan to a Participant or former Participant in conjunction with
severance of employment under the laws of the country where the Participant or
former Participant is employed or under federal, state or local law, the
benefits paid to a Participant or former Participant pursuant to the provisions
of the Plan will be deemed to be in satisfaction of any statutorily required
benefit obligations.
     7.07 Payment to Alternate Payee Under Domestic Relations Order. Plan
benefits that are awarded to an Alternate Payee in a Domestic Relations Order
shall be paid to the Alternate Payee at the time and in the form directed in the
Domestic Relations Order. The

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Domestic Relations Order may provide for an immediate lump sum payment to an
Alternate Payee. A Domestic Relations Order may not otherwise provide for a time
or form of payment that is not permitted under the Plan. A Domestic Relations
Order will be disregarded to the extent it awards an Alternate Payee benefits in
excess of the applicable Participant’s or former Participant’s Account balance
under the Plan.
ARTICLE VIII
FORFEITURE OF BENEFITS
     Except as specified in Section 4.04 or Article X, if a Participant incurs a
Separation From Service for any reason other than Retirement, death, Disability
or Involuntary Separation from Service before the time a payment to him is to be
made under Article VII, he shall forfeit the payment and all amounts then deemed
credited to his Accounts.
ARTICLE IX
DEATH
     9.01 Payment of Unbanked Amounts. In the event of a death of a Participant
prior to the Initial Payment Date of a Final Award, the Participant’s Final
Award will be paid to the Participant’s Beneficiary on the Initial Payment Date.
     9.02 Payment of Banked Amounts. Upon the death of a Participant any amounts
deemed credited to the Participant’s Banked Accounts will be paid to his
Beneficiary as soon as administratively practicable.
     9.03 Designation of Beneficiaries.
     (a) Each Participant or former Participant shall have the right to
designate the beneficiary or beneficiaries to receive payment of his benefit in
the event of his death. Each such designation shall be made by executing the
beneficiary designation form prescribed by the Plan Administrator and filing
same with the Plan Administrator. Any such designation may be changed at any
time by execution of a new designation in accordance with this Section 9.03.
     (b) If no such designation is on file with the Plan Administrator at the
time of the death of the Participant or former Participant or such designation
is not effective for any reason as determined by the Plan Administrator, then
the designated beneficiary or beneficiaries to receive such benefit shall be as
follows:
     (i) If a Participant or former Participant leaves a surviving spouse, his
benefit shall be paid to such surviving spouse;
     (ii) If a Participant or former Participant leaves no surviving spouse, his
benefit shall be paid to such Participant’s or former Participant’s executor or
administrator, or to his heirs at law if there is no administration of such
Participant’s or former Participant’s estate.

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ARTICLE X
CHANGE IN CONTROL
     10.01 General. The provisions of this Article X shall apply and supersede
any contrary provisions of the Plan in the event of a Change in Control.
     10.02 CIC Committee. If a Change in Control or Potential Change in Control
occurs, all references in the Plan to “Committee” shall at that point be deemed
to be references to the CIC Committee.
     10.03 Change in Control During a Performance Period. Notwithstanding any
provision of the Plan to the contrary, upon the occurrence of a Change in
Control during a Performance Period, (i) Final Awards for the Performance Period
shall be computed for each Participant pursuant to Section 4.01 (assuming for
this purpose that the Performance Goals established pursuant to Section 3.02
herein have been achieved to the extent required to earn the expected value
Award Opportunity), and (ii) the Employer shall pay to each Participant an
amount equal to the Final Award so determined multiplied by a fraction, the
numerator of which is the number of the Participant’s months of participation
during the Performance Period through the date of Change of Control (rounded up
to the nearest whole month), and the denominator of which is twelve (12).
     10.04 Termination of Employment Prior to Change in Control or Following
Certain Changes in Control. Notwithstanding any provision of the Plan to the
contrary, a Participant shall be entitled to receive the payment described in
Section 10.03 for a Performance Period if (i) such Participant’s employment is
terminated by Baker Hughes or an Affiliate during the Performance Period without
Cause prior to a Change in Control (whether or not a Change in Control ever
occurs) and such termination was at the request or direction of a Person who has
entered into an agreement with Baker Hughes or an Affiliate the consummation of
which would constitute a Change in Control, (ii) such Participant resigns during
the Performance Period for Good Reason prior to a Change in Control (whether or
not a Change in Control ever occurs) and the circumstance or event which
constitutes Good Reason occurs at the request or direction of the Person
described in clause (i), or (iii) such Participant’s employment is terminated by
Baker Hughes or an Affiliate during the Performance Period without Cause or by
the Participant for Good Reason and such termination or the circumstance or
event which constitutes Good Reason is otherwise in connection with or in
anticipation of a Change in Control (whether or not a Change in Control ever
occurs).
     10.05 Payment of Expected Value Awards and Tax-Gross Up for Delayed
Payment. If a Participant is entitled to a Final Award payment pursuant to
Section 10.03, the Employer shall pay the Participant such Final Award within
five days following the date of the Change in Control. If a Participant is
entitled to a Final Award payment pursuant to Section 10.04, the Employer shall
pay the Participant such Final Award within five days following the date of the
Participant’s termination of employment. If for any reason the Employer fails to
timely pay a Participant the amounts due him pursuant to this Article X, the
Employer shall pay the Participant additional compensation in such amount as is
necessary to put the Participant in the same federal income tax position he
would have been in had the payment not been subject to

