Exhibit 10.1

March 17, 2004

Via Hand Delivery
Mr. Andrew Szescila
6307 Prague Street
Houston, TX 77007

Dear Andy:

As we have agreed, your employment with Baker Hughes Incorporated (hereinafter
referred to as “Company”) will terminate on the date of your retirement. The
purpose of this letter (the “Agreement”) is to set forth certain agreements and
understandings regarding, among other things:

•   The termination of your employment upon retirement;   •   Certain benefits
the Company has agreed to provide to you upon termination of your employment;  
•   Your agreement to certain obligations of confidentiality, non-competition
and cooperation; and   •   Your release of any and all claims against the
Company

When you and I have signed this letter, it will constitute a complete agreement
on all of these issues.

1.   RETIREMENT:       You have indicated that you plan to retire from the
Company on December 31, 2003 (the “Effective Date”). Your employment will
terminate on the Effective Date.

         
Initials: AJS MEW
    1  

 

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Exhibit 10.1

2.   SEPARATION BENEFITS:       The Company will provide you with two kinds of
separation benefits at the time of your termination. First, you will receive
regular separation benefits as defined below. Second, in recognition of your
specialized knowledge and of your position as an officer of the Company, and in
exchange for a release of all claims, the Company is offering you enhanced
separation benefits. You will receive the regular separation benefits, even if
you decline to sign this letter and execute the release of claims.       (a)
Regular Separation Benefits       Year 2003 ICP Bonus – Your bonus for fiscal
year 2003 will be determined with reference to the formal written objectives set
forth for your position of Senior Vice President and Chief Operating Officer,
Baker Hughes Incorporated, in the Incentive Compensation Plan, and will be paid
by March 31, 2004. If the results for Baker Hughes Incorporated exceed OA, the
excess portion that would be “banked” will be paid to you in conjunction with
your incentive payment. The bonus will be determined at the Company’s sole
discretion, based on fiscal 2003 audited results.       Long-term Incentive
Performance Plan – Performance goals were not achieved under the Long-term
Incentive Performance Plan and, therefore, no payment will be made under this
bonus plan.       Health and Welfare Benefits – If you were participating in
medical, dental, and/or vision coverage for yourself and any eligible
dependent(s), all active coverage will end as of the Effective Date. The
Benefits Center will send you a packet regarding continuation of benefits under
COBRA (Consolidated Omnibus Benefits Reconciliation Act), and you and/or your
eligible dependent(s) may elect to continue coverage for an additional 18
months, provided you timely enroll for coverage and make the required premium
payments.       As an alternative, you have the option of enrolling in the
Retiree Medical Plan based on your age and years of service. If you select this
option, the Benefits Center will send you a packet regarding continuation of
benefits, and you and/or your eligible dependent(s) may elect to continue
coverage. Your retiree medical premiums are subsidized by the Company and will
be billed to you by the Benefits Center. You will be solely responsible for
payment of the retiree premiums for both yourself and your covered dependents,
if any. You can also contact the Benefits Center directly at 1-866-244-3539 for
more information and to answer any questions.       All other health and welfare
benefits end as of the Effective Date.       Regarding your Thrift Plan account
balance, you have the option of leaving your money in the Plan, or you may
request a full distribution of your account at any time after your termination.

         
Initials: AJS MEW
    2  

 

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Exhibit 10.1

    Regarding your Pension Plan account balance, you are not currently vested in
the Pension Plan; therefore your current Pension Plan balance is forfeited.    
  Your vested Supplemental Retirement Plan account balance will be paid out
according to your elections previously submitted. A small portion of your
Supplemental Retirement Plan balance related to pension contributions is
unvested and will therefore be forfeited.       Stock Options – In accordance
with the terms of your current outstanding stock options, (1) all options
immediately vest upon the Effective Date, and (2) you have up to three years
from the Effective Date, but not later than the Expiration Date of the options,
to exercise the respective options.       Final Expenses – The Company agrees to
reimburse you for all outstanding business expenses in accordance with Company
policy. You will prepare and submit a final expense account reimbursement
request for expenses incurred prior to the Effective Date. Such expense account
reimbursement request will be reviewed and paid in accordance with Company
policy. You agree and consent to allow the Company to deduct from any payments
you would otherwise be entitled to receive any amounts that you owe to the
Company as of the Effective Date.       Perquisites – All perquisites terminate
as of your Effective Date. If any memberships are owned by the Company, you will
relinquish them to the Company.       (b) Enhanced Separation Benefits      
These enhanced separation benefits are benefits to which you are not entitled
pursuant to any agreement, or under any policy or practice of the Company. You
acknowledge that the Company has no obligation to provide you with these
benefits and that these benefits constitute a valuable consideration justifying
your agreement to provide the release set forth in Section 4 of this letter.    
  Restricted Stock – The 25,000 restricted shares of Common Stock of the
Company, issued to you in 2001 and due to vest on January 24, 2004, are vested
as of the Effective Date.   3.   AGREEMENTS:

