Document:

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                                                                   EXHIBIT 10.12

[BAKER HUGHES LOGO]

                  POLICY:     BAKER HUGHES INCORPORATED
                              EXECUTIVE SEVERANCE POLICY

APPROVED:         PRESIDENT                        EFFECTIVE:         01-01-2000
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         POLICY:              Baker Hughes Incorporated ("BHI")
                              Executive Severance Policy (the "Policy")

         SCOPE:               This policy covers all U.S. based Executive Salary
                              Grade System employees (the "Executives") of Baker
                              Hughes Incorporated, its divisions, subsidiaries
                              and BHI controlled affiliates (the "Company")

         PURPOSE:             To have a uniform Policy regarding severance
                              benefits for all U.S. based Company Executives on
                              the Executive Salary Grade System. This Policy is
                              intended to afford the specified Executives whose
                              employment is terminated for reasons specified
                              below an income stream for a fixed time period
                              while such Executives actively seek and obtain
                              gainful employment or become self employed.

         ELIGIBILITY:         Executives shall be eligible for the benefits
                              under this Policy if (1) their employment is
                              terminated because their position is eliminated,
                              or (2) their employment is terminated in
                              conjunction with an acquisition, merger, spin-off,
                              reorganization (either business or personnel),
                              facility closing or a discontinuance of operations
                              of the divisions in which such Executives are
                              employed. Executives shall not be eligible for the
                              benefits under this Policy if they are terminated
                              for any other reason, or if they resign or retire.
                              Executives shall not be eligible for the benefits
                              under this Policy if, in the event of an
                              acquisition or merger, they are offered a position
                              by BHI or the successor company at the same base
                              salary at a work location within fifty (50) miles
                              of their current work location.

         BENEFITS:            Eligible Executives shall be eligible for the
                              severance benefits as described in the "Settlement
                              Agreement and General Release". The duration of
                              these benefits is dependent upon the Executive's
                              salary band as shown below:

                              Salary Band              No. of Months
                              -----------              ---------
                              1                             9
                              2                            12
                              3 - 5                        15
                              6 - 8                        18

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[BAKER HUGHES LOGO]

                  POLICY:     BAKER HUGHES INCORPORATED
                              EXECUTIVE SEVERANCE POLICY

APPROVED:         PRESIDENT                        EFFECTIVE:         01-01-2000
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  REQUIREMENTS:               In order to receive the benefits described in the
                              Settlement Agreement and General Release, an
                              Executive must agree to the terms and conditions
                              of that document with the execution of their
                              signature.

  MISCELLANEOUS:              The Company is an "employment at will" employer.
                              Employees have the right to resign their positions
                              "at will" and the Company has the right to
                              terminate an employee "at will" with or without
                              notice of cause. No employee's "at will" status
                              may be modified except in a written contract
                              executed by BHI's President.

                              The benefits described in this Policy shall be
                              interpreted and administered by BHI's Vice
                              President of Human Resources in accordance with
                              the terms and conditions of the various benefit
                              plans described in the Letter.

                              The benefits outlined in this Policy supersede,
                              negate and replace all other benefits the Company
                              has offered or may offer to other Company
                              employees including those offered by the division
                              where such Executives are employed.

                              The benefits under this Policy may be amended,
                              expanded or discontinued at any time at the sole
                              discretion of BHI with or without notice.

                              Page 2
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[BAKER HUGHES LOGO]

                  POLICY:     BAKER HUGHES INCORPORATED
                              EXECUTIVE SEVERANCE POLICY

APPROVED:         PRESIDENT                        EFFECTIVE:         01-01-2000
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                    SETTLEMENT AGREEMENT AND GENERAL RELEASE

         FIRST: Employee's active employment with the Company will terminate on
    _____________, 20____ ("Effective Date"). At that time, Employee will be
    placed on a paid Leave of Absence for ___________ months. During this
    period, Employee will receive a salary of $_________ per month. Employee
    will receive this salary amount until the expiration of the period or until
    Employee obtains employment or becomes self employed ("Subsequent Employment
    Date"), whichever occurs first. If Employee obtains employment or becomes
    self employed during the paid Leave of Absence period and earns less than
    $___________ per month, Employee will continue to receive the difference
    between the amount earned and $___________per month until the expiration of
    the period.

