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                                                                    EXHIBIT 10.3


                            BAKER HUGHES INCORPORATED

                         1998 EMPLOYEE STOCK OPTION PLAN

                                    ARTICLE I
                                  INTRODUCTION

         1. PURPOSE. This 1998 Employee Stock Option Plan, which shall be known
as the "1998 EMPLOYEE STOCK OPTION PLAN" and which is hereinafter referred to as
the "PLAN," is intended to promote the interests of Baker Hughes Incorporated
("COMPANY") and its stockholders by encouraging employees of the Company and its
subsidiaries to increase their equity interest in the Company, thereby giving
them an added incentive to work toward the continued growth and success of the
Company. The Board of Directors also contemplates that through the adoption of
the Plan, the Company, its subsidiaries and affiliated entities will be better
able to compete for the services of personnel needed for the continued growth
and success of the Company.

         2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided in
Article I, Paragraph 4 and Article II, Paragraph 3(e), the aggregate number of
shares of Common Stock, $1 par value per share, of the Company ("COMMON STOCK")
to be delivered upon exercise of all options granted under the Plan shall not
exceed 3,500,000 shares. In the event the number of shares to be delivered upon
the exercise in full of any option granted under the Plan is reduced for any
reason whatsoever or in the event any option granted under the Plan can no
longer under any circumstances be exercised, the number of shares no longer
subject to such option shall thereupon be released from such option and shall
thereafter be available to be re-optioned under the Plan. Shares issued pursuant
to the exercise of options granted under the Plan shall be fully paid and
nonassessable.

         3. ADMINISTRATION OF THE PLAN. Subject to the provisions of the Plan,
for purposes other than Article I, Paragraph 9, the Compensation Committee of
the Board of Directors of the Company (the "COMMITTEE") shall interpret the Plan
and all options granted under the Plan, shall make such rules as it deems
necessary for the proper administration of the Plan, shall make all other
determinations necessary or advisable for the administration of the Plan and
shall correct any defect or supply any omission or reconcile any inconsistency
in the Plan or in any option granted under the Plan in the manner and to the
extent that the Committee deems desirable to carry the Plan or any option into
effect. Any action taken or determination made by the Committee pursuant to this
and the other paragraphs of the Plan shall be conclusive on all parties. The act
or determination of a majority of the Committee shall be deemed to be the act or
determination of the Committee.

         4. AMENDMENT AND DISCONTINUANCE OF THE PLAN. The Board of Directors of
the Company may amend, suspend or terminate the Plan; provided, further,
however, that no amendment, suspension or termination of the Plan may, without
the consent of the holder of an option, terminate such option or adversely
affect such person's rights in any material respect. The Board of Directors of
the Company may increase the aggregate number of shares of Common Stock that may
be issued under the Plan.

         5. GRANTING OF OPTIONS TO EMPLOYEES. The Committee shall have authority
to grant, prior to the expiration date of the Plan, to employees of the Company
and its subsidiaries (as defined in section 424 of the Internal Revenue Code of
1986, as amended) ("EMPLOYEE OPTIONEES"), options to purchase, on the terms and
conditions hereinafter set forth in Article II, authorized but unissued, or
reacquired, shares of Common Stock, in such amounts and at such times as
determined in the discretion of the Committee.

         6. OPTION AGREEMENTS. Each option under the Plan shall be evidenced by
a written agreement between the Company and the Eligible Optionee which shall
contain such terms and conditions, and may be exercisable for such periods, as
may be approved by the Committee, which terms and conditions need not be
identical.

         7. EFFECTIVE DATE. The Plan shall become effective as of October 1,
1998. Except with respect to options then outstanding, if not sooner terminated
under the provisions of Article I, Paragraph 4, the Plan shall terminate upon
and no further options shall be granted after the expiration of ten years from
October 1, 1998.




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         8. MISCELLANEOUS. All references in the Plan to "Articles,"
"Paragraphs," and other subdivisions refer to the corresponding Articles,
Paragraphs, and subdivisions of the Plan.

         9. CHANGE IN CONTROL. The following provisions shall apply only in
connection with a Change in Control or Potential Change in Control.

                  (a) Notwithstanding any provision of the Plan to the contrary
         other than Article I, Paragraph 10, in the event of an occurrence of a
         Change in Control, all options granted pursuant to this Plan shall
         become fully vested and exercisable.

