exv10w2



 




Exhibit 10.2

CHANGE IN CONTROL AGREEMENT




     THIS AGREEMENT is entered into by and between BAKER HUGHES INCORPORATED, a
Delaware corporation (the “Company”), and Chad C. Deaton (the “Executive”)
effective as of October 25, 2004 (the “Effective Date”).



     WHEREAS, the Company considers it essential to the best interests of its
stockholders to foster the continued employment of key management personnel;
and



     WHEREAS, the Company recognizes that, as is the case with many
publicly-held corporations, the possibility of a change in control exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders; and



     WHEREAS, the Company has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members of
the Company’s management, including the Executive, to their assigned duties
without distraction in the face of potentially disturbing circumstances arising
from the possibility of a change in control;



     NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Executive hereby agree as follows:



     1. Definitions and Interpretation Rules.



     1.1 Defined Terms. For purposes of this Agreement, the following terms
shall have the meanings indicated below:



     “Affiliate” means any entity which is a member of (i) the same controlled
group of corporations within the meaning of section 414(b) of the Code with
Baker Hughes, (ii) a trade or business (whether or not incorporated) which is
under common control (within the meaning of section 414(c) of the Code) with
Baker Hughes or (iii) an affiliated service group (within the meaning of
section 414(m) of the Code) with Baker Hughes.



     “Annual Incentive Plan” means the Baker Hughes Incorporated 1995 Employee
Annual Incentive Compensation Plan, as amended and/or restated from time to
time, any guidelines issued pursuant to such plan, and any other incentive
compensation plans adopted by the Company from time to time which are in
replacement of or in addition to such plan.



     “Assets” means assets of any kind owned by Baker Hughes, including but not
limited to securities of Baker Hughes’ direct and indirect subsidiaries and
Affiliates.



     “Baker Hughes” means Baker Hughes Incorporated, a Delaware corporation,
and any successor by merger or otherwise.



     “Base Compensation” means the Executive’s base salary or wages (as defined
in section 3401(a) of the Code for purposes of federal income tax withholding)
from the Company, modified by including any portion thereof that such Executive
could have received in cash in lieu of any elective deferrals made by the
Executive pursuant to the Supplemental Retirement Plan (other



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than deferrals of bonuses) or pursuant to a qualified cash or deferred
arrangement described in section 401(k) of the Code and any elective
contributions under a cafeteria plan described in section 125 of the Code, and
modified further by excluding any bonus, incentive compensation (including but
not limited to equity-based compensation), commissions, expense reimbursements
or other expense allowances, fringe benefits (cash and noncash), moving
expenses, deferred compensation (other than elective deferrals by the Executive
under a qualified cash or deferred arrangement described in section 401(k) of
the Code or the Supplemental Retirement Plan that are expressly included in
“Base Compensation” under the foregoing provisions of this definition), welfare
benefits as defined in ERISA, overtime pay, special performance compensation
amounts and severance compensation.



     “Beneficial Owner” or “Beneficial Ownership” shall have the meaning
ascribed to those terms in Rule 13d-3 of the General Rules and Regulations
under the Exchange Act.



     “Board” means the Board of Directors of Baker Hughes or other governing
body of Baker Hughes or its direct or indirect parent.



     “Bonus” means each annual incentive bonus, if any, paid in cash by the
Company to or for the benefit of the Executive for services rendered or labor
performed while an Employee. Annual bonuses are generally paid with respect to
a completed fiscal year by the Company to its employees pursuant to the Annual
Incentive Plan. An Executive’s Bonus shall be determined by including any
portion thereof that such Executive could have received in cash in lieu of (i)
any elective deferrals made by such Executive pursuant to the Supplemental
Retirement Plan or (ii) elective contributions made on such Executive’s behalf
by the Company pursuant to a qualified cash or deferred arrangement (as defined
in section 401(k) of the Code) or pursuant to a plan maintained under section
125 of the Code.



     “Cause” means (i) the willful and continued failure by the Executive to
substantially perform the Executive’s duties with the Company (other than any
such failure resulting from the Executive’s incapacity due to physical or
mental illness) after a written demand for substantial performance is delivered
to the Executive by the Board (or by a delegate appointed by the Board), which
demand specifically identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive’s duties, or (ii) the
willful engaging by the Executive in conduct which is demonstrably and
materially injurious to the Company or any of its Affiliates, monetarily or
otherwise. For purposes of Sections (i) and (ii) of this definition, (A) no
act, or failure to act, on the Executive’s part shall be deemed “willful” if
done, or omitted to be done, by the Executive in good faith and with reasonable
belief that the act, or failure to act, was in the best interest of the Company
and (B) 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 Board by clear and convincing evidence that Cause
exists.