         SECOND: During the paid Leave of Absence period, Employee will continue
    to be eligible for the group insurance programs on which Employee is
    currently enrolled as of the Effective Date. Such benefits will cease as of
    the expiration of the paid Leave of Absence period or as of the date other
    medical, dental, and life insurance becomes available following Employee's
    Subsequent Employment Date, whichever occurs first. Upon the termination of
    coverage under the Company's programs, Employee may be eligible to buy
    continuation coverage under the terms and for the period mandated by federal
    law. Coverage for short-term and long-term disability will not be extended
    to Employee after the Effective Date.

         THIRD: Employee may elect to continue to participate in the BHI
    Employee Thrift Plan and the BHI Employee Stock Purchase Plan until the
    expiration of the paid Leave of Absence period or until the Subsequent
    Employment Date, whichever comes first. All benefits, contributions or
    disbursements, if any, under such Plans will be paid to Employee in
    accordance with such Plans upon the expiration of the period or Subsequent
    Employment Date, whichever occurs first.

         FOURTH: If Employee was participating in the BHI Employee Stock Option
    Plan and/or the BHI Convertible Debenture Plan as of the Effective Date,
    such participation may continue until the expiration of the paid Leave of
    Absence period. No new options or debenture grants will be awarded to
    Employee after the Effective Date. Employee will be permitted to exercise or
    convert any option rights or convertible debenture rights awarded prior to
    the Effective Date for a period of up to three (3) months from the
    expiration of the paid Leave of Absence period, or the normal expiration
    date of these rights, whichever occurs first, but only to the extent that
    such rights are vested or convertible by the date of exercise. If any of
    Employee's convertible debentures remain unconverted at the end of the
    period in which they can be exercised, Company will prepay the debentures in
    accordance with the terms of such Plan.

                                     Page 3
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[BAKER HUGHES LOGO]

                  POLICY:     BAKER HUGHES INCORPORATED
                              EXECUTIVE SEVERANCE POLICY

APPROVED:         PRESIDENT                        EFFECTIVE:         01-01-2000
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         FIFTH: Employee's bonus for 20____ will be determined with reference to
    formal written objectives and paid in __________________, 20____. The bonus
    will be determined at the Company's sole discretion based on fiscal 20_____
    audited results.

         SIXTH: All payments by Company for Employee's club memberships or other
    perquisites will cease on the Effective Date. Employee has the option of
    purchasing Employee's club membership for the fair market value of such
    membership as determined by Company.

         SEVENTH: Employee will return to company all Company property in
    Employee's possession as of the Effective Date including but not limited to
    credit cards and documents of any kind.

         Employee will prepare and submit a final expense account reimbursement
    request for expenses incurred prior to the Effective Date. Such expense
    account reimbursement request will be reviewed and paid in accordance with
    company policy.

         Employee agrees and consents to allow Company to deduct from the paid
    Leave of Absence salary payments any amounts of money that Employee owes to
    Company.

         EIGHTH: Outplacement services will be provided to Employee at Company
    expense in accordance with Company policy.

         NINTH: The benefits described above supersede, negate and replace any
    other benefits offered by Company to Employee. This Agreement will be
    administered by BHI's Chief Administrative Officer who will also resolve any
    issues regarding the interpretation, implementation or administration of the
    benefits described above.

         TENTH: By executing this Agreement, Employee accepts the fact that
    Employee's relationship with the Company was "at-will employment" meaning
    that either Employee or Company could terminate the relationship with or
    without notice and with or without cause, at any time.

         ELEVENTH: Payment of the above described benefits is contingent upon
    the Employee executing and returning this Settlement Agreement and General
    Release to Company. Employee may take up to _________________ (___) days to
    consider this Agreement prior to executing it. Furthermore, Employee has a
    seven (7) day period after executing this Agreement during which time
    Employee may revoke Employee's consent to the Agreement, and this Agreement
    will not become effective or enforceable until such revocation period has
    expired.
                                     Page 4

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[BAKER HUGHES LOGO]

                  POLICY:     BAKER HUGHES INCORPORATED
                              EXECUTIVE SEVERANCE POLICY

APPROVED:         PRESIDENT                        EFFECTIVE:         01-01-2000
--------------------------------------------------------------------------------

         TWELFTH: This Agreement shall not in any way be construed as an
    admission by Company that it has acted wrongfully with respect to Employee
    or any other person, or that Employee has any rights whatsoever against
    Company, and Company specifically disclaims any liability to wrongful acts
    against Employee or any other person, on the part of itself, its employees
    or its agents.