A.   Agreement Not to Compete in order to Protect Confidential Information. You
already possess, and the Company agrees and promises that it will provide you
with additional, sensitive and Confidential Information (as hereinafter defined)
and trade secrets, all of which will be necessary for the continued performance
of your job duties to the effective date of your resignation. Accordingly, as a
promise ancillary to and in exchange for the Company’s promise to provide you
with Confidential Information and trade secrets, you agree that, during the
period commencing with the Effective Date and

         
Initials: AJS MEW
    3  

 

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Exhibit 10.1

    ending six-months from that date unless extended by other agreement, you
will not, without the written consent of the Company, at any time, directly or
indirectly serve as an employee, director, consultant, or otherwise provide
services, advice or assistance to any person, association, or entity that is a
Competitor of the Company, whether in operations, research, marketing,
engineering, process, finance or administration. For the purposes of this
Agreement, the term “Competitor of the Company” shall be construed broadly to
include without limitation any individual, entity, or enterprise that employs
engineers, geoscientists, and field service personnel who apply knowledge and
technology to find, develop and produce oil and gas, as well as those
enterprises that provide products or services for the drilling, formation
evaluation, completion, or production of hydrocarbons. You agree that this
restriction in your ability to represent a Competitor of the Company is
necessary to protect the Confidential Information the Company has already
provided and promised to further provide to you. Because your agreement to
refrain from competition for a total period of six-months is ancillary to the
Company’s promise to provide you with Confidential Information, that agreement
will survive the termination of your employment.       You recognize the
restriction stated herein as reasonable in protecting the Confidential
Information of the Company. Although the Company has attempted to place no more
than reasonable limitations on your subsequent employment opportunities
consistent with the Company’s protection of its legitimate business interests,
you may, at some time in the future, feel that such limitations constitute a
serious impediment to your securing future employment. In such case, you agree
to make a written request to the Company for waiver or reformation of rights
under Section 3A of this letter before accepting employment in conflict with
this Section or any other section of this letter, such request to include the
name and address of the proposed employer and location, position, and duties of
proposed employment. A waiver, unqualified or upon stated conditions, may be
granted by the Company in its discretion.   B.   No Solicitation. During the
period commencing with your Effective Date and ending six months from that date
unless extended by other agreement, you shall not, directly or indirectly,

(a)   interfere with the relationship of the Company or any Affiliate with, or
endeavor to entice away from the Company or any Affiliate, any individual or
entity who was or is a material customer or material supplier of, or who has
maintained a material business relationship with, the Company or its Affiliates;
  (b)   establish (or take preliminary steps to establish) a business with, or
cause or attempt to cause others to establish (or take preliminary steps to
establish) a business with, any employee or agent of the Company or any of its
Affiliates, if such business is or will compete with the Company or any of its
Affiliates; or   (c)   employ, engage as a consultant or adviser, or solicit the
employment, engagement as a consultant or adviser, of any employee or agent of
the

         
Initials: AJS MEW
    4  

 

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Exhibit 10.1

    Company or any of its Affiliates, or cause or attempt to cause any
individual or entity to do any of the foregoing.

C.   Cooperation and Assistance. You agree, acknowledge, and certify that:

(a)   you are aware that the Company is currently under investigation by the
Securities and Exchange Commission and the Department of Justice;   (b)   you
have (i) not engaged in, nor encouraged any individual, in any way, to engage in
the destruction or secreting of any information, in any form, including but not
limited to documents and emails, (“documentation”) that might be relevant to the
investigation referenced in 1 A (a) above; (ii) turned over all documentation in
response to prior requests; and (iii) responded, fully and truthfully, to all
questions related to or arising from the subject matter of such investigation
that have been posed to you by employees or representatives of the Company;  
(c)   for a period of two years after the date of the termination of your
employment (the “Effective Date”), you will cooperate fully upon reasonable
request with the Company and its affiliates, past or present, in connection with
any internal investigation initiated by the Company, its affiliates, and any
successors in interest, as well as with any external investigation initiated by
the government or agency or instrumentality thereof;   (d)   for a period of two
years after the Effective Date, upon reasonable request of the Company, any
subsidiary of the Company, or any successor thereof, you will provide all
documentation and information related to any internal or external investigation
of the Company and its affiliates; and   (e)   after two years after the
Effective Date, you will cooperate with the Company and its affiliates as
described herein at your option, upon payment of all reasonable expenses
reasonably incurred, with such agreement to cooperate not to be unreasonably
withheld.