                  (b) Notwithstanding any provision of the Plan to the contrary,
         all outstanding options held by an Employee Optionee shall become fully
         vested and exercisable as of the effective date of termination of such
         Employee Optionee's employment if (i) such Employee Optionee's
         employment is terminated by the Company 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 the Company the consummation of which would
         constitute a Change in Control, (ii) such Employee Optionee terminates
         his or her employment 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 Employee
         Optionee's employment is terminated by the Company without Cause or by
         the Employee Optionee 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).

                  (c) "Affiliate" shall have the meaning set forth in Rule 12b-2
         promulgated under Section 12 of the Securities Act of 1934 (the
         "EXCHANGE ACT")

                  (d) "Beneficial Owner" shall have the meaning set forth in
         Rule 13d-3 promulgated under the Exchange Act.

                  (e) "Cause" for termination by the Company of the Employee
         Optionee's employment shall mean (i) the willful and continued failure
         by the Employee Optionee to substantially perform the Employee
         Optionee's duties with the Company (other than any such failure
         resulting from the Employee Optionee's incapacity due to physical or
         mental illness or any such actual or anticipated failure after the
         issuance of a notice of termination for Good Reason by the Employee
         Optionee) after a written demand for substantial performance is
         delivered to the Employee Optionee by the Committee, which demand
         specifically identifies the manner in which the Committee believes that
         the Employee Optionee has not substantially performed the Employee
         Optionee's duties, or (ii) the willful engaging by the Employee
         Optionee in conduct which is demonstrably and materially injurious to
         the Company or its subsidiaries, monetarily or otherwise. For purposes
         of clauses (i) and (ii) of this definition, (x) no act, or failure to
         act, on the Employee Optionee's part shall be deemed "willful" unless
         done, or omitted to be done, by the Employee Optionee not in good faith
         and without reasonable belief that the Employee Optionee's act, or
         failure to act, was in the best interest of the Company and (y) in the
         event of a dispute concerning the application of this provision, no
         claim by the Company that Cause exists shall be given effect unless the
         Company establishes to the Committee by clear and convincing evidence
         that Cause exists.

                  (f) A "Change in Control" shall be deemed to have occurred if
         the event set forth in any one of the following paragraphs shall have
         occurred:

                           (1) any Person is or becomes the Beneficial Owner,
                  directly or indirectly, of securities of the Company (not
                  including in the securities beneficially owned by such Person
                  any securities acquired directly from the Company or its
                  affiliates) representing 20% or more of the combined voting
                  power of the Company's then outstanding securities, excluding
                  any Person who becomes such a Beneficial Owner in connection
                  with a transaction described in clause (i) of paragraph (3)
                  below; or

                           (2) the following individuals cease for any reason to
                  constitute a majority of the number of directors then serving:
                  individuals who, on the date hereof, constitute the Board of
                  Directors of the Company and any new director (other than a
                  director whose initial assumption of office is in connection
                  with an actual or threatened election contest relating to the
                  election of directors of the Company) whose




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                  appointment or election by the Board of Directors of the
                  Company or nomination for election by the Company's
                  stockholders was approved or recommended by a vote of at least
                  two-thirds (2/3) of the directors then still in office who
                  either were directors on the date hereof or whose appointment,
                  election or nomination for election was previously so approved
                  or recommended; or

                           (3) there is consummated a merger or consolidation of
                  the Company or any direct or indirect subsidiary of the
                  Company with any other corporation, other than (i) a merger or
                  consolidation which would result in the voting securities of
                  the Company outstanding immediately prior to such merger or
                  consolidation continuing to represent (either by remaining
                  outstanding or by being converted into voting securities of
                  the surviving entity or any parent thereof), in combination
                  with the ownership of any trustee or other fiduciary holding
                  securities under an employee benefit plan of the Company or
                  any subsidiary of the Company, at least 65% of the combined
                  voting power of the securities of the Company or such
                  surviving entity or any parent thereof outstanding immediately
                  after such merger or consolidation, or (ii) a merger or
                  consolidation effected to implement a recapitalization of the
                  Company (or similar transaction) in which no Person is or
                  becomes the Beneficial Owner, directly or indirectly, of
                  securities of the Company (not including in the securities
                  Beneficially Owned by such Person any securities acquired
                  directly from the Company or its Affiliates other than in
                  connection with the acquisition by the Company or its
                  Affiliates of a business) representing 20% or more of the
                  combined voting power of the Company's then outstanding
                  securities; or