         THIRTEENTH: Employee represents, understands and agrees that Employee's
    active employment with the Company has or will soon terminate and that
    Employee will not apply for or otherwise seek active employment or extended
    inactive employment with Company at any time.

         FOURTEENTH: Employee further agrees that during any period in which
    Employee is receiving benefits under this Agreement, Employee will not
    solicit or participate in or assist in any way in the solicitation or
    recruitment, directly or indirectly, of any Company employees or customers.
    In view of the nature of Employee's employment and the information and trade
    secrets which Employee has received during the course of Employee's
    employment with ____________________, Employee likewise agrees that Company
    would be irreparably harmed by any violation or threatened violation of this
    Agreement and that Company shall be entitled to injunctive relief
    prohibiting Employee from any violation or threatened violation of this
    Agreement.

         FIFTEENTH: As a material inducement for Company to enter into this
    Agreement, Employee hereby irrevocably and unconditionally releases, acquits
    and forever discharges Company and its affiliated companies and their
    directors, officers, employees and representatives, (collectively
    "Releasees") from any and all claims, liabilities, obligations, damages,
    causes of action, demands, costs, losses, and/or expenses (including
    attorneys fees), of any nature whatsoever, whether known or unknown,
    including but not limited to, rights arising out of alleged violations of
    any contracts, express or implied, any covenant of good faith and fair
    dealing, express or implied, or any tort, or any legal restrictions on the
    Company's right to terminate employees, or any federal, state or other
    governmental statute, regulation, or ordinance, including, without
    limitation, Title VII of the Civil Rights Act of 1964, and the Federal Age
    Discrimination in Employment Act, which Employee claims to have against any
    of the Releasees. In addition, Employee waives all rights and benefits
    afforded by any state laws which provide in substance that a general release
    does not extend to claims which a person does not know or suspect to exist
    in his favor at the time of executing the release which, if known by him,
    must have materially affected employee's settlement with the other person.
    The only exception to the foregoing are claims and rights that may arise
    after the date of execution of this Agreement.

         SIXTEENTH: Employee represents and acknowledges that in executing this
    Agreement Employee does not rely and has not relied upon any representation
    or statement, oral or written, not set forth herein, made by any of the
    Releasees or by any of the Releasees' agents, representatives or attorneys
    with regard to the subject matter, basis or effect of this Agreement or
    otherwise.

                                     Page 5
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[BAKER HUGHES LOGO]

                  POLICY:     BAKER HUGHES INCORPORATED
                              EXECUTIVE SEVERANCE POLICY

APPROVED:         PRESIDENT                        EFFECTIVE:         01-01-2000
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         SEVENTEENTH: This Agreement sets forth the entire agreement between the
    parties hereto, and fully supersedes any and all prior agreements or
    understandings, oral or written, between the parties hereto pertaining to
    the subject matter hereof.

         EIGHTEENTH: This Agreement shall be construed and interpreted in
    accordance with the laws of the State of Texas with venue for litigation
    being in Houston, Texas.

         NINETEENTH: The invalidity or unenforceability of a term or provision
    of this Agreement shall not affect the validity or enforceability of any
    other term or provision of this Agreement, which shall remain in full force
    and effect.

         TWENTIETH: Employee represents and agrees that Employee fully
    understands Employee's right to discuss all aspects of this Agreement with
    Employee's private attorney, that to the extent, if any, that employee
    desires, Employee has availed___________________________ of this right, that
    Employee has carefully read and fully understands all of the provisions of
    this Agreement and that Employee is voluntarily entering into this
    Agreement.

         TWENTY - FIRST: Employee acknowledges, by Employee's signature below,
    that Employee was given this Agreement on the ________day of
    _____________________, 20_____.

         PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN
    AND UNKNOWN CLAIMS. YOU MAY TAKE UP TO ________________ (____) DAYS FROM
    RECEIPT OF THIS AGREEMENT TO CONSIDER ITS TERMS BEFORE SIGNING IT. YOU ARE
    ENCOURAGED TO CONSULT AN ATTORNEY BEFORE EXECUTING THIS AGREEMENT IF THAT IS
    YOUR DESIRE.