     “Change in Control” means the occurrence of any of the following events:



     (a) the individuals who are Incumbent Directors cease for any reason to
constitute a majority of the members of the Board;



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     (b) the consummation of a Merger of Baker Hughes or an Affiliate of Baker
Hughes with another Entity, unless the individuals and Entities who were the
Beneficial Owners of the Voting Securities of Baker Hughes outstanding
immediately prior to such Merger own, directly or indirectly, at least 50
percent of the combined voting power of the Voting Securities of any of Baker
Hughes, the surviving Entity or the parent of the surviving Entity outstanding
immediately after such Merger;



     (c) any Person, other than a Specified Owner, becomes a Beneficial Owner,
directly or indirectly, of securities of Baker Hughes representing 30 percent
or more of the combined voting power of Baker Hughes’ then outstanding Voting
Securities;



     (d) a sale, transfer, lease or other disposition of all or substantially
all of Baker Hughes’ Assets is consummated (an “Asset Sale”), unless:




     (1) the individuals and Entities who were the Beneficial
Owners of the Voting Securities of Baker Hughes immediately prior
to such Asset Sale own, directly or indirectly, 50 percent or more
of the combined voting power of the Voting Securities of the
Entity that acquires such Assets in such Asset Sale or its parent
immediately after such Asset Sale in substantially the same
proportions as their ownership of Baker Hughes’ Voting Securities
immediately prior to such Asset Sale; or




     (2) the individuals who comprise the Board immediately prior
to such Asset Sale constitute a majority of the board of directors
or other governing body of either the Entity that acquired such
Assets in such Asset Sale or its parent (or a majority plus one
member where such board or other governing body is comprised of an
odd number of directors); or



     (e) The stockholders of Baker Hughes approve a plan of complete
liquidation or dissolution of Baker Hughes.



     “Code” means the Internal Revenue Code of 1986, as amended, or any
successor act.



     “Committee” means, prior to a Change in Control or a Potential Change in
Control, the Compensation Committee of the Board. After a Change in Control or
a Potential Change in Control, “Committee” means (i) the individuals (not fewer
than three (3) in number) who, on the date six months prior to the Change in
Control constitute the Compensation Committee of the Board, plus, (ii) in the
event that fewer than three (3) 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 after a Change in Control or Potential Change in Control shall
not exceed six (6).



     “Company” means Baker Hughes. In the event that the Executive’s employer
is a subsidiary of Baker Hughes, the term “Company” shall include the
Executive’s employer where appropriate and Baker Hughes will cause the
Executive’s employer to take any actions necessary to satisfy the obligations
of the Company under this Agreement.



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     “Disability” means the Executive’s incapacity due to physical or mental
illness that has caused the Executive to be absent from full-time performance
of his duties with the Company for a period of six (6) consecutive months.



     “Effective Date” means the date identified in the introduction of this
Agreement.



     “Employee” means an individual (i) who is employed in the services of the
Company on the Company’s active payroll, and (ii) who is also a United
States-based executive salary grade system employee (under the Company’s then
current payroll system categories), or any comparable executive designations in
any system that replaces the United States-based salary grade system.



     “Employment Termination Date” means the date as of which the Executive
incurs a Termination of Employment determined in accordance with the provisions
of Section 5.2.



     “Entity” means any corporation, partnership, association, joint-stock
company, limited liability company, trust, unincorporated organization or other
business entity.



     “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended, or any successor act.



     “Exchange Act” means the Securities Exchange Act of 1934, as amended, or
any successor act.



     “Excise Tax” means the excise tax imposed by section 4999 of the Code or
any similar tax payable under any United States federal, state, or local
statute.



     “Executive” means the Employee identified in the introduction of this
Agreement.



     “Expiration Date” shall have the meaning specified in Section 2.



     “Good Reason” for termination by the Executive of his employment means the
occurrence (without the Executive’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 the second paragraph of the definition of
Termination of Employment (treating all references to “Change in Control” in
paragraphs (a) through (f) below as references to a “Potential Change in
Control”), of any one of the following acts by the Company, or failures by the
Company to act, unless, in the case of any act or failure to act described in
paragraph (a), (e), (f) or (g) below, such act or failure to act is corrected
prior to the effective date of the Executive’s termination for Good Reason:



     (a) the assignment to the Executive of any duties or responsibilities
which are substantially diminished as compared to the Executive’s duties and
responsibilities immediately prior to a Change in Control or a material change
in the Executive’s reporting responsibilities, titles or offices as an Employee
and as in effect immediately prior to the Change in Control;



     (b) a reduction by the Company in the Executive’s annual Base Compensation
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



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and responsibility with the Company and all individuals having a similar
level of authority and responsibility with any Person in control of the
Company;



     (c) the relocation of the Executive’s principal place of employment to a
location outside of a 50-mile radius from the Executive’s principal place of
employment immediately prior to the Change in Control or the Company’s
requiring the Executive 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 Executive’s
business travel obligations immediately prior to a Change in Control;



     (d) the failure by the Company to pay to the Executive any portion of the
Executive’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 Executive 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;



