<PAGE>

                                                                   EXHIBIT 10.46


                            BAKER HUGHES INCORPORATED
                             STOCK OPTION AGREEMENT

                                      NAME
                                     GRANTEE


<Table>
<S>                                               <C>
Date of Grant:                                    JULY 24, 2002

Total Number of Shares Granted:                   GRANT

Exercise Price per Share:                         $24.94

Expiration Date:                                  JULY 24, 2012

Term of Award; Vesting Schedule:                  3 YEARS, WITH VESTING OF 33 1/3% ON THE ANNIVERSARY DATE OF THE
                                                  DATE OF GRANT IN EACH OF THE YEARS 2003, 2004, AND 2005.

Other Terms of Award:                             TERMS AND CONDITIONS ARE LOCATED ON THE BHI INTRANET.
</Table>


                                 GRANT OF OPTION

Pursuant to action taken by the Compensation Committee of the Board of Directors
of Baker Hughes Incorporated, a Delaware corporation (the "Company"), for the
purposes of administration of the BAKER HUGHES INCORPORATED [<PLAN NAME>] (the
"Plan"), the above-named Grantee is hereby granted [<a nonqualified/an
incentive>] stock option to purchase the above number of shares of the Company's
$1 par value per share common stock at the exercise price stated above for each
share subject to this option, with the exercise price payable at the time of
exercise. This option may not be exercised after the Expiration Date.

By your acceptance of the option, you agree that the option is granted under and
governed by the terms of the Plan, this Stock Option Agreement and the Terms and
Conditions of Option Agreements (dated July 24, 2002).


                                          BAKER HUGHES INCORPORATED

                                          /S/ MICHAEL E. WILEY

                                          Michael E. Wiley - Chairman,
                                          President & CEO


<PAGE>

                                                                   EXHIBIT 10.46


                            BAKER HUGHES INCORPORATED

                              TERMS AND CONDITIONS
                                       OF
                                OPTION AGREEMENTS
                                 (JULY 24, 2002)

         These Terms and Conditions are applicable to options granted pursuant
to the Baker Hughes Incorporated 2002 Employee Long-Term Incentive Plan (the
"Plan").

1.       TERMINATION OF EMPLOYMENT. The following provisions will apply in the
         event of Grantee's termination of employment:

         1.1 Termination Generally.  If Grantee's employment is terminated
         for any reason other than

                 (i)     a termination covered by Sections 1.2 through 1.6, or

                (ii)     a termination, within two years following a Change in
                         Control (as defined in the Plan) that occurs after the
                         Date of Grant, either (A) by the Company without Cause
                         (as defined in the Plan) or (B) by the Grantee for Good
                         Reason (as defined in the Plan),

         the option will wholly and completely terminate on the date of
         termination of employment, to the extent it is not then exercisable;
         however, to the extent the option is exercisable, Grantee shall have
         three months from the date of termination of employment to exercise the
         option (but in no event later than the Expiration Date).

         1.2 Termination for Cause. If Grantee's employment is terminated for
         cause, including (without limitation) fraud, theft, embezzlement
         committed against the Company or any of its affiliated companies or a
         customer of the Company, or for conflict of interest, unethical
         conduct, dishonesty affecting the assets, properties or business of the
         Company or any of its affiliated companies, willful misconduct, or
         continued material dereliction of duties, the option will wholly and
         completely terminate on the date of termination of employment if such
         termination occurs (i) prior to a Change of Control that occurs after
         the Date of Grant or (ii) after the second anniversary of a Change of
         Control that occurs after the Date of Grant. If Grantee's employment is
         terminated for Cause (as defined in the Plan), the option will wholly
         and completely terminate on the date thirty days following such
         termination (but not later than the Expiration Date) if such
         termination occurs within two years following a Change of Control that
         occurs after the Date of Grant.