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Section 409A. Such additional compensation shall be paid to the Participant at
the same time as the delinquent Final Award payment is paid to the Participant.
     10.06 Forfeiture Restrictions. Notwithstanding any other provision of the
Plan, upon the occurrence of a Change in Control during a Performance Period or
upon a Participant’s termination of employment during a Performance Period in a
circumstance described in Section 10.04, the amount of the Participant’s Final
Award for the Performance Period, calculated in accordance with Section 10.03,
shall not be forfeited, and any amounts then credited to the Participant’s
Accounts shall not be forfeited.
ARTICLE XI
ADMINISTRATION OF THE PLAN
     11.01 Resignation and Removal. The members of a Committee serving as Plan
Administrator shall serve at the pleasure of the Board; they may be officers,
directors, or employees or any other individuals. At any time during his term of
office, any member of a Committee or any individual serving as Plan
Administrator may resign by giving written notice to the Board, such resignation
to become effective upon the appointment of a substitute or, if earlier, the
lapse of thirty days after such notice is given as herein provided. At any time
during its term of office, and for any reason, any member of a Committee or any
individual serving as Plan Administrator may be removed by the Board.
     11.02 Records and Procedures. The Plan Administrator shall keep appropriate
records of its proceedings and the administration of the Plan and shall make
available for examination during business hours to any Participant, former
Participant or the beneficiary of any Participant or former Participant such
records as pertain to that individual’s interest in the Plan. If a Committee is
performing duties as the Plan Administrator, the Committee shall designate the
individual or individuals who shall be authorized to sign for the Plan
Administrator and, upon such designation, the signature of such individual or
individuals shall bind the Plan Administrator.
     11.03 Self-Interest of Plan Administrator. Neither the members of a
Committee nor any individual Plan Administrator shall have any right to vote or
decide upon any matter relating solely to himself under the Plan or to vote in
any case in which his individual right to claim any benefit under the Plan is
particularly involved. In any case in which any Committee member or individual
Plan Administrator is so disqualified to act, the other members of the Committee
shall decide the matter in which the Committee member or individual Plan
Administrator is disqualified.
     11.04 Compensation and Bonding. Neither the members of a Committee nor any
individual Plan Administrator shall receive compensation with respect to their
services on the Committee or as Plan Administrator. To the extent permitted by
applicable law, neither the members of a Committee nor any individual Plan
Administrator shall furnish bond or security for the performance of their duties
hereunder.
     11.05 Plan Administrator Powers and Duties. The Plan Administrator shall
supervise the administration and enforcement of the Plan according to the terms
and provisions hereof and