     (e) the failure by the Company to continue in effect any compensation plan
in which the Executive participates immediately prior to the Change in Control
which is material to the Executive’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
Executive’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 Executive’s participation
relative to other Baker Hughes executives, as existed immediately prior to the
Change in Control;



     (f) the failure by the Company to continue to provide the Executive with
benefits substantially similar to those enjoyed by the Executive under any of
the Company’s pension, savings, life insurance, medical, health and accident,
or disability plans in which the Executive 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 Executive of any material
fringe benefit or Perquisite enjoyed by the Executive at the time of the Change
in Control, or the failure by the Company to provide the Executive with the
number of paid vacation days to which the Executive is entitled on the basis of
years of service with the Company in accordance with the Company’s normal
vacation policy in effect immediately prior to the time of the Change in
Control; or



     (g) any purported termination of the Executive’s employment which is not
effected pursuant to a notice of termination satisfying the requirements of
Section 5.1.



     The Executive shall have the right to terminate his employment for Good
Reason even if he becomes incapacitated due to physical or mental illness. The
Executive’s continued



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employment shall not constitute consent to, or a waiver of any rights with
respect to, any act or failure to act constituting Good Reason hereunder.



     For purposes of any determination regarding the existence of Good Reason,
any claim by the Executive 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. The Committee’s determination
regarding the existence of Good Reason shall be conclusive and binding upon all
parties unless the Committee’s determination is arbitrary and capricious.



     “Gross-Up Payment” means the additional amount paid to the Executive
pursuant to Section 3.4.



     “Highest Base Compensation” means the Executive’s annualized Base
Compensation in effect immediately prior to (a) a Change in Control, (b) the
first event or circumstance constituting Good Reason, or (c) the Executive’s
Termination of Employment, whichever is greatest.



     “Incumbent Director” means –



     (a) a member of the Board on the Effective Date; or



     (b) an individual -




     (1) who becomes a member of the Board after the Effective
Date;




     (2) whose appointment or election by the Board or nomination
for election by Baker Hughes’ stockholders is approved or
recommended by a vote of at least two-thirds of the then serving
Incumbent Directors (as defined herein); and




     (3) whose initial assumption of service on the Board is not
in connection with an actual or threatened election contest.



     “Merger” means a merger, consolidation or similar transaction.



     “Pension Plan” means the Baker Hughes Incorporated Pension Plan, as
amended from time to time.



     “Perquisites” means benefits such as any airline VIP club memberships;
country club and/or health club membership dues and expenses related to the use
of the country club and/or health club; supplemental life insurance; financial
consulting; and office equipment for use in the home (e.g., cellular
telephones, personal digital assistance, home computers and office accessories
similar to the office accessories available to the Executive in his employment
office and monthly Internet connection fees) that may be provided by the
Company from time to time.



     “Person” shall have the meaning ascribed to the term in Section 3(a)(9) of
the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a
“group” as defined in Section 13(d) thereof, except that the term shall not
include (a) the Company or any of its Affiliates, (b) a trustee or other
fiduciary holding Company securities under an employee benefit plan of the
Company or



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any of its Affiliates, (c) an underwriter temporarily holding securities
pursuant to an offering of those securities or (d) 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.



     “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:



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



     (b) 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;



     (c) any Person becomes the Beneficial Owner, directly or indirectly, of
securities of the Company representing 15 percent 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



     (d) the Board adopts a resolution to the effect that, for purposes of this
Agreement, a Potential Change in Control has occurred.



     “Renewal Date” shall have the meaning specified in Section 2.



     “Specified Owner” means any of the following:



     (a) Baker Hughes;



     (b) an Affiliate of Baker Hughes;



     (c) an employee benefit plan (or related trust) sponsored or maintained by
Baker Hughes or any Affiliate of Baker Hughes;



     (d) a Person that becomes a Beneficial Owner of Baker Hughes’ outstanding
Voting Securities representing 30 percent or more of the combined voting power
of Baker Hughes’ then outstanding Voting Securities as a result of the
acquisition of securities directly from Baker Hughes and/or its Affiliates; or



     (e) a Person that becomes a Beneficial Owner of Baker Hughes’ outstanding
Voting Securities representing 30 percent or more of the combined voting power
of Baker Hughes’ then outstanding Voting Securities as a result of a Merger if
the individuals and Entities who were the Beneficial Owners of the Voting
Securities of Baker Hughes outstanding immediately prior to such Merger own,
directly or indirectly, at least 50 percent of the combined voting power of the
Voting Securities of any of Baker Hughes, the surviving Entity or the parent of
the surviving Entity outstanding immediately after such Merger in substantially
the same proportions as their ownership of the Voting Securities of Baker
Hughes outstanding immediately prior to such Merger.



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     “Supplemental Retirement Plan” means the Baker Hughes Incorporated
Supplemental Retirement Plan, as amended from time to time.