         1.3 Termination without Cause or for Good Reason in Connection with a
         Change in Control. Notwithstanding any other provision of this Stock
         Option Agreement to the contrary, if a Change in Control of the Company
         occurs, the provisions of Article 14 of the Plan shall govern.

         1.4 Divestiture of Business Unit. If the Company divests its ownership
         in a business unit that employs the Grantee, then the option will be
         deemed to be fully vested on the effective date of the Divestiture of
         the business unit. The Grantee will have three years in which to
         exercise the option. A "Divestiture" includes the disposition of any
         business unit of the Company and its subsidiaries to an entity that the
         Company does not consolidate in its financial statements, whether the
         disposition is structured as a sale or transfer of stock, a merger, a
         consolidation or a sale or transfer of assets, or a combination
         thereof, provided that a "Divestiture" shall not include a disposition
         that constitutes a Change in Control.

         1.5 Retirement or Disability. In the event of the retirement (such that
         the Grantee's age plus years of service with the Company equals or
         exceeds 65) or long-term disability of the Grantee, as long-term
         disability is determined in the discretion of the Committee (as defined
         in the Plan), all granted but unvested options shall immediately vest
         upon the Grantee's retirement or long-term disability. The Grantee
         shall have three years from the date of termination of employment due
         to retirement or long-term disability to exercise the option (but not
         later than the Expiration Date).



<PAGE>
                                                                   EXHIBIT 10.46


         1.6 Death. Upon the death of the Grantee in active service, all granted
         but unvested options shall immediately vest upon the Grantee's death
         and otherwise shall be exercisable for a period of one year following
         Grantee's death (but in no event later than the Expiration Date).

2.       PROHIBITED ACTIVITY. Notwithstanding any other provision of this Stock
         Option Agreement, if Grantee engages in a "Prohibited Activity," as
         described below, while employed by the Company or any of its affiliates
         or within two years after Grantee's employment termination date, then
         Grantee's right to exercise any portion of the option, to the extent
         still outstanding at that time, shall immediately thereupon wholly and
         completely terminate. If an allegation of a Prohibited Activity by
         Grantee is made to the Committee, the Committee, in its discretion, may
         suspend the exercisability of the option for up to two months to permit
         the investigation of such allegation. If it is determined that no
         Prohibited Activity was engaged in by Grantee, the period of
         exercisability of the option will be increased by the amount of time of
         the suspension; however, in no event will the option be exercisable
         more than ten years from the date of grant. A "Prohibited Activity"
         shall be deemed to have occurred, as determined by the Committee in its
         sole and absolute discretion, if Grantee:

                 (i)     divulges any non-public, confidential or proprietary
                         information of the Company or of its past, present or
                         future affiliates (collectively, the "Baker Hughes
                         Group"), but excluding information that (a) becomes
                         generally available to the public other than as a
                         result of Grantee's public use, disclosure, or fault,
                         or (b) becomes available to Grantee on a
                         non-confidential basis after Grantee's employment
                         termination date from a source other than a member of
                         the Baker Hughes Group prior to the public use or
                         disclosure by Grantee, provided that such source is not
                         bound by a confidentiality agreement or otherwise
                         prohibited from transmitting the information by a
                         contractual, legal or fiduciary obligation; or

                (ii)     directly or indirectly, consults or becomes affiliated
                         with, conducts, participates or engages in, or becomes
                         employed by, any business that is competitive with the
                         business of any member of the Baker Hughes Group,
                         wherever from time to time conducted throughout the
                         world, including situations where Grantee solicits or
                         participates in or assists in any way in the
                         solicitation or recruitment, directly or indirectly, of
                         any employees of any member of the Baker Hughes Group.

3.       CASHLESS EXERCISE. Cashless exercise, in accordance with the terms of
         the Plan, shall be available to Grantee for the shares subject to the
         option.

4.       TAX WITHHOLDING. To the extent the exercise of the option results in
         taxable income to Grantee, the Company is authorized to withhold from
         any remuneration payable to Grantee any tax required to be withheld by
         reason of such taxable income.