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shall have all powers necessary to accomplish these purposes, including, but not
by way of limitation, the right, power, and authority:
     (a) to make rules, regulations, and bylaws for the administration of the
Plan that are not inconsistent with the terms and provisions hereof, and to
enforce the terms of the Plan and the rules and regulations promulgated
thereunder by the Plan Administrator;
     (b) to construe in its discretion all terms, provisions, conditions, and
limitations of the Plan;
     (c) to correct any defect or to supply any omission or to reconcile any
inconsistency that may appear in the Plan in such manner and to such extent as
it shall deem in its discretion expedient to effectuate the purposes of the
Plan;
     (d) to employ and compensate such accountants, attorneys, investment
advisors, and other agents, employees, and independent contractors as the Plan
Administrator may deem necessary or advisable for the proper and efficient
administration of the Plan;
     (e) to determine in its discretion all questions relating to eligibility;
     (f) to determine whether and when a Participant has incurred a Separation
From Service, and the reason for such termination; and
     (g) to make a determination in its discretion as to the right of any
individual to a benefit under the Plan and to prescribe procedures to be
followed by distributees in obtaining benefits hereunder.
     11.06 Reliance on Documents, Instruments, etc. The Plan Administrator may
rely on any certificate statement or other representation made on behalf of the
Employer or any Participant, which the Plan Administrator in good faith believes
to be genuine, and on any certificate, statement, report or other representation
made to it by any agent or any attorney, accountant or other expert retained by
it or Baker Hughes in connection with the operation and administration of the
Plan.
     11.07 Claims Review Procedures; Claims Appeals Procedures.
     (a) Claims Review Procedures. When a benefit is due, the Participant, or
the person entitled to benefits under the Plan, should submit a claim to the
office designated by the Plan Administrator to receive claims. Under normal
circumstances, the Plan Administrator will make a final decision as to a claim
within 90 days after receipt of the claim. If the Plan Administrator notifies
the claimant in writing during the initial 90-day period, it may extend the
period up to 180 days after the initial receipt of the claim. The written notice
must contain the circumstances necessitating the extension and the anticipated
date for the final decision. If a claim is denied during the claims period, the
Plan Administrator must notify the claimant in writing, and the written notice
must set forth in a manner calculated to be understood by the claimant:

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     (1) the specific reason or reasons for the denial;
     (2) specific reference to the Plan provisions on which the denial is based;
and
     (3) a description of any additional material or information necessary for
the claimant to perfect the claim and an explanation of why such material or
information is necessary.
If a decision is not given to the Participant within the claims review period,
the claim is treated as if it were denied on the last day of the claims review
period.
     (b) Claims Appeals Procedures. For purposes of this Section 11.07 the
Participant or the person entitled to benefits under the Plan is referred to as
the “claimant.” If a claimant’s claim made pursuant to Section 11.07(a) is
denied and he wants a review, he must apply to the Plan Administrator in
writing. That application can include any arguments, written comments,
documents, records, and other information relating to the claim for benefits. In
addition, the claimant is entitled to receive on request and free of charge
reasonable access to and copies of all information relevant to the claim. For
this purpose, “relevant” means information that was relied on in making the
benefit determination or that was submitted, considered or generated in the
course of making the determination, without regard to whether it was relied on,
and information that demonstrates compliance with the Plan’s administrative
procedures and safeguards for assuring and verifying that Plan provisions are
applied consistently in making benefit determinations. The Plan Administrator
must take into account all comments, documents, records, and other information
submitted by the claimant relating to the claim, without regard to whether the
information was submitted or considered in the initial benefit determination.
The claimant may either represent himself or appoint a representative, either of
whom has the right to inspect all documents pertaining to the claim and its
denial. The Plan Administrator can schedule any meeting with the claimant or his
representative that it finds necessary or appropriate to complete its review.
     The request for review must be filed within 90 days after the denial. If it
is not, the denial becomes final. If a timely request is made, the Plan
Administrator must make its decision, under normal circumstances, within 60 days
of the receipt of the request for review. However, if the Plan Administrator
notifies the claimant prior to the expiration of the initial review period, it
may extend the period of review up to 120 days following the initial receipt of
the request for a review. All decisions of the Plan Administrator must be in
writing and must include the specific reasons for its action, the Plan
provisions on which its decision is based, and a statement that the claimant is
entitled to receive, upon request and free of charge, reasonable access to, and
copies of, all documents, records, and other information relevant to the
claimant’s claim for benefits. If a decision is not given to the claimant within
the review period, the claim is treated as if it were denied on the last day of
the review period.
     Within 60 days of receipt by a claimant of a notice denying a claim under
the preceding paragraph, the claimant or his or her duly authorized
representative may request in writing a full and fair review of the claim by the
Plan Administrator. The Plan