                           (4) the stockholders of the Company approve a plan of
                  complete liquidation or dissolution of the Company or there is
                  consummated an agreement for the sale or disposition by the
                  Company of all or substantially all of the Company's assets,
                  other than a sale or disposition by the Company of all or
                  substantially all of the Company's assets to an entity, at
                  least 65% of the combined voting power of the voting
                  securities of which are owned by stockholders of the Company
                  in substantially the same proportions as their ownership of
                  the Company immediately prior to such sale.

                  Notwithstanding the foregoing, a "Change in Control" shall not
         be deemed to have occurred by virtue of the consummation of any
         transaction or series of integrated transactions immediately following
         which the record holders of the common stock of the Company immediately
         prior to such transaction or series of transactions continue to have
         substantially the same proportionate ownership in an entity which owns
         all or substantially all of the assets of the Company immediately
         following such transaction or series of transactions.

                  (g) "Committee" shall mean (i) the individuals (not fewer than
         three in number) who, on the date six months before a Change in
         Control, constitute the Compensation Committee of the Board of
         Directors of the Company, 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 Committee shall not exceed six (6).

                  (h) "Good Reason" for termination by the Employee Optionee of
         the Employee Optionee's employment shall mean the occurrence (without
         the Employee Optionee'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 Article I, Paragraph 9(b) hereof
         (treating all references in paragraphs (1) through (7) below to a
         "Change in Control" as references to a "Potential Change in Control"),
         of any one of the following acts by the Company, or failures by the
         Company to act, unless, in the case of any act or failure to act
         described in paragraph (1), (5), (6) or (7) below, such act or failure
         to act is corrected prior to the effective date of the Employee
         Optionee's termination for Good Reason;

                  (1) the assignment to the Employee Optionee of any duties
         inconsistent with the status of the Employee Optionee's position with
         the Company or a substantial adverse alteration in the nature or status
         of the Employee Optionee's responsibilities from those in effect
         immediately prior to the Change in Control;

                  (2) a reduction by the Company in the Employee Optionee'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 Company and all individuals
         having a similar level of authority and responsibility with any Person
         in control of the Company;




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                  (3) the relocation of the Employee Optionee's principal place
         of employment to a location more than 50 miles from the Employee
         Optionee's principal place of employment immediately prior to the
         Change in Control or the Company's requiring the Employee Optionee to
         be based anywhere other than such principal place of employment (or
         permitted relocation thereof) except for required travel on the
         Company's business to an extent substantially consistent with the
         Employee Optionee's present business travel obligations;

                  (4) the failure by the Company to pay to the Employee Optionee
         any portion of the Employee Optionee'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 Company and all individuals having a similar
         level of authority and responsibility with any Person in control of the
         Company, or to pay to the Employee Optionee any portion of an
         installment of deferred compensation under any deferred compensation
         program of the Company, within seven (7) days of the date such
         compensation is due;

                  (5) the failure by the Company to continue in effect any
         compensation plan in which the Employee Optionee participates
         immediately prior to the Change in Control which is material to the
         Employee Optionee'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 Company to continue
         the Employee Optionee'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 Employee Optionee's participation relative to other
         participants, as existed immediately prior to the Change in Control;

                  (6) the failure by the Company to continue to provide the
         Employee Optionee with benefits substantially similar to those enjoyed
         by the Employee Optionee under any of the Company's pension, savings,
         life insurance, medical, health and accident, or disability plans in
         which the Employee Optionee 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 Company and all individuals having a similar
         level of authority and responsibility with any Person in control of the
         Company), the taking of any other action by the Company which would
         directly or indirectly materially reduce any of such benefits or
         deprive the Employee Optionee of any material fringe benefit or
         perquisite enjoyed by the Employee Optionee at the time of the Change
         in Control, or the failure by the Company to provide the Employee
         Optionee with the number of paid vacation days to which the Employee
         Optionee is entitled on the basis of years of service with the Company
         in accordance with the Company's normal vacation policy in effect at
         the time of the Change in Control; or

                  (7) if the Employee Optionee is party to an individual
         employment, severance, or similar agreement with the Company, any
         purported termination of the Employee Optionee's employment which is
         not effected pursuant to the notice of termination or other procedures
         specified therein satisfying the requirements thereof; for purposes of
         this Plan, no such purported termination shall be effective.