5.       NONTRANSFERABILITY. The option is not transferable by the Grantee
         otherwise than by will or by the laws of descent and distribution, and
         is exercisable during the Grantee's lifetime only by the Grantee.

6.       LIMIT OF LIABILITY. Under no circumstances will the Company be liable
         for any indirect, incidental, consequential or special damages
         (including lost profits) of any form incurred by any person, whether or
         not foreseeable and regardless of the form of the act in which such a
         claim may be brought, with respect to the Plan or the Company's role as
         Plan sponsor.

7.       MISCELLANEOUS. The option is granted under and is subject to all of the
         provisions of the Plan, including amendments to the Plan, if any. In
         the event of a conflict between these Terms and Conditions and the Plan
         provisions, the Plan provisions will control. Capitalized terms that
         are not defined herein shall have the meaning ascribed to such terms in
         the Plan.



<PAGE>

                                                                   EXHIBIT 10.46


                            BAKER HUGHES INCORPORATED

                              TERMS AND CONDITIONS
                                       OF
                                OPTION AGREEMENTS
                                 (JULY 24, 2002)

         These Terms and Conditions are applicable to options granted pursuant
to the Baker Hughes Incorporated 2002 Director & Officer Long-Term Incentive
Plan (the "Plan").

1.       TERMINATION OF EMPLOYMENT. The following provisions will apply in the
         event of Grantee's termination of employment:

         1.1 Termination Generally. If Grantee's employment is terminated for
         any reason other than

                 (i)     a termination covered by Sections 1.2 through 1.6, or

                (ii)     a termination, within two years following a Change in
                         Control (as defined in the Plan) that occurs after the
                         Date of Grant, either (A) by the Company without Cause
                         (as defined in the Plan) or (B) by the Grantee for Good
                         Reason (as defined in the Plan),

         the option will wholly and completely terminate on the date of
         termination of employment, to the extent it is not then exercisable;
         however, to the extent the option is exercisable, Grantee shall have
         three months from the date of termination of employment to exercise the
         option (but in no event later than the Expiration Date).

         1.2 Termination for Cause. If Grantee's employment is terminated for
         cause, including (without limitation) fraud, theft, embezzlement
         committed against the Company or any of its affiliated companies or a
         customer of the Company, or for conflict of interest, unethical
         conduct, dishonesty affecting the assets, properties or business of the
         Company or any of its affiliated companies, willful misconduct, or
         continued material dereliction of duties, the option will wholly and
         completely terminate on the date of termination of employment if such
         termination occurs (i) prior to a Change of Control that occurs after
         the Date of Grant or (ii) after the second anniversary of a Change of
         Control that occurs after the Date of Grant. If Grantee's employment is
         terminated for Cause (as defined in the Plan), the option will wholly
         and completely terminate on the date thirty days following such
         termination (but not later than the Expiration Date) if such
         termination occurs within two years following a Change of Control that
         occurs after the Date of Grant.

         1.3 Termination without Cause or for Good Reason in Connection with a
         Change in Control. Notwithstanding any other provision of this Stock
         Option Agreement to the contrary, if a Change in Control of the Company
         occurs, the provisions of Article 14 of the Plan shall govern.

         1.4 Divestiture of Business Unit. If the Company divests its ownership
         in a business unit that employs the Grantee, then the option will be
         deemed to be fully vested on the effective date of the Divestiture of
         the business unit. The Grantee will have three years in which to
         exercise the option. A "Divestiture" includes the disposition of any
         business unit of the Company and its subsidiaries to an entity that the
         Company does not consolidate in its financial statements, whether the
         disposition is structured as a sale or transfer of stock, a merger, a
         consolidation or a sale or transfer of assets, or a combination
         thereof, provided that a "Divestiture" shall not include a disposition
         that constitutes a Change in Control.