     “Termination of Employment” means the termination of the Executive’s
employment relationship with the Company (a) by the Company without Cause after
a Change in Control occurs, or (b) by the Executive for Good Reason after a
Change in Control occurs.



     For purposes of this definition, the Executive’s employment shall be
deemed to have been terminated after a Change in Control, if (a) the
Executive’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; (b) the Executive terminates his employment for Good Reason prior
to a Change in Control (whether nor not a Change in Control ever occurs) and
the circumstance or event which constitutes Good Reason occurs at the request
or direction of a Person who has entered into an agreement with the Company,
the consummation of which would constitute a Change in Control; or (c) the
Executive’s employment is terminated by the Company without Cause or by the
Executive 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). For purposes of any determination regarding the applicability of the
immediately preceding sentence, any position taken by the Executive shall be
presumed to be correct unless the Company establishes to the Committee by clear
and convincing evidence that such position is not correct.



     “Termination of Employment” does not include (a) a termination of
employment due to the Executive’s death or Disability, or (b) a termination of
employment by the Executive without Good Reason.



     “Thrift Plan” means the Baker Hughes Incorporated Thrift Plan, as amended
from time to time.



     “Voting Securities” means the outstanding securities entitled to vote
generally in the election of directors or other governing body.



     1.2 Number and Gender. As used in this Agreement, unless the context
otherwise expressly requires to the contrary, references to the singular
include the plural, and vice versa; references to the masculine include the
feminine and neuter; references to “including” mean “including (without
limitation)”; and references to Sections and clauses mean the sections and
clauses of this Agreement.



     2. Term of Agreement.



     2.1 The “Term” of this Agreement shall commence on the Effective Date and
end on (a) the last day of the three-year period beginning on the Effective
Date if no Change in Control shall have occurred during that three-year period
(such last day being the “Expiration Date”); or (b) if a Change in Control
shall have occurred during (i) the three-year period beginning on the Effective
Date or (ii) any period for which the Term of this Agreement shall have been



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automatically extended pursuant Section 2.2, the last day of the two-year
period beginning on the date on which the Change in Control occurred.



     2.2 After the expiration of the time period described in subsection (a) of
Section 2.1, and in the absence of a Change in Control (as described in
subsection (b) of Section 2.1) the “Term” of this Agreement shall be
automatically extended for successive two-year periods beginning on the day
immediately following the Expiration Date (the beginning date of each
successive two-year period being a “Renewal Date”), unless, not later than 18
months prior to the Expiration Date or applicable Renewal Date, the Company
shall give notice to Executive that the Term of this Agreement will not be
extended.



     3. Compensation Other Than Severance Payments.



     3.1 Equity Based Compensation. Upon the occurrence of a Change in
Control, all options to acquire Baker Hughes stock, all shares of restricted
Baker Hughes stock, all other equity or phantom equity incentives and any
awards the value of which is determined by reference to or based upon the value
of Baker Hughes stock, held by the Executive under any plan of the Company
shall become immediately vested, exercisable and nonforfeitable and all
conditions thereof (including, but not limited to, any required holding
periods) shall be deemed to have been satisfied.



     3.2 Compensation and Benefits During Incapacity and Prior to Termination
of Employment. Following a Change in Control and during the Term of this
Agreement, during any period in which the Executive fails to perform the
Executive’s full-time duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay the Executive’s full salary
to the Executive at the rate in effect at the commencement of any such period,
together with all compensation and benefits payable to the Executive under the
terms of any compensation or benefit plan, program or arrangement maintained by
the Company during such period, until the Executive’s employment is terminated
by the Company for Disability.



     3.3 Benefits Following Termination of Employment. If the Executive incurs
a Termination of Employment during the Term of this Agreement, the Company
shall provide the Executive the benefits described below.



          (a) Severance Payment Based Upon Base Compensation. The Company will pay
the Executive a cash severance benefit equal to three times the Executive’s
Highest Base Compensation. An Executive’s severance payment under this
paragraph (a) will be paid in accordance with the provisions of Section 4.



          (b) Severance Payment Based Upon Bonuses. The Company will pay the
Executive a cash severance benefit in an amount equal to the sum of (1) and (2)
where (1) is an amount equal to the product of (A) the expected value target
percentage under the Executive’s Bonus for Baker Hughes’ fiscal year in which
the Executive’s Termination of Employment occurs, (B) the Executive’s Highest
Base Compensation and (C) a fraction, the numerator of which is the number of
full months and any fractional portion of a month during the performance period
through the Executive’s Employment Termination Date and the denominator of
which is the total number of months during such performance period; and (2) is
an amount equal to the



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product of (A) the expected value target percentage under the Executive’s
Bonus for Baker Hughes’ fiscal year in which the Executive’s Termination of
Employment occurs, and (B) three times the Executive’s Highest Base
Compensation. However, if the Executive’s Employment Termination Date occurs
during the same calendar year in which a Change in Control occurs, the pro-rata
bonus payment described in clause (1) of the preceding sentence shall be offset
by any payments received by the Executive under the Baker Hughes Incorporated
1995 Employee Annual Incentive Compensation Plan (as amended and/or restated)
in connection with the Change in Control. An Executive’s severance payment
under this paragraph (b) will be paid in accordance with the provisions of
Section 4.