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Administrator may extend the 60-day period where the nature of the benefit
involved or other attendant circumstances make such extension appropriate. In
connection with such review, the claimant or his or her duly authorized
representative may review pertinent documents and may submit issues and comments
in writing. The Plan Administrator shall make a decision promptly, and not later
than 60 days after the Plan’s receipt of a request for review, unless special
circumstances (such as the need to hold a hearing) require an extension of time
for processing, in which case a decision shall be rendered as soon as possible,
but not later than 120 days after receipt of a request for review. The decision
on review shall be in writing and shall include specific reasons for the
decision, written in a manner calculated to be understood by the claimant, and
specific references to the pertinent Plan provisions on which the decision is
based.
     11.08 Employer to Supply Information. The Employer shall supply full and
timely information to the Plan Administrator, including, but not limited to,
information relating to each Participant’s base salary, age, Retirement, death,
or other cause of Separation From Service and such other pertinent facts as the
Plan Administrator may require. When making a determination in connection with
the Plan, the Plan Administrator shall be entitled to rely upon the aforesaid
information furnished by the Employer.
     11.09 Indemnity. To the extent permitted by applicable law, Baker Hughes
shall indemnify and save harmless the Board, each member of the Committee, each
delegate of the Committee or the Board and the Plan Administrator against any
and all expenses, liabilities and claims (including legal fees incurred to
investigate or defend against such liabilities and claims) arising out of their
discharge in good faith of responsibilities under or incident to the Plan.
Expenses and liabilities arising out of willful misconduct shall not be covered
under this indemnity. This indemnity shall not preclude such further indemnities
as may be available under insurance purchased by Baker Hughes or provided by
Baker Hughes under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, as such indemnities are permitted under applicable law.
ARTICLE XII
ADOPTION OF PLAN BY AFFILIATES
     12.01 Adoption Procedure.
     (a) With the written approval of the Plan Administrator, any entity that is
an Affiliate may adopt the Plan by appropriate action of its board of directors
or noncorporate counterpart, as evidenced by a written instrument executed by an
authorized officer of such entity or an executed adoption agreement (approved by
the board of directors or noncorporate counterpart of the Affiliate), agreeing
to be bound by all the terms, conditions and limitations of the Plan except
those, if any, specifically described in the adoption instrument, and providing
all information required by the Plan Administrator. The Plan Administrator and
the adopting Affiliate may agree to incorporate specific provisions relating to
the operation of the Plan that apply to the adopting Affiliate only and shall
become, as to such adopting Affiliate and its employees, a part of the Plan.

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     (b) The provisions of the Plan may be modified so as to increase the
obligations of an adopting Affiliate only with the consent of such Affiliate,
which consent shall be conclusively presumed to have been given by such
Affiliate unless the Affiliate gives Baker Hughes written notice of its
rejection of the amendment within 30 days after the adoption of the amendment.
     (c) The provisions of the Plan shall apply separately and equally to each
adopting Affiliate and its employees in the same manner as is expressly provided
for Baker Hughes and its employees, except that the power to appoint or
otherwise affect the Plan Administrator and the power to amend or terminate the
Plan shall be exercised by Baker Hughes. The Plan Administrator shall act as the
agent for each Affiliate that adopts the Plan for all purposes of administration
thereof.
     (d) Any adopting Affiliate may, by appropriate action of its board of
directors or noncorporate counterpart, terminate its participation in the Plan.
Moreover, the Plan Administrator may, in its discretion, terminate an
Affiliate’s participation in the Plan at any time.
     (e) The Plan will terminate with respect to any Affiliate that has adopted
the Plan pursuant to this Section 12.01 if the Affiliate ceases to be an
Affiliate or revokes its adoption of the Plan by resolution of its board of
directors or noncorporate counterpart evidenced by a written instrument executed
by an authorized officer of the Affiliate. If the Plan terminates with respect
to any Affiliate, the employees of that Affiliate will no longer be eligible to
be Participants in the Plan.
     (f) The Plan as adopted by the Affiliates shall constitute a single plan
rather than a separate plan of each Affiliate.
     12.02 No Joint Venture Implied. The document which evidences the adoption
of the Plan by an Affiliate shall become a part of the Plan. However, neither
the adoption of the Plan by an Affiliate nor any act performed by it in relation
to the Plan shall ever create a joint venture or partnership relation between it
and any other Affiliate.
ARTICLE XIII
MISCELLANEOUS
     13.01 Plan Not Contract of Employment. The adoption and maintenance of the
Plan shall not be deemed to be a contract between the Employer and any
individual or to be consideration for the employment of any individual. Nothing
herein contained shall be deemed to (a) give any individual the right to be
retained in the employ of the Employer, (b) restrict the right of the Employer
to discharge any individual at any time, (c) give the Employer the right to
require any individual to remain in the employ of the Employer, or (d) restrict
any individual’s right to terminate his employment at any time.