D.   Confidential Information. “Confidential Information” means sensitive or
proprietary information that has been disclosed to me, or is known by me,
through my employment or as a consequence of my employment with the Company,
which is not generally known as common existing public knowledge in the relevant
trade or industry. Confidential Information includes, but is not limited to, the
following: information regarding customers, employees, contractors, and the
industry not generally known to the public; strategies, methods, books, records,
and documents; technical information concerning products, equipment, services,
and processes; procurement procedures, pricing, and pricing techniques;
information concerning past, current, and prospective customers, investors, and
business affiliates (such as contact name, service provided, pricing, type and
amount of services used, financial data, and/or other such information);

         
Initials: AJS MEW
    5  

 

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Exhibit 10.1

    pricing strategies and price curves; positions; plans or strategies for
expansion or acquisitions; budgets; research; financial and sales data; trading
methodologies and terms; communications information; evaluations, opinions, and
interpretations of information and data; marketing a merchandising techniques;
electronic databases; models; specifications; computer programs; contracts; bids
or proposals; technologies and methods; training methods and processes;
organizational structure; personnel information; payments or rates paid to
consultants or other service providers; and other such confidential or
proprietary information.       You acknowledge that Company’s business is highly
competitive, that this Confidential Information constitutes a valuable, special,
and unique asset used by Company in its business, and that protection of such
Confidential Information against unauthorized disclosure and use is of critical
importance to Company. During the course of your employment with the Company,
you had access to and received Confidential Information. You are obligated to
keep confidential all such Confidential Information for a period of not less
than 12 months following the Effective Date of this Agreement. Notwithstanding
anything to the contrary contained in this Agreement, the definition of
Confidential Information shall not include that sub-set of confidential
information denoted as “trade-secrets” as that term is defined by law, for which
the Company reserves the protections and limitations provided at law.       As
an exception to this confidentiality obligation you may disclose Confidential or
proprietary information and trade secrets (i) in connection with enforcing your
rights under any Plan relevant to the terms of this Agreement, or if compelled
by law (and in either case, you shall provide written notice to the Company
prior to the disclosure), or (ii) if the Company provides written consent prior
to the disclosure.   E.   Agreement to Return Company Property. Immediately
prior to the Effective Date, you will return to the Company all Company property
in your possession, including but not limited to, computers, credit cards and
all files, documents and records of the Company, in whatever medium and of
whatever kind or type. You agree and hereby certify that you have returned, or
will return prior to the Effective Date, all proprietary or confidential
information or documents relating to the business and affairs of the Company and
its affiliates. In addition, you authorize the Company to deduct from any final
payments to you in accordance with the terms of this Agreement, any outstanding
amounts that you may owe to the Company.

4.   RELEASE OF CLAIMS:       You hereby acknowledge that your relationship with
the Company is an “at-will employment relationship,” meaning that either you or
the Company could terminate the relationship with or without notice and or
without cause, at any time. Nevertheless, in consideration for the separation
benefits described in Section 2(b) of this letter, you hereby provide the
Company with an irrevocable and unconditional release and discharge of claims.

         
Initials: AJS MEW
    6  

 