         The Employee Optionee's right to terminate the Employee Optionee's
employment for Good Reason shall not be affected by the Employee Optionee's
incapacity due to physical or mental illness. The Employee Optionee's continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any act or failure to act constituting Good Reason hereunder.

         For purposes of any determination regarding the existence of Good
Reason, any claim by the Employee Optionee that Good Reason exists shall be
presumed to be correct unless the Company establishes to the Committee by clear
and convincing evidence that Good Reason does not exist.

                  (i) "Person" shall have the meaning given in Section 3(a)(9)
         of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
         thereof, except that such term shall not include (i) the Company or any
         of its subsidiaries, (ii) a trustee or other fiduciary holding
         securities under an employee benefit plan of the Company or any of its
         Affiliates, (iii) an underwriter temporarily holding securities
         pursuant to an offering of such securities, or (iv) a corporation
         owned, directly or indirectly, by the stockholders of the Company in
         substantially the same proportions as their ownership of stock of the
         Company.

                  (j) A "Potential Change in Control" shall be deemed to have
         occurred if the event set forth in any one of the following paragraphs
         shall have occurred:




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                           (1) the Company enters into an agreement, the
                  consummation of which would result in the occurrence of a
                  Change in Control;

                           (2) the Company or any Person publicly announces an
                  intention to take or to consider taking actions which, if
                  consummated, would constitute a Change in Control;

                           (3) any Person becomes the Beneficial Owner, directly
                  or indirectly, of securities of the Company representing 15%
                  or more of either the then outstanding shares of common stock
                  of the Company or the combined voting power of the Company's
                  then outstanding securities (not including in the securities
                  Beneficially Owned by such Person any securities acquired
                  directly from the Company or its affiliates); or

                           (4) the Board of Directors of the Company adopts a
                  resolution to the effect that, for purposes of this Plan, a
                  Potential Change in Control has occurred.

         10. SPECIAL ACCOUNTING PROVISION. In the event that the Company is
party to a transaction which is otherwise intended to qualify for "pooling of
interests" accounting treatment then (a) the provisions of the Plan shall, to
the extent practicable, be interpreted so as to permit such accounting
treatment, and (b) to the extent that the application of clause (a) of this
sentence does not preserve the availability of such accounting treatment, then,
to the extent that any of the provisions of the Plan disqualifies the
transaction as a "pooling" transaction, the Board of Directors of the Company
may amend any provisions of the Plan, amend the provisions of any outstanding
option and/or declare any of the provisions of the Plan or the entire Plan as
well as any outstanding options null and void if and to the extent necessary
(including declaring such provision or provisions to be null and void as of the
date hereof) so that such transaction may be accounted for as a "pooling of
interests." All determinations with respect to this paragraph shall be made by
the Company, based upon the advice of the accounting firm whose opinion with
respect to "pooling of interests" is required as a condition to the consummation
of such transaction.

                                   ARTICLE II

                           NONQUALIFIED STOCK OPTIONS

         1. ELIGIBLE EMPLOYEES. All Employee Optionees shall be eligible to
receive nonqualified options under this Article II.

         2. CALCULATION OF EXERCISE PRICE. The exercise price to be paid for
each share of Common Stock deliverable upon exercise of each nonqualified option
granted under this Article II shall be equal to the fair market value per share
of Common Stock at the time of grant as determined by the Committee, based on
the composite transactions in the Common Stock as reported by The Wall Street
Journal, and shall be equal to the per share price of the last sale of Common
Stock on the trading day prior to the grant of such option. The exercise price
for each nonqualified option granted under this Article II shall be subject to
adjustment as provided in this Article II, Paragraph 3(e).