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     13.02 Funding. Plan benefits are a contractual obligation of the Employers
which shall be paid out of the Employers’ general assets. The Plan is unfunded
and Participants are merely unsecured creditors of the Employers with respect to
their benefits under the Plan.
     13.03 Alienation of Interest Forbidden. The interest of a Participant,
former Participant or his beneficiary or beneficiaries hereunder may not be
sold, transferred, assigned, or encumbered in any manner, either voluntarily or
involuntarily, and any attempt so to anticipate, alienate, sell, transfer,
assign, pledge, encumber, or charge the same shall be null and void; neither
shall the benefits hereunder be liable for or subject to the debts, contracts,
liabilities, engagements or torts of any individual to whom such benefits or
funds are payable, nor shall they be an asset in bankruptcy or subject to
garnishment, attachment or other legal or equitable proceedings. The provisions
of this Section 13.03 shall not apply to a Domestic Relations Order.
     13.04 Withholding. All credits to a Participant’s or former Participant’s
Accounts and payments provided for hereunder shall be subject to applicable
withholding and other deductions as shall be required of the Employer under any
applicable local, state or federal law.
     13.05 Amendment and Termination. The Board, may from time to time, in its
discretion, amend, in whole or in part, any or all of the provisions of the Plan
on behalf of any Employer; provided, however, that no amendment may be made that
would impair the rights of a Participant or former Participant with respect to
amounts already credited to his Accounts. The Board may terminate the Plan at
any time. If the Plan is terminated, the amounts credited to a Participant’s or
former Participant’s Account shall be paid to such Participant, or former
Participant, or his designated beneficiary at the time(s) specified in Articles
VII, IX and X, as applicable.
     13.06 Severability. If any provision of the Plan shall be held illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining provisions hereof; instead, each provision shall be fully severable
and the Plan shall be construed and enforced as if said illegal or invalid
provision had never been included herein.
     13.07 Arbitration. Any controversy arising out of or relating to the Plan,
including without limitation, any and all disputes, claims (whether in tort,
contract, statutory or otherwise) or disagreements concerning the interpretation
or application of the provisions of the Plan, the Employer’s employment of the
Participant, or former Participant, and the termination of that employment,
shall be resolved by arbitration in accordance with the Employee Benefit Plan
Claims Arbitration Rules of the American Arbitration Association (the “AAA”)
then in effect. No arbitration proceeding relating to the Plan may be initiated
by either the Employer or the Participant, or former Participant, unless the
claims review and appeals procedures specified in Section 11.07 have been
exhausted. Within ten (10) business days of the initiation of an arbitration
hereunder, the Employer and the Participant, or former Participant, will each
separately designate an arbitrator, and within twenty (20) business days of
selection, the appointed arbitrators will appoint a neutral arbitrator from the
panel of AAA National Panel of Employee Benefit Plan Claims Arbitrators. The
arbitrators shall issue their written decision (including a statement of finding
of facts) within thirty (30) days from the date of the close of the arbitration
hearing. The decision of the arbitrators selected hereunder will be final and
binding on both parties. This arbitration provision is expressly made pursuant
to and shall be governed

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by the Federal Arbitration Act, 9 U.S.C. Sections 1-16 (or replacement or
successor statute). Pursuant to Section 9 of the Federal Arbitration Act, the
Employer and any Participant agrees that any judgment of the United States
District Court for the District in which the headquarters of Baker Hughes is
located at the time of initiation of an arbitration hereunder shall be entered
upon the award made pursuant to the arbitration. Nothing in this Section 13.07
shall be construed to, in any way, limit the scope and effect of Article XI. In
any arbitration proceeding full effect shall be given to the rights, powers, and
authorities of the Plan Administrator under Article XI.
     13.08 Stockholder Approval. Notwithstanding any other provision of the
Plan, no payments shall be made under the Plan with respect to Performance
Periods commencing on or after January 1, 2006 unless, prior to the payments,
the stockholders of Baker Hughes approve the material terms of the performance
goals under which the compensation is to be paid (within the meaning of Section
162(m)).
     13.09 Compliance With Section 409A. To the extent applicable, the Plan
shall be operated in compliance with Section 409A and the provisions of
Section 409A shall override any provisions of the Plan to the extent that they
are inconsistent with Section 409A.
     13.10 Governing Law. All provisions of the Plan shall be construed in
accordance with the laws of Texas, except to the extent preempted by federal law
and except to the extent that the conflicts of laws provisions of the State of
Texas would require the application of the relevant law of another jurisdiction,
in which event the relevant law of the State of Texas will nonetheless apply,
with venue for litigation being in Houston, Texas.

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

              BAKER HUGHES INCORPORATED
 
       
 
  By:   /s/ GREG NAKANISHI 
 
       
 
  Title:   Greg Nakanishi, Vice President, Human Resources