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Exhibit 10.1

    This release and discharge of claims applies to (i) Baker Hughes
Incorporated, (ii) to each and all of its parent, subsidiary or affiliated
companies, (collectively, “the Company”), (iii) to the Company’s officers,
agents, directors, supervisors, employees, representatives, and their successors
and assigns, whether or not acting in the course and scope of employment, and
(iv) to all persons acting by, through, under, or in concert with any of the
foregoing persons or entities.       The claims subject to this release include,
without limitation, any and all claims related or in any manner incidental to
your employment with the Company or the termination of that employment
relationship. The parties understand the word “claims” to include all actions,
claims, and grievances, whether actual or potential, known or unknown, and
specifically but not exclusively all claims arising out of your employment with
the Company and the termination of your employment. All such claims (including
related attorneys’ fees and costs) are forever barred by this Agreement and
without regard to whether those claims are based on any alleged breach of a duty
arising in a statute, contract, or tort; any alleged unlawful act, including,
without limitation, age discrimination; any other claim or cause or cause of
action; and regardless of the forum in which it might be brought. This release
applies to any claims brought by any person or agency on behalf of you or any
class action pursuant to which you may have any right or benefit.       You
promise never to file a lawsuit asserting any claims that are released by you
and further promise not to accept any recoveries or benefits which may be
obtained on your behalf by any other person or agency or in any class action and
do hereby assign any such recovery or benefit to the Company. If you sue the
Company in violation of this Agreement, you shall be liable to the Company for
its reasonable attorneys’ fees and other litigation costs incurred in defending
against such a suit. Additionally, if you sue the Company in violation of this
Agreement, the Company can require you to return all monies and other benefits
paid to you pursuant to this Agreement.       Notwithstanding the foregoing, the
release contained herein shall not apply to (i) any rights that you may have
under the Company’s retirement plans including the 401(k) plan, (ii) any rights
you may have under this Agreement, (iii) your right under applicable law (i.e.,
the COBRA law) to continued medical insurance coverage at your expense, and
(iv) your statutory right to file a charge with Equal Employment Opportunity
Commission (“EEOC”) or the Texas Commission on Human Rights (“TCHR”), to
participate in an EEOC or TCHR investigation or proceeding, or to challenge the
validity of the release, consistent with the requirements of 29 U.S.C. § 626
(f)(4).       In connection with this release, you understand and agree that:

A.   You have a period of 21 days within which to consider whether you execute
this Agreement, that no one hurried you into executing this Agreement during
that 21-day period, and that no one coerced you into executing this Agreement.

         
Initials: AJS MEW
    7  

 

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Exhibit 10.1

B.   You have carefully read and fully understand all the provisions of the
release set forth in Section 4 of this letter, and declare that the Agreement is
written in a manner that you understand.   C.   You are, through this Agreement,
releasing the Company from any and all claims you may have against the Company
and the other parties specified above, and that this Agreement constitutes a
release and discharge of claims arising under the Age Discrimination in
Employment Act (ADEA), 29 U.S.C. §§ 621-634, including the Older Workers’
Benefit Protection Act, 29 U.S.C. § 626(f).   D.   You declare that your
agreement to all of the terms set forth in this Agreement is knowing and is
voluntary.   E.   You knowingly and voluntarily intend to be legally bound by
the terms of this Agreement.   F.   You acknowledge that the Company is hereby
advising you in writing to consult with an attorney of your choice prior to
executing this Agreement.   G.   You understand that rights or claims that may
arise after the date this agreement is executed are not waived. You understand
that you have a period of seven days to revoke your agreement to give the
Company a complete release in exchange for separation benefits, and that you may
deliver notification of revocation by letter or facsimile addressed to me. You
understand that this Agreement will not become effective and binding, and that
none of the separation benefits described above in Section 2 of this letter will
be provided to you until after the expiration of the revocation period. The
revocation period commences when you execute this Agreement and ends at
11:59 p.m. on the seventh calendar day after execution, not counting the date on
which you execute this Agreement. You understand that if you do not deliver a
notice of revocation before the end of the seven-day period described above,
this Agreement will become final, binding and enforceable.

    The Company’s decision to offer separation benefits in exchange for a
release of claims shall not be construed as an admission by the Company of
(i) any liability whatsoever, (ii) any violation of any of your rights or those
of any person, or (iii) any violation of any order, law, statute, duty, or
contract. The Company specifically disclaims any liability to you or to any
other person for any alleged violation of any rights possessed by you or any
other person, or for any alleged violation of any order, law, statue, duty, or
contract on the part of the Company, its employees or agents or related
companies or their employees or agents.       You represent and acknowledge that
in executing this Agreement you do not rely and have not relied upon any
representation or statement made by the Company, or by any of the Company’s
agents, attorneys, or representatives with regard to the subject matter, basis,
or effect of the Release set forth in this letter, other than those specifically
stated in this letter.