         EXECUTED at _________________________ (city), ___________________
    (state), this __________day of ______________________, 20______.

    BAKER HUGHES INCORPORATED

    By:

                                     Page 6<PAGE>   1
                                                                   EXHIBIT 10.20

                            BAKER HUGHES INCORPORATED

                1995 EMPLOYEE ANNUAL INCENTIVE COMPENSATION PLAN

<PAGE>   2

CONTENTS
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<TABLE>
<CAPTION>

                                                                            PAGE
<S>             <C>                                                        <C>
ARTICLE 1.        ESTABLISHMENT AND PURPOSE                                   1

ARTICLE 2.        DEFINITIONS                                                 1

ARTICLE 3.        ADMINISTRATION                                              2

ARTICLE 4.        ELIGIBILITY AND PARTICIPATION                               3

ARTICLE 5.        AWARD DETERMINATION                                         4

ARTICLE 6.        PAYMENT OF FINAL AWARDS                                     5

ARTICLE 7.        TERMINATION OF EMPLOYMENT                                   5

ARTICLE 8.        RIGHTS OF PARTICIPANTS                                      6

ARTICLE 9.        BENEFICIARY DESIGNATION                                     7

ARTICLE 10.       AMENDMENT AND TERMINATION                                   7

ARTICLE 11.       GOVERNING LAW AND WITHHOLDING                               7
</TABLE>

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BAKER HUGHES INCORPORATED
1995 EMPLOYEE ANNUAL INCENTIVE COMPENSATION PLAN

ARTICLE 1.  ESTABLISHMENT AND PURPOSE

     1.1 ESTABLISHMENT OF THE PLAN. Baker Hughes Incorporated (hereinafter
referred to as the "Company"), a Delaware corporation, hereby establishes an
annual incentive compensation plan to be known as the "Baker Hughes Incorporated
1995 Employee Annual Incentive Compensation Plan" (hereinafter referred to as
the "Plan") as set forth in this document. The Plan permits the awarding of
annual cash bonuses to key employees of the Company and its subsidiaries, based
on the achievement of preestablished performance goals. The Plan shall become
effective as of October 1, 1994, and shall remain in effect until terminated by
the Board of Directors of the Company. Notwithstanding any provision herein to
the contrary, no amounts shall be paid under the Plan unless and until the
stockholders of the Company approve the Plan prior to September 30, 1995.

     1.2 PURPOSE. The purpose of the Plan is to provide Key Employees with a
meaningful annual incentive opportunity geared toward the achievement of
specific corporate and/or individual goals.

ARTICLE 2.  DEFINITIONS

     2.1 DEFINITIONS. Whenever used in the Plan, the following terms shall have
the meanings set forth below and, when the defined meaning is intended, the term
is capitalized:

(a)  "Board" or "Board of Directors" means the Board of Directors of the
     Company.

(b)  "Cause" means the occurrence of any one of the following:

          (i)   The willful and continued failure by a Participant to
                substantially perform his/her duties (other than any such
                failure resulting from the Participant's disability), after a
                written demand for substantial performance is delivered to the
                Participant that specifically identifies the manner in which the
                Company believes that the Participant has not substantially
                performed his/her duties, and the Participant has failed to
                remedy the situation within ten (10) business days of receiving
                such notice; or

          (ii)  The Participant's conviction for an act of fraud, embezzlement,
                theft, or other criminal act constituting a felony; or

          (iii) The willful engaging by the Participant in gross misconduct or
                malfeasance. However, no act, or failure to act, on the
                Participant's part shall be considered "willful" unless done, or
                omitted to be done, by the Participant not in good faith and
                without reasonable belief that his/her action or omission was in
                the best interest of the Company; or

                                       1

<PAGE>   4

          (iv)  The violation of the Company's Standards of Conduct, which
                violation is determined to be material by the Committee.

(c)  "Committee" means the Compensation Committee of the Board or any other
     committee appointed by the Board to administer the Plan. The membership of
     the Committee shall in all cases be comprised solely of two or more outside
     directors (within the meaning of Section 162(m)).

(d)  "Company" means Baker Hughes Incorporated, a Delaware corporation, and any
     successor thereto.

(e)  "Final Award" means the actual award earned for a Plan Year by a
     Participant as determined by the Committee (see Article 5.4 herein).