         3. TERMS AND CONDITIONS OF OPTIONS. Nonqualified options granted under
this Article II shall be in such form as the Committee may from time to time
approve. Options granted under this Article II shall be subject to the following
terms and conditions and may contain such additional terms and conditions, not
inconsistent with this Article II, as the Committee shall deem desirable:

                  (a) OPTION PERIOD AND CONDITIONS AND LIMITATIONS ON EXERCISE.
         Subject to this Article II, Paragraph 3, no nonqualified option granted
         under this Article II shall be exercisable with respect to any of the
         shares subject to the option later than the date which is ten years
         after the date of grant (the "NONQUALIFIED OPTION EXPIRATION DATE"). To
         the extent not prohibited by other provisions of the Plan, each
         nonqualified option granted under this Article II shall be exercisable
         at such time or times as the Committee in its discretion may determine
         at or prior to the time such option is granted (unless otherwise
         extended by the Committee pursuant to this Article II, Paragraph
         3(b)(2)(iii)); provided, however, that unless the Committee determines
         otherwise, each nonqualified option granted under this Article II shall
         be exercisable from time to time, in whole or in part, at any time
         prior to the Nonqualified Option Expiration Date.




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                  (b) TERMINATION OF EMPLOYMENT AND DEATH. For purposes of this
         Article II and each nonqualified option granted under this Article II,
         an Employee Optionee's employment shall be deemed to have terminated at
         the close of business on the day preceding the first date on which he
         is no longer for any reason whatsoever (including his death) employed
         by the Company or a subsidiary of the Company. An Employee Optionee
         shall be considered to be in the employment of the Company or a
         subsidiary of the Company as long as he remains an employee of the
         Company or a subsidiary of the Company, whether active or on an
         authorized leave of absence. Any question as to whether and when there
         has been a termination of such employment, and the cause of such
         termination, shall be determined by the Committee and its determination
         shall be final. Unless otherwise determined by the Committee, if an
         Employee Optionee's employment is terminated for any reason whatsoever
         (including his death), each nonqualified option granted to him under
         this Article II and all of his rights thereunder shall wholly and
         completely terminate:

                           (1) With respect to options not then exercisable, at
                  the time the Employee Optionee's employment is terminated; and

                           (2) With respect to options then exercisable:

                                    (i) At the time the Employee Optionee's
                           employment is terminated if his employment is
                           terminated because he is discharged for fraud, theft
                           or embezzlement committed against the Company or a
                           subsidiary, affiliated entity or customer of the
                           Company, or for conflict of interest (other than
                           legitimate competition), if such termination of
                           employment occurs prior to a Change in Control or
                           after the second anniversary of a Change in Control,
                           and thirty days following such termination of
                           employment if such termination occurs within two
                           years following a Change in Control (in each case, as
                           such term is defined in Article I, Paragraph 9
                           hereof) (but in no event later than the Nonqualified
                           Option Expiration Date); or

                                    (ii) At the expiration of a period of one
                           year after the Employee Optionee's death (but in no
                           event later than the Nonqualified Option Expiration
                           Date) if the Employee Optionee's employment is
                           terminated by reason of his death. A nonqualified
                           option granted under this Article II may be exercised
                           by the Employee Optionee's estate or by the person or
                           persons who acquire the right to exercise his option
                           by bequest or inheritance with respect to any or all
                           of the shares remaining subject to his option at the
                           time of his death; or

                                    (iii) Unless it is otherwise provided in the
                           option agreement or otherwise extended in the
                           discretion of the Committee in the event of the
                           Employee Optionee's retirement, at the expiration of
                           a period of three years after the Employee Optionee's
                           employment is terminated because of retirement or
                           disability (but in no event later than the
                           Nonqualified Option Expiration Date); or

                                    (iv) At the expiration of a period of three
                           months after the Employee Optionee's employment is
                           terminated (but in no event later than the
                           Nonqualified Option Expiration Date) if the Employee
                           Optionee's employment is terminated for any reason
                           other than his death, retirement, disability or the
                           reasons specified in this Article II, Paragraph
                           3(b)(2)(i).