          (c) Outplacement. The Company will provide the Executive outplacement
services suitable to the Executive’s position for the period of three years.
In lieu of such outplacement services, if the Executive so elects, the Company
shall pay the Executive $30,000.00 in cash. Any such cash payment in lieu of
outplacement services will be paid in accordance with the provisions of Section
4.



          (d) Pension, Thrift and Supplemental Retirement Plans. In addition to the
retirement benefits to which the Executive is entitled under the Thrift Plan,
the Pension Plan and the Supplemental Retirement Plan, the Company shall pay
the Executive a single sum cash payment in an amount equal to the undiscounted
value of (A) the employer-provided accruals under the Pension Plan that the
Executive would have earned and (B) the employer contributions the Company
would have made to the Thrift Plan and the Supplemental Retirement Plan
(including but not limited to matching and base contributions) on behalf of the
Executive had the Executive continued in the employ of the Company for a period
of three years after the Employment Termination Date, assuming for this purpose
that (i) the Executive’s earned compensation per year during that three year
period of time is the sum of (1) the Executive’s Highest Base Compensation and
(2) the product of (A) the expected value target percentage under the
Executive’s Bonus for Baker Hughes’ fiscal year in which the Executive’s
Termination of Employment occurs, and (B) the Executive’s Highest Base
Compensation; and (ii) contribution, deferral, credit and accrual percentages
made under the Pension Plan, the Thrift Plan and the Supplemental Retirement
Plan, by and on behalf of the Executive during the three year period, are the
same percentages in effect on the date of the Change in Control or the
Executive’s Employment Termination Date, whichever is more favorable for the
Executive. The payment required under this paragraph (d) will be made in
accordance with the provisions of Section 4.



          (e) Accident and Health Insurance Benefits. For three years following the
Executive’s Employment Termination Date (the “Continuation Period”), the
Company shall arrange to provide the Executive and his dependents accident and
health insurance benefits, in each case, substantially similar to those
provided to the Executive and his dependents immediately prior to the
Employment Termination Date or, if more favorable to the Executive, those
provided to the Executive and his dependents immediately prior to the first
occurrence of an event or circumstance constituting Good Reason, at no greater
cost to the Executive than the cost to the Executive immediately prior to such
date or occurrence. Benefits otherwise receivable by the Executive pursuant to
this Section 3.3(e) shall be reduced to the extent benefits of the same type
are received by or made available to the Executive during the Continuation
Period (and any such benefits received by or made available to the Executive
shall be reported to



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the Company by the Executive); provided, however, that the Company shall
reimburse the Executive for the excess, if any, of the cost of such benefits to
the Executive over such cost immediately prior to the Employment Termination
Date or, if more favorable to the Executive, the first occurrence of an event
or circumstance constituting Good Reason.



          (f) Life Insurance. The Executive shall be entitled to a single sum cash
payment in an amount equivalent to thirty-six (36) monthly basic life insurance
premiums applicable to the Executive’s basic life insurance coverage on his
Employment Termination Date. The single sum cash payment will be made in
accordance with the provisions of Section 4. The Executive may, at his option,
convert his basic life insurance coverage to an individual policy after his
Employment Termination Date by completing the forms required by the Company.



          (g) Perquisites. The Executive shall be entitled to a single sum cash
payment which shall be an amount equal to the sum of (1) the cost of the
Executive’s Perquisites in effect prior to his Termination of Employment for
the remainder of the calendar year in which the Employment Termination Date
occurs; plus (2) the cost of the Executive’s Perquisites in effect prior to his
Termination of Employment for an additional three years. The payment required
under this paragraph (g) will be made in accordance with the provisions of
Section 4. The Executive may, at his option, purchase any of his club
memberships held in the Company’s name for fair market value and on the terms
mutually agreed by the Executive and the Committee.



          (h) Retiree Medical. If the Executive would have become entitled to
benefits under the Company’s post-retirement health care insurance plans, as in
effect immediately prior to the Employment Termination Date or, if more
favorable to the Executive as in effect immediately prior to the first
occurrence of an event or circumstance constituting Good Reason, had the
Executive’s employment terminated at any time during the period of thirty-six
(36) months after the Employment Termination Date, the Company shall provide
such post-retirement health care insurance benefits to the Executive and the
Executive’s dependents commencing on the later of (i) the date on which such
coverage would have first become available and (ii) the date on which the
applicable benefits described in paragraph (e) of this Section 3.3 terminate.