         1.5 Retirement or Disability. In the event of the retirement (such that
         the Grantee's age plus years of service with the Company equals or
         exceeds 65) or long-term disability of the Grantee, as long-term
         disability is determined in the discretion of the Committee (as defined
         in the Plan), all granted but unvested options shall immediately vest
         upon the Grantee's retirement or long-term disability. The Grantee
         shall have three years from the date of termination of employment due
         to retirement or long-term disability to exercise the option (but not
         later than the Expiration Date).



<PAGE>

                                                                   EXHIBIT 10.46


         1.6 Death. Upon the death of the Grantee in active service, all granted
         but unvested options shall immediately vest upon the Grantee's death
         and otherwise shall be exercisable for a period of one year following
         Grantee's death (but in no event later than the Expiration Date).

2.       PROHIBITED ACTIVITY. Notwithstanding any other provision of this Stock
         Option Agreement, if Grantee engages in a "Prohibited Activity," as
         described below, while employed by the Company or any of its affiliates
         or within two years after Grantee's employment termination date, then
         Grantee's right to exercise any portion of the option, to the extent
         still outstanding at that time, shall immediately thereupon wholly and
         completely terminate. If an allegation of a Prohibited Activity by
         Grantee is made to the Committee, the Committee, in its discretion, may
         suspend the exercisability of the option for up to two months to permit
         the investigation of such allegation. If it is determined that no
         Prohibited Activity was engaged in by Grantee, the period of
         exercisability of the option will be increased by the amount of time of
         the suspension; however, in no event will the option be exercisable
         more than ten years from the date of grant. A "Prohibited Activity"
         shall be deemed to have occurred, as determined by the Committee in its
         sole and absolute discretion, if Grantee:

                 (i)     divulges any non-public, confidential or proprietary
                         information of the Company or of its past, present or
                         future affiliates (collectively, the "Baker Hughes
                         Group"), but excluding information that (a) becomes
                         generally available to the public other than as a
                         result of Grantee's public use, disclosure, or fault,
                         or (b) becomes available to Grantee on a
                         non-confidential basis after Grantee's employment
                         termination date from a source other than a member of
                         the Baker Hughes Group prior to the public use or
                         disclosure by Grantee, provided that such source is not
                         bound by a confidentiality agreement or otherwise
                         prohibited from transmitting the information by a
                         contractual, legal or fiduciary obligation; or

                (ii)     directly or indirectly, consults or becomes affiliated
                         with, conducts, participates or engages in, or becomes
                         employed by, any business that is competitive with the
                         business of any member of the Baker Hughes Group,
                         wherever from time to time conducted throughout the
                         world, including situations where Grantee solicits or
                         participates in or assists in any way in the
                         solicitation or recruitment, directly or indirectly, of
                         any employees of any member of the Baker Hughes Group.

3.       CASHLESS EXERCISE. Cashless exercise, in accordance with the terms of
         the Plan, shall be available to Grantee for the shares subject to the
         option.

4.       TAX WITHHOLDING. To the extent the exercise of the option results in
         taxable income to Grantee, the Company is authorized to withhold from
         any remuneration payable to Grantee any tax required to be withheld by
         reason of such taxable income.

5.       NONTRANSFERABILITY. The option is not transferable by the Grantee
         otherwise than by will or by the laws of descent and distribution, and
         is exercisable during the Grantee's lifetime only by the Grantee.

6.       LIMIT OF LIABILITY. Under no circumstances will the Company be liable
         for any indirect, incidental, consequential or special damages
         (including lost profits) of any form incurred by any person, whether or
         not foreseeable and regardless of the form of the act in which such a
         claim may be brought, with respect to the Plan or the Company's role as
         Plan sponsor.

7.       MISCELLANEOUS. The option is granted under and is subject to all of the
         provisions of the Plan, including amendments to the Plan, if any. In
         the event of a conflict between these Terms and Conditions and the Plan
         provisions, the Plan provisions will control. Capitalized terms that
         are not defined herein shall have the meaning ascribed to such terms in
         the Plan.