                  (c) MANNER OF EXERCISE. In order to exercise a nonqualified
         option granted under this Article II, the person or persons entitled to
         exercise it shall deliver to the Company payment in full for the shares
         being purchased, together with any required withholding tax. The
         payment of the exercise price for each option granted under this
         Article II and any required withholding tax shall either be in cash or
         through delivery to the Company of shares of Common Stock, or by any
         combination of cash or shares; the value of each share of Common Stock
         delivered shall be deemed to be equal to the per share price of the
         last sale of Common Stock on the trading day prior to the date the
         option is exercised, based on the composite transactions in the Common
         Stock as reported in The Wall Street Journal. If the Committee so
         requires, such person or persons shall also deliver a written
         representation that all shares being purchased are being acquired for
         investment and not with a view to, or for resale in connection with,
         any distribution of such shares. An option agreement may, in the
         discretion of the Committee, provide for a "cashless exercise" of a
         nonqualified option by establishing procedures whereby the Employee
         Optionee, by a properly executed written notice, directs (1) an
         immediate market sale or margin loan respecting all or a part of the
         shares of Common Stock to which he is entitled upon




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         exercise pursuant to an extension of credit by the Company to the
         Employee Optionee of the option price, (2) the delivery of the shares
         of Common Stock from the Company directly to a brokerage firm and (3)
         the delivery of the option price from sale or margin loan proceeds from
         the brokerage firm directly to the Company. An option agreement may
         also, in the discretion of the Committee, provide for the withholding
         of Federal, state or local income tax upon exercise of a nonqualified
         option from any cash or stock remuneration (from the Plan or otherwise)
         then or thereafter payable by the Company to the Employee Optionee.

                  (d) OPTIONS NOT TRANSFERABLE. No nonqualified option granted
         under this Article II shall be transferable otherwise than by will or
         by the laws of descent and distribution and, during the lifetime of the
         Employee Optionee to whom any such option is granted, it shall be
         exercisable only by the Employee Optionee. Any attempt to transfer,
         assign, pledge, hypothecate or otherwise dispose of, or to subject to
         execution, attachment or similar process, any nonqualified option
         granted under this Article II, or any right thereunder, contrary to the
         provisions hereof, shall be void and ineffective, shall give no right
         to the purported transferee, and shall, at the sole discretion of the
         Committee, result in forfeiture of the option with respect to the
         shares involved in such attempt.

                  (e) ADJUSTMENT OF SHARES. In the event that at any time after
         the effective date of the Plan the outstanding shares of Common Stock
         are changed into or exchanged for a different number or kind of shares
         of the Company or other securities of the Company by reason of merger,
         consolidation, recapitalization, reclassification, stock split, stock
         dividend, or combination of shares, the Committee shall make an
         appropriate and equitable adjustment in the number and kind of shares
         subject to this Article II (including shares as to which all
         outstanding nonqualified options granted under this Article II, or
         portions thereof then unexercised, shall be exercisable), to the end
         that after such event the shares subject to this Article II of the Plan
         and each Employee Optionee's proportionate interest shall be maintained
         as before the occurrence of such event. Such adjustment in an
         outstanding nonqualified option granted under this Article II shall be
         made without change in the total price applicable to the option or the
         unexercised portion of the option (except for any change in the
         aggregate price resulting from rounding-off of share quantities or
         prices) and with any necessary corresponding adjustment in exercise
         price per share. Any such adjustment made by the Committee shall be
         final and binding upon all Employee Optionees, the Company, and all
         other interested persons.

                  (f) LISTING AND REGISTRATION OF SHARES. Each nonqualified
         option granted under this Article II shall be subject to the
         requirement that if at any time the Committee determines, in its
         discretion, that the listing, registration, or qualification of the
         shares subject to such option under any securities exchange or under
         any state or Federal law, or the consent or approval of any
         governmental regulatory body, is necessary or desirable is a condition
         of, or in connection with, the issue or purchase of shares hereunder,
         such option may not be exercised in whole or in part unless such
         listing, registration, qualification, consent or approval shall have
         been effected or obtained and the same shall have been free of any
         conditions not acceptable to the Committee.

                  (g) CERTAIN REGRANTS/REPRICING IS NOT PERMITTED. Once granted,
         no option may be repriced or exchanged for an option having a lower
         exercise price.

         4. AMENDMENT. The Committee may, with the consent of the person or
persons entitled to exercise any outstanding nonqualified option granted under
this Article II, amend such nonqualified option. The Committee may at any time
or from time to time, in its discretion, in the case of any nonqualified option
previously granted under this Article II which is not then immediately
exercisable in full, accelerate the time or times at which such option may be
exercised to any earlier time or times.