(f)  "Key Employee" means an employee of the Company, or any of its
     subsidiaries, who, in the opinion of the Chief Executive Officer of the
     Company, is in a position to significantly contribute to the growth and
     profitability of the Company (see Article 4 herein).

(g)  "Participant" means a Key Employee who is nominated for participation by
     the Chief Executive Officer of the Company and then is selected by the
     Committee to participate in the Plan (see Article 4 herein).

(h)  "Plan Year" means the Company's fiscal year commencing October 1 and ending
     September 30.

(i)  "Section 162(m)" means section 162(m) (or any successor provision) of the
     Internal Revenue Code of 1986, as amended, and applicable interpretive
     authority thereunder.

         2.2 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.

         2.3 SEVERABILITY. In the event any provision of the Plan shall be held
to be illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.

ARTICLE 3.  ADMINISTRATION

         3.1 THE COMMITTEE. This Plan shall be administered by the Committee in
accordance with the rules that it may establish from time to time that are not
inconsistent with the provisions of the Plan.

                                       2

<PAGE>   5

         The determination of the Committee as to any disputed question arising
under this Plan, including questions of construction and interpretation, shall
be final, binding, and conclusive upon all persons.

         3.2 INDEMNIFICATION. Each person who is or shall have been a member of
the Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit, or proceeding to which he may be a party or in which he
may be involved by reason of any action taken or failure to act under the Plan
and against and from any and all amounts paid by him in settlement thereof, with
the Company's approval, or paid by him in satisfaction of any judgment in any
such action, suit, or proceeding against him, provided he shall give the Company
an opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's Restated Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the
Company may have to indemnify them or hold them harmless.

ARTICLE 4.  ELIGIBILITY AND PARTICIPATION

         4.1 ELIGIBILITY. Eligibility for participation in the Plan shall be
limited to those Key Employees who, by the nature and scope of their position,
contribute to the overall results or success of the Company and its
subsidiaries.

         4.2 PARTICIPATION. Participation in the Plan shall be determined
annually based upon the recommendation of the Chief Executive Officer of the
Company and the approval of the Committee. Employees approved for participation
shall be notified in writing of their selection, and of their performance goals
and related Award Opportunities (as defined in Article 5.1), as soon after
approval as is practicable.

         4.3 PARTIAL PLAN YEAR PARTICIPATION. The Committee may, upon
recommendation of the Chief Executive Officer of the Company, allow an
individual who becomes eligible after the beginning of a Plan Year to
participate in the Plan for that year. In such case, the Participant's Final
Award normally shall be prorated based on the number of full months of
participation. However, the Committee may, based upon the recommendation of the
Chief Executive Officer of the Company, authorize an unreduced Final Award.

         4.4 TERMINATION OF APPROVAL. The Committee may withdraw its approval
for participation in the Plan for a Participant at any time. In the event of
such withdrawal, the employee concerned shall cease to be a Participant as of
the date designated by the Committee and the employee shall be notified of such
withdrawal as soon as practicable following such action. Further, such employee
shall cease to have any right to a Final Award for the Plan Year in which such
withdrawal is effective; provided, however, that the Committee may, in its sole
discretion, authorize a prorated award based on the number of full months of
participation prior to the effective date of such withdrawal.

                                       3

<PAGE>   6

ARTICLE 5.  AWARD DETERMINATION

         5.1 AWARD OPPORTUNITIES. As soon as practicable (but in no event later
than ninety (90) days) after the beginning of each Plan Year, the Committee
shall establish, in writing, maximum, target, and minimum incentive award levels
(the "Award Opportunities") for each Participant. The established Award
Opportunities may vary in relation to the responsibility level of the
Participant. In the event a Participant changes job levels or salary grades
during the Plan Year, the Award Opportunities may be adjusted by the Committee,
in its sole discretion, to reflect the amount of time at each job level and/or
in each salary grade.

         5.2 PERFORMANCE GOALS. As soon as practicable (but in no event later
than ninety (90) days) after the beginning of each Plan Year, the Committee
shall establish, in writing, performance goals for each Participant for that
Plan Year. The goals will be based on one or more financial objectives of the
Company determined by and defined by the Committee, which objectives may include
profits before-tax, profits after-tax, earnings per share, and/or the ratio of
after-tax profits to net capital employed; provided, however, that as an
alternative to other goals, and in addition thereto, an Award Opportunity shall
provide an element based on a goal tied to total shareholder return ("TSR"), as
defined by the Committee and discussed in Article 5.4. Nonfinancial objectives
may also be included in a Participant's performance goals, and will not
represent more than 20 percent of target Award Opportunities, as discussed in
Article 5.1. Notwithstanding the foregoing, no covered employee (as such term is
defined in Section 162(m)) may have any portion of his Final Award based on
nonfinancial, subjective performance goals.