         
Initials: AJS MEW
    8  

 

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Exhibit 10.1

    The release set forth in Section 4 of this letter shall be binding upon you,
and your heirs, administrators, representatives, executors, successors, and
assigns, and shall inure to the benefit of the Company as defined above. You
expressly warrant that you have not assigned, transferred or sold to any person
or entity any rights, causes of action, or claims released in this letter.   5.
  MISCELLANEOUS:

A.   Exclusive Rights and Benefits – The benefits described in this Agreement
supersede, negate and replace any other benefits owed to or offered by the
Company to you. This Agreement will be administered by the Company’s Senior
Labor Attorney, who will also resolve any issues regarding the interpretation,
implementation, or administration of the benefits described above. However, this
provision shall not be construed to limit your legal rights if a disagreement
exists to contest the decision of the Company’s Senior Labor Attorney.   B.  
Entire Agreement – This letter sets forth the entire agreement between you and
the Company with respect to each and every issue addressed in this letter, and
that entire, integrated agreement fully supersedes any and all prior agreements
or understandings, oral or written, between you and the Company pertaining to
the subject matter of this letter.   C:   Exclusive Choice of Law and
Arbitration Agreement – This letter constitutes an agreement that has been
executed and delivered in the State of Texas, and the validity, interpretation,
performance and enforcement of that agreement shall be governed by the laws of
that State.       In the event of any dispute or controversy arising under the
agreement set forth in this letter, or concerning the substance, interpretation,
performance, or enforcement of this Agreement, or in any way relating to this
Agreement (including issues relating to the formation of the agreement and the
validity of this arbitration clause), you agree to resolve that dispute or
controversy, fully and completely, through the use of final, binding
arbitration. You further agree to hold knowledge of the existence of any dispute
or controversy subject to this agreement to arbitrate, completely confidential.
You understand and agree that this confidentiality obligation extends to
information concerning the fact of any request for arbitration, any ongoing
arbitration, as well as all matters discussed, discovered, or divulged, (whether
voluntarily or by compulsion) during the course of such arbitration proceeding.
Any arbitration conducted pursuant to this arbitration provision will be
conducted in accordance with the rules of the American Arbitration Association
in accordance with its rules governing employment disputes. Any arbitration
proceeding resulting hereunder will be conducted in Houston, Texas before an
arbitrator selected by you and the Company by mutual agreement, or through the
American Arbitration Association. This arbitration agreement does not limit or

         
Initials: AJS MEW
    9  

 

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Exhibit 10.1

    affect the right of the Company to seek an injunction to maintain the status
quo in the event that the Company believes that you have violated any provision
of Sections 1 or 2 of this letter. This arbitration agreement does not limit
your right to file an administrative charge concerning the validity of the
release set forth in Section 5 of this letter with any appropriate state or
federal agency. Moreover, should it be determined by an arbiter that any
agreement or certification you have made under Section 1.A(a), (b), (c), or
(d) of this Agreement is unfulfilled or inaccurate you agree that the
appropriate measure of damages recoverable by the Company shall include, but not
be limited to, the total of all payments made under this agreement, and such
other damages as the arbitrator shall deem appropriate.   D:   Severability and
Headings – The invalidity or unenforceability of a term or provision of this
Agreement shall not affect the validity or enforceability of any other term or
provision of this Agreement, which shall remain in full force and effect. Any
titles or headings in this Agreement are for convenience only and shall have no
bearing on any interpretation of this Agreement.   E:   Confidentiality – You
agree that, because the agreement set forth in this letter is a special
arrangement, you will keep the terms of this letter completely confidential and
will not disclose, describe or characterize those terms to any current, former
or prospective employee of the Company, or any representative of the news media,
except as specifically authorized by the Chairman and Chief Executive Officer of
Baker Hughes Incorporated. If any current, former, or prospective employee of
the Company asks about the terms and conditions of your separation and
consulting arrangement with the Company, you will respond by stating that you
reached a “satisfactory” arrangement with the Company. This confidentiality
provision does not prevent you from sharing information about this letter with
your spouse or your tax advisors provided that you inform them of the obligation
to keep the terms confidential.

Please initial each page and sign below.

EXECUTED in Houston, Texas this 18th day of March, 2004.

BAKER HUGHES INCORPORATED

     
By:
  /s/ Michael E. Wiley

 

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  Michael E. Wiley

  Chairman, President, and Chief Executive Officer

EXECUTED in Houston, Texas this 18th day of March, 2004.

     
By:
  /s/ Andrew J. Szescila

 

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  Andrew J. Szescila

         
Initials: AJS MEW
    10