         5. OTHER PROVISIONS.

                  (a) The person or persons entitled to exercise, or who have
         exercised, a nonqualified option granted under this Article II shall
         not be entitled to any rights as a stockholder of the Company with
         respect to any shares subject to such option until he shall have become
         the holder of record of such shares.

                  (b) No nonqualified option granted under this Article II shall
         be construed as limiting any right which the Company or any subsidiary
         of the Company may have to terminate at any time, with or without
         cause, the employment of any person to whom such option has been
         granted.



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                  (c) Notwithstanding any provision of the Plan or the terms of
         any nonqualified option granted under this Article II, the Company
         shall not be required to issue any shares hereunder if such issuance
         would, in the judgment of the Committee, constitute a violation of any
         state or Federal law or of the rules or regulations of any governmental
         regulatory body.


<PAGE>
                           AMENDMENT NO. 1999-1 TO THE
                         1998 EMPLOYEE STOCK OPTION PLAN

         This Amendment No. 1999-1 is made to the Baker Hughes Incorporated 1998
Employee Stock Option Plan ("the Plan"). Capitalized terms used but not defined
herein shall have the meanings ascribed to them in the Plan.

         WHEREAS, Baker Hughes Incorporated (the "Company") has determined that
it is in its best interest and that of its stockholders to amend the Plan as set
forth herein;

         NOW, THEREFORE, the Plan is amended as follows:

1.       Article I, Paragraphs 9(a), (b) and (f) of the Plan are amended in
         their entirety to read as follows:

         "9.    Change in Control.

         (a) Notwithstanding any provision of the Plan to the contrary other
than Article I, Paragraph 10, in the event of an occurrence of a Change in
Control other than an event described only in clause (3) of Article I, Paragraph
9(f) of the Plan, all options granted pursuant to this Plan shall become fully
vested and exercisable.

         (b) Notwithstanding any provision of the Plan to the contrary, all
outstanding options held by an Employee Optionee shall become fully vested and
exercisable as of the effective date of termination of such Employee Optionee's
employment if (i) such Employee Optionee's employment is terminated by the
Company 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 the Company the consummation of
which would constitute a Change in Control, (ii) such Employee Optionee
terminates his or her employment 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), (iii) such Employee Optionee's employment is terminated
by the Company without Cause or by the Employee Optionee 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) or (iv) such Employee Optionee's
employment is terminated by the Company without Cause or by the Employee
Optionee for Good Reason, in either case within 2 years following the occurrence
of a Change in Control described in clause (3) of Article I, Paragraph 9(f) of
the Plan.

         (f) A "Change in Control" shall be deemed to have occurred if the event
set forth in any one of the following paragraphs shall have occurred:

                  (1) any Person is or becomes the Beneficial Owner, directly or
         indirectly, of securities of the Company (not including in the
         securities beneficially owned by such Person any securities acquired
         directly from the Company or its affiliates) representing 20% or more
         of the combined voting power of the Company's then outstanding
         securities, excluding any Person who becomes such a Beneficial Owner in
         connection with a transaction described in clause (i) of paragraph (3)
         below; or

                  (2) the following individuals cease for any reason to
         constitute a majority of the number of directors then serving:
         individuals who, on the date hereof, constitute the Board of Directors
         of the Company and any new director (other than a director whose
         initial assumption of office is in connection with an actual or
         threatened election contest relating to the election of directors of
         the Company) whose appointment or election by the Board of Directors of
         the Company or nomination for election by the Company's stockholders
         was approved or recommended by a vote of at least two-thirds (2/3) of
         the directors then still in office who either were directors on the
         date hereof or whose appointment, election or nomination for election
         was previously so approved or recommended; or

                  (3) there is consummated a merger or consolidation of the
         Company or any direct or indirect subsidiary of the Company with any
         other corporation, other than (i) a merger or consolidation which would
         result in the voting securities of the Company outstanding immediately
         prior to such merger or consolidation continuing to represent (either
         by remaining outstanding or by being converted into voting securities
         of the