     3.4 Gross-Up Payments. If any payments or benefits received or to be
received by the Executive (whether pursuant to the terms of this Agreement, or
any other plan or agreement with the Company, any Person whose actions result
in a Change in Control or any Person affiliated with the Company or such
Person) (such payments or benefits, excluding the Gross-Up Payment, being
hereinafter referred to as the “Total Payments”) will be subject to the Excise
Tax, the Company shall pay the Executive an additional amount (the “Gross-Up
Payment”) such that the net amount retained by the Executive after the
deduction of any Excise Tax on the Total Payments and any federal, state and
local income and employment taxes and Excise Tax upon the Gross-Up Payment
shall be equal to the Total Payments. The purpose of this Section is to place
the Executive in the same economic position such Executive would have been in
had no Excise Tax been imposed with respect to the Total Payments.



          (a) For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) all of the
Total Payments shall be treated as “parachute payments” (within the meaning of
section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (the “Tax
Counsel”) reasonably acceptable to the Executive



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and selected by the accounting firm which was, immediately prior to the
Change in Control, the Company’s independent auditor (the “Auditor”), such
payments or benefits (in whole or in part) do not constitute parachute
payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all
“excess parachute payments” within the meaning of section 280G(b)(l) of the
Code shall be treated as subject to the Excise Tax unless, in the opinion of
the Tax Counsel, such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered (within the meaning of
section 280G(b)(4)(B) of the Code) in excess of the “base amount” (within the
meaning of section 280G(b)(3) of the Code) allocable to such reasonable
compensation, or are otherwise not subject to the Excise Tax, and (iii) the
value of any noncash benefits or any deferred payment or benefit shall be
determined by the Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code.



          (b) For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income tax at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Executive’s residence on the
Employment Termination Date (or if there is no Employment Termination Date,
then the date on which the Gross-Up Payment is calculated for purposes of this
Section), net of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes.



          (c) In the event that the Excise Tax is finally determined to be less than
the amount taken into account hereunder in calculating the Gross-Up Payment,
the Executive shall repay to the Company, within ten (10) business days
following the time that the amount of such reduction in the Excise Tax is
finally determined, the portion of the Gross-Up Payment attributable to such
reduction (plus that portion of the Gross-Up Payment attributable to the Excise
Tax and federal, state and local income and employment taxes imposed on the
Gross-Up Payment benefit being repaid by the Executive, to the extent that such
repayment results in a reduction in the Excise Tax and a dollar-for-dollar
reduction in the Executive’s taxable income and wages for purposes of federal,
state and local income and employment taxes), plus interest on the amount of
such repayment at 120 percent of the rate provided in section 1274(b)(2)(B) of
the Code. In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder in calculating the Gross-Up Payment (including by
reason of any payment the existence or amount of which cannot be determined at
the time of the payment of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment in respect of such excess (plus any interest,
penalties or additions payable by the Executive with respect to such excess)
within five (5) business days following the time that the amount of such excess
is finally determined. The Executive and the Company shall each reasonably
cooperate with the other relative to any administrative or judicial proceedings
concerning the existence or amount of liability for the Excise Tax.



     3.5 Legal Fees. The Company shall pay, on a fully grossed up, after tax
basis, all legal fees and expenses incurred by the Executive (i) in disputing
in good faith any issue relating to the Executive’s termination of employment,
(ii) in seeking in good faith to obtain or enforce any benefit or right
provided under this Agreement in accordance with Section 9.5, or (iii) in
connection with any tax audit or proceeding to the extent attributable to the
application of section 4999 of the Code to any payment or benefit under this
Agreement. Such payments shall



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be made within ten (10) business days after delivery of the Executive’s
written request for payment accompanied with such evidence of fees and expenses
incurred as the Company may reasonably require.



     4. Time of Benefits Payments. The Company shall pay the Executive any
cash benefits described in paragraphs (a), (b), (c) (if the Executive elects to
receive a cash payment in lieu of outplacement services), (d), (f) and (g) of
Section 3.3 in a single sum cash payment within thirty (30) days after the
Executive’s Employment Termination Date. If it is subsequently determined that
additional monies are due and payable to the Executive as benefits described in
paragraphs (a), (b), (c) (if the Executive elects to receive a cash payment in
lieu of outplacement services), (d), (f) and (g) of Section 3.3, the Company
will pay any such unpaid benefits to the Executive, together with interest on
the unpaid benefits from the date the single sum cash payment was made at the
annual rate of 120 percent of the rate provided in section 1274(b)(2)(B) of the
Code, within ten (10) business days of discovering that the additional monies
are due and payable. If the benefits paid to the Executive are subsequently
determined to exceed the amount of benefits the Executive should have received,
such excess shall constitute a loan by the Company to the Executive, payable
within ten (10) business days after demand by the Company, together with
interest from the date the single sum cash payment was made at the annual rate
of 120 percent of the rate provided in section 1274(b)(2)(B) of the Code, but
only to the extent such amount has not been previously paid by the Executive.