         5.3 ADJUSTMENT OF PERFORMANCE GOALS. The Committee shall have the right
to adjust the performance goals (either up or down) during the Plan Year if it
determines that external changes or other unanticipated business conditions have
materially affected the fairness of the goals and unduly influenced the
Company's ability to meet them. Further, in the event of a Plan Year of less
than twelve (12) months, the Committee shall have the right to adjust the
performance goals, at its discretion, to protect the purpose and intent of the
Plan. Notwithstanding the foregoing, no such adjustment shall be made with
respect to an individual who is a covered employee (within the meaning of
Section 162(m)) to the extent the same is considered an upward discretionary
increase in the amount of the Final Award for such individual (within the
meaning of Section 162(m)).

         5.4 FINAL AWARD DETERMINATIONS. As soon as practicable after the end of
each Plan Year, Final Awards shall be computed for each Participant as
determined by the Committee. The Committee shall certify to what extent the
performance goals established pursuant to Article 5.2 and any other material
terms of an award were in fact satisfied. Then, two (2) independent computations
will be made, as follows:

(a)  Achievement of financial goals (other than TSR goals), as discussed in
     Article 5.2, shall be assessed via a quantitative formula established by
     the Committee. Individuals' award calculations will be based on varying
     Award Opportunities, as discussed in Article 5.1. Adjustment will be made
     to reflect nonfinancial objectives for eligible Participants, as described
     in Article 5.2.

                                       4

<PAGE>   7

(b)  Achievement of TSR goals, as discussed in Article 5.2, shall be assessed
     via a quantitative formula established by the Committee. Individuals' award
     calculations will be based on one-half of the target Award Opportunity, as
     discussed in Article 5.1.

The greater of the resulting two calculations will be used to determine the
Final Award paid for the Plan Year. In determining the Final Award, the
Committee, in its sole discretion, may increase or decrease calculated amounts
to reflect factors regarding performance during the Plan Year which were not, in
the sole opinion of the Committee, appropriately reflected in the Final Award
calculation. Notwithstanding the foregoing, the Final Award to an individual who
is a covered employee (within the meaning of Section 162(m)) will not be subject
to upward discretionary adjustment by the Committee. Downward discretionary
adjustment for these individuals will be permitted to the extent that such
downward adjustments do not prevent the Final Awards to those individuals from
being deductible by the Company for federal income tax purposes under Section
162(m).

         5.5 INDIVIDUAL AWARD CAP. The maximum annual Final Award any individual
may receive in connection with the Plan is $1,000,000.

ARTICLE 6.  PAYMENT OF FINAL AWARDS

         As soon as practicable following the end of each Plan Year, Final Award
payments shall be paid in cash.

ARTICLE 7.  TERMINATION OF EMPLOYMENT

         7.1 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT.
In the event a Participant's employment is terminated by reason of death, total
and permanent disability (as determined by the Committee), or retirement, the
Final Award, determined in accordance with Article 5.4 herein, shall be reduced
so that it reflects only participation prior to termination. This reduction
shall be determined by multiplying said Final Award by a fraction, the numerator
or which is the months of participation through the date of termination rounded
up to whole months, and the denominator of which is twelve (12). The Final Award
thus determined plus all unpaid amounts, if any, from previous years shall be
paid as soon as practicable following the Committee's determinations under
Article 5.4 hereof for that Plan Year.

         7.2 EMPLOYMENT TRANSFERS. If a Participant transfers from one division
to another division within the Company, the Final Award for the Participant's
time at the Participant's former division will be prorated for the number of
whole months rounded to the nearest whole month of the Plan Year the Participant
was at that division. The Final Award will be determined as soon as practicable
after the end of the Plan Year and will be based on the financial results at the
close of the Plan Year. The Final Award will be paid at the same time the other
Final Awards for that division are paid. If a Participant is eligible for a
Final Award in his new position, the Final Award will be based on the months
left in the Plan

                                       5

<PAGE>   8

Year, on his new base salary level and Award Opportunities, as determined by the
Committee based upon the recommendation of the Chief Executive Officer of the
Company.