<PAGE>

         surviving entity or any parent thereof), in combination with the
         ownership of any trustee or other fiduciary holding securities under an
         employee benefit plan of the Company or any subsidiary of the Company,
         at least 65% of the combined voting power of the securities of the
         Company or such surviving entity or any parent thereof outstanding
         immediately after such merger or consolidation, or (ii) a merger or
         consolidation effected to implement a recapitalization of the Company
         (or similar transaction) in which no Person is or becomes the
         Beneficial Owner, directly or indirectly, of securities of the Company
         (not including in the securities Beneficially Owned by such Person any
         securities acquired directly from the Company or its Affiliates other
         than in connection with the acquisition by the Company or its
         Affiliates of a business) representing 20% or more of the combined
         voting power of the Company's then outstanding securities; or

                  (4) there is consummated a merger or consolidation of the
         Company or any direct or indirect subsidiary of the Company with any
         other corporation, other than a merger or consolidation immediately
         following which the individuals who comprise the Board immediately
         prior thereto constitute at least a majority of the board of directors
         of the Company, the entity surviving such merger or any parent thereof
         (or a majority plus one member where such board comprises an odd number
         of members); or

                  (5) the stockholders of the Company approve a plan of complete
         liquidation or dissolution of the Company or there is consummated an
         agreement for the sale or disposition by the Company of all or
         substantially all of the Company's assets, other than a sale or
         disposition by the Company of all or substantially all of the Company's
         assets to an entity, at least 65% of the combined voting power of the
         voting securities of which are owned by stockholders of the Company in
         substantially the same proportions as their ownership of the Company
         immediately prior to such sale.

                  Notwithstanding the foregoing, a "Change in Control" shall not
         be deemed to have occurred by virtue of the consummation of any
         transaction or series of integrated transactions immediately following
         which the record holders of the common stock of the Company immediately
         prior to such transaction or series of transactions continue to have
         substantially the same proportionate ownership in an entity which owns
         all or substantially all of the assets of the Company immediately
         following such transaction or series of transactions."

2.       Article II, Paragraph 3(b)(2)(iv) of the Plan is amended in its
entirety to read as follows:

                  "At the expiration of a period of three months after the
         Employee Optionee's employment is terminated (but in no event later
         than the Nonqualified Option Expiration Date) if the Employee
         Optionee's employment is terminated for any reason other than his
         death, retirement, disability or the reasons specified in this Article
         II, Paragraph 3(b)(2)(i), if such termination of employment occurs
         prior to a Change in Control or after the second anniversary of a
         Change in Control, and two years following such termination of
         employment (but in no event later than the Nonqualified Option
         Expiration Date) if such termination is either by the Company without
         Cause or by the Employee Optionee for Good Reason and, in either case,
         occurs within two years following a Change in Control (in each case, as
         such term is defined in Article I, Paragraph 9 hereof)."

         The effective date of this Amendment No. 1999-1 shall be January 27,
1999; provided, however, that, in the event that (A) the Company is party to a
transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of the Plan and (C) individuals who satisfy the requirements
in clauses (i) and (ii) below constitute at least two-thirds (2/3) of the number
of directors of the entity surviving such transaction or any parent thereof:
individuals who (i) immediately prior to such transaction constitute the Board
of Directors of the Company and (ii) on the date hereof constitute the Board of
Directors of the Company and any new director (other than a director whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of directors of the Company) whose
appointment or election by the Board of Directors of the Company or nomination
for election by the Company's stockholders was approved or recommended, by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were directors on the date hereof or whose appointment, election or
nomination for election was previously so approved or recommended then (a) this
Amendment No. 1999-1 shall, to the extent practicable, be interpreted so as to
permit such accounting treatment, and (b) to the extent that the application of
clause (a) of this sentence does not preserve the availability of such
accounting treatment, then, to the extent that any provision or combination of
provisions of this Amendment No. 1999-1 disqualifies the transaction as a
"pooling" transaction (including, if applicable, this entire Amendment No.
1999-1), the Board of Directors of the Company shall amend such provision or
provisions if and to the extent necessary (including declaring such provision or
provisions to be null and void as of the date hereof) so that such transaction
may be accounted for as a



<PAGE>
"pooling of interests." All determinations with respect to this paragraph shall
be made by the Company, based upon the advice of the accounting firm whose
opinion with respect to "pooling of interests" is required as a condition to the
consummation of such transaction. Except as herein modified, the Plan shall
remain in full force and effect.



                                             BAKER HUGHES INCORPORATED

                                             By:
                                                -------------------------------
                                             Name: G.S. Finley
                                             Title: Senior Vice President
                                             and Chief Administrative Officer