     5. Termination Procedures And Compensation During Dispute.



     5.1 Notice of Termination. After a Change in Control and during the Term
of this Agreement, any purported termination of the Executive’s employment by
the Company shall be communicated by the Company by a written Notice of
Termination to the Executive in accordance with Section 9.8. For purposes of
this Agreement, a “Notice of Termination” shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive’s employment under the
provision so indicated. Further, a Notice of Termination for Cause is required
to include a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an opportunity
for the Executive, together with the Executive’s counsel, to be heard before
the Board) finding that, in the good faith opinion of the Board, the Executive
was guilty of conduct set forth in clause (i) or (ii) of the definition of
Cause herein, and specifying the particulars thereof in detail. No purported
termination of the Executive’s employment by the Company after a Change in
Control and during the Term of this Agreement shall be effective unless the
Company complies with the procedures set forth in this Section.



     5.2 Employment Termination Date. “Employment Termination Date,” with
respect to any purported termination of the Executive’s employment after a
Change in Control and during the Term of this Agreement, shall mean (i) if the
Executive’s employment is terminated for Disability, thirty (30) days after
Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of the Executive’s duties during such
thirty (30) day period), and (ii) if the Executive’s employment is terminated
for any other reason, the



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date specified in the Notice of Termination (which, in the case of a
termination by the Company, shall not be less than thirty (30) days (except in
the case of a termination for Cause) and, in the case of a termination by the
Executive, shall not be less than fifteen (15) days nor more than sixty (60)
days, respectively, from the date such Notice of Termination is given).



     5.3 Dispute Concerning Termination. If within fifteen (15) days after any
Notice of Termination is given, or, if later, prior to the Employment
Termination Date (as determined without regard to this Section), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Employment Termination Date shall be
extended until the earlier of (i) the date on which the Term of this Agreement
ends or (ii) the date on which the dispute is finally resolved, either by
mutual written agreement of the parties or by a final judgment, order or decree
of an arbitrator or a court of competent jurisdiction (which is not appealable
or with respect to which the time for appeal therefrom has expired and no
appeal has been perfected); provided, however, that the Employment Termination
Date shall be extended by a notice of dispute given by the Executive only if
such notice is given in good faith and the Executive pursues the resolution of
such dispute with reasonable diligence.



     5.4 Compensation During Dispute. If a purported termination occurs
following a Change in Control and during the Term of this Agreement and the
Employment Termination Date is extended in accordance with Section 5.3, the
Company shall continue to pay the Executive the full compensation in effect
when the notice giving rise to the dispute was given (including, but not
limited to, salary) and continue the Executive as a participant in all
compensation, benefit and insurance plans in which the Executive was
participating when the notice giving rise to the dispute was given or those
plans in which the Executive was participating immediately prior to the first
occurrence of an event or circumstance giving rise to the Notice of
Termination, if more favorable to the Executive, until the Employment
Termination Date, as determined in accordance with Section 5.3. Amounts paid
under this Section are in addition to all other amounts due under this
Agreement (other than those due under Section 3.2) and shall not be offset
against or reduce any other amounts due under this Agreement.



     6. Withholding. Subject to the provisions of Section 3.4, the Company may
withhold from any benefits paid under this Agreement all income, employment,
and other taxes required to be withheld under applicable law.



     7. Death of the Executive. If the Executive dies after his Employment
Termination Date but before the Executive receives full payment of the benefits
to which he is entitled, any unpaid benefits will be paid to the Executive’s
surviving spouse, or if the Executive does not have a surviving spouse, to the
Executive’s estate.



     8. Amendment. This Agreement may not be amended except pursuant to a
written instrument that is authorized by the Committee and agreed to in writing
and signed by the Executive.



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     9. Miscellaneous.



     9.1 Agreement Not an Employment Contract. This Agreement is not an
employment contract between the Company and Executive and gives Executive no
right to retain his employment. This Agreement is not intended to interfere
with the rights of the Company to terminate the Executive’s employment at any
time with or without notice and with or without cause or to interfere with the
Executive’s right to terminate his employment at any time.



     9.2 Alienation Prohibited. No benefits hereunder shall be subject to
anticipation or assignment by the Executive, to attachment by, interference
with, or control of any creditor of the Executive, or to being taken or reached
by any legal or equitable process in satisfaction of any debt or liability of
the Executive prior to its actual receipt by the Executive. Any attempted
conveyance, transfer, assignment, mortgage, pledge, or encumbrance of the
benefits hereunder prior to payment thereof shall be void.



     9.3 Severability. Each provision of this Agreement may be severed. If
any provision is determined to be invalid or unenforceable, that determination
shall not affect the validity or enforceability of any other provision.



     9.4 Binding Effect. This Agreement shall be binding upon any successor of
the Company. Further, the Board shall not authorize a Change in Control that
is a merger or a sale transaction unless the purchaser or the Company’s
successor agrees to take such actions as are necessary to cause the Executive
to be paid or provided all benefits due under the terms of this Agreement as in
effect immediately prior to the Change in Control.