         7.3 DISPOSITION OF BUSINESS. If the Participant's division is disposed
of during the Plan Year, payment of the Participant's Final Award shall be
determined in accordance with the following alternatives:

(a)  If the acquiring party of the division offers employment to the Participant
     and assumes the obligations under the Plan, either directly or indirectly,
     and the Participant accepts such offer of employment, the Company shall not
     be obligated to pay the Final Award and such obligation shall be that of
     the acquiring party in accordance with the Final Award parameters; or

(b)  If the acquiring party does not assume the obligations under the Plan,
     whether or not the Participant is offered and accepts employment, then the
     Participant will receive a prorated Final Award for the portion of the Plan
     Year that the Participant was employed by the Company prior to the date of
     the consummation of the sale of the division, to be paid at the same time
     other Final Awards are paid under the Plan. The computation shall be made
     on the basis of the number of whole months rounded to the nearest whole
     month of the Plan Year that the Participant was in active service with the
     Company; or

(c)  If the acquiring party of the division offers employment to the Participant
     and assumes the obligations under the Plan, either directly or indirectly,
     and the Participant rejects such employment, the Participant shall be
     deemed to have voluntarily resigned as provided under Article 7.4 below.

         7.4 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event a
Participant's employment is terminated voluntarily by the employee or by the
Company for Cause, all of the Participant's rights to a Final Award for the Plan
Year then in progress shall be forfeited. If a Participant's termination is for
any reason other than as described in Article 7.3, death, disability,
retirement, voluntary resignation, or Cause, the Participant will receive a
prorated bonus award for the portion of the Plan Year that the Participant was
employed by the Company, computed as determined by the Committee, to be paid at
the same time other Final Awards are paid under the Plan.

ARTICLE 8.  RIGHTS OF PARTICIPANTS

         8.1 EMPLOYMENT. Nothing in this Plan shall interfere with or limit in
any way the right of the Company to terminate any Participant's employment at
any time for any reason, nor confer upon any Participant any right to continue
in the employ of the Company. For all purposes of the Plan, a Participant shall
be considered to be in the employment of the Company as long as he or she
remains employed on a full-time basis by the Company or any of its subsidiaries
or is on an authorized leave of absence approved by the Committee. Any question
as to whether and when there has been a termination of a Participant's
employment,

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<PAGE>   9

and the reason for such termination, shall be determined solely by the
Committee, and its determination shall be final and conclusive.

         8.2 PARTICIPATION. No Participant or other employee shall at any time
have a right to be selected for participation in the Plan for any Plan Year,
despite having been selected for participation in a previous Plan Year.

         8.3 NONTRANSFERABILITY. No right or interest of any Participant in this
Plan shall be assigned or transferable, or subject to any lien, directly, by
operation of law, or otherwise, including execution, levy, garnishment,
attachment, pledge, and bankruptcy.

ARTICLE 9.  BENEFICIARY DESIGNATION

         Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his death before he
receives any or all of such benefit. Each designation will revoke all prior
designations by the same Participant, shall be in a form prescribed by the
Committee, and will be effective only when filed by the Participant in writing
with the Committee during his lifetime. In the absence of any such designation,
benefits remaining unpaid at the Participant's death shall be paid to the
Participant's estate.

ARTICLE 10.  AMENDMENT AND TERMINATION

         The Board may modify or amend, in whole or in part, any or all of the
provisions of this Plan, or suspend or terminate it entirely; provided, that no
such modification, amendment, suspension, or termination may, without the
consent of a Participant (or his beneficiary in the case of the death of the
Participant), reduce the right of a Participant (or his beneficiary as the case
may be) to a payment or distribution hereunder to which he is entitled with
respect to a Plan Year that has ended prior to such modification, amendment,
suspension, or termination.

ARTICLE 11.  GOVERNING LAW AND WITHHOLDING

         11.1 GOVERNING LAW. THE PLAN, AND ALL AWARDS HEREUNDER, SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS.

         11.2 WITHHOLDING TAXES. The Company shall have the right to deduct from
all payments under this Plan any Federal, state, or local taxes required by law
to be withheld with respect to such payments.

                                       7

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