     9.5 Settlement of Disputes Concerning Benefits Under this Agreement;
Arbitration. All claims by Executive for benefits under this Agreement shall
be directed to and determined by the Committee and shall be in writing. Any
denial by the Committee of a claim for benefits under this Agreement shall be
delivered to the Executive in writing within thirty (30) days after written
notice of the claim is provided to the Company in accordance with Section 9.8
and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Committee shall afford a
reasonable opportunity to the Executive for a review of the decision denying a
claim and shall further allow the Executive to appeal to the Committee a
decision of the Committee within sixty (60) days after notification by the
Committee that the Executive’s claim has been denied. Any further dispute or
controversy arising out of or relating to this Agreement, including without
limitation, any and all disputes, claims (whether in tort, contract, statutory
or otherwise) or disagreements concerning the interpretation or application of
the provisions of this Agreement shall be resolved by arbitration in accordance
with the rules of the American Arbitration Association (the “AAA”) then in
effect. No arbitration proceeding relating to this Agreement may be initiated
by either the Company or the Executive unless the claims review and appeals
procedures specified in Section 5.3 have been exhausted. Within ten (10)
business days of the initiation of an arbitration hereunder, the Company and
the Executive will each separately designate an arbitrator, and within twenty
(20) business days of selection, the appointed arbitrators will appoint a
neutral arbitrator from the AAA Panel of Commercial Arbitrators. The
arbitrators shall issue their written decision (including a statement of
finding of facts) within thirty (30) days from the date of the close of the
arbitration hearing. The decision of the arbitrators selected hereunder will
be final and binding on both parties. This arbitration



15









 







provision is expressly made pursuant to and shall be governed by the
Federal Arbitration Act, 9 U.S.C. Sections 1-16 (or replacement or successor
statute). Pursuant to Section 9 of the Federal Arbitration Act, the Company
and the Executive agree that a judgment of the United States District Court for
the District in which the headquarters of Baker Hughes is located at the time
of initiation of an arbitration hereunder may be entered upon the award made
pursuant to the arbitration.



     9.6 No Mitigation. The Company agrees that if the Executive’s employment
with the Company terminates during the Term of this Agreement, the Executive is
not required to seek other employment or to attempt in any way to reduce any
amounts payable to the Executive by the Company pursuant to this Agreement.
Further, except as expressly provided otherwise herein, the amount of any
payment or benefit provided for in this Agreement (other than Section 3.3(f))
shall not be reduced by any compensation earned by the Executive as the result
of employment by another employer, by retirement benefits, by offset against
any amount claimed to be owed by the Executive to the Company, or otherwise.



     9.7 Other Amounts Due. Except as expressly provided otherwise herein, the
payments and benefits provided for in this Agreement are in addition to and not
in lieu of amounts and benefits that are earned by the Executive prior to his
Termination of Employment. The Company shall pay the Executive any
compensation earned through the Employment Termination Date but not previously
paid the Executive. Further the Executive shall be entitled to any other
amounts or benefits due the Executive in accordance with any contract, plan,
program or policy of the Company or any of its Affiliates. Amounts that the
Executive is entitled to receive under any plan, program, contract or policy of
the Company or any of its Affiliates at or subsequent to the Executive’s
Termination of Employment shall be payable or otherwise provided in accordance
with such plan, program, contract or policy, except as expressly modified
herein.



     9.8 Notices. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
given in person or by United States registered mail, return receipt requested
(with evidence of receipt by the party to whom the notice is given), postage
prepaid, addressed, if to the Executive, to the address listed on the signature
page of this Agreement and, if to the Company, to 3900 Essex Lane; Houston,
Texas 77027; Attention: General Counsel, or to such other address as either
party may have furnished to the other in writing in accordance herewith. For
purposes of this agreement notice to a party shall be effective only upon
actual receipt of the notice by the party with written evidence of receipt by
the party to whom the notice is given.



     9.9 Governing Law. All provisions of this Agreement shall be construed in
accordance with the laws of Texas, except to the extent preempted by federal
law and except to the extent that the conflicts of laws provisions of the State
of Texas would require the application of the relevant law of another
jurisdiction, in which event the relevant law of the State of Texas will
nonetheless apply, with venue for litigation being in Houston, Texas.



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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date above first written.



	 	 	 	 	 	 	 
	 	 	BAKER HUGHES INCORPORATED
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/H. John Riley, Jr.
	 	 
	

	 	 	 	     H. John Riley, Jr.	 	 
	

	 	 	 	Lead Director and Chairman of	 	 
	

	 	 	 	the Compensation Committee	 	 
	 
	 	 	 	 	 	 
	 	 	EXECUTIVE	 	 
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/Chad C. Deaton
	 	 
	

	 	Address:
	 	            13914 I.O. Court	 	 
	

	 	 	 	            Willis, Texas 77318	 	 








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