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                                                                   EXHIBIT 10.18

                            LONG TERM INCENTIVE PLAN
                                       OF
                            BAKER HUGHES INCORPORATED

1. Plan. This Long Term Incentive Plan of Baker Hughes Incorporated (the "Plan")
was adopted by Baker Hughes Incorporated to reward certain corporate officers
and key employees of Baker Hughes Incorporated by enabling them to acquire
shares of common stock of Baker Hughes Incorporated and receive other
compensation based on such common stock.

2. Objectives. This Plan is designed to attract and retain key employees of the
Company and its Subsidiaries (as hereinafter defined), to attract and retain
qualified directors of the Company, to encourage the sense of proprietorship of
such employees and directors and to stimulate the active interest of such
persons in the development and financial success of the Company and its
Subsidiaries. These objectives are to be accomplished by making Awards (as
hereinafter defined) under this Plan and thereby providing Participants (as
hereinafter defined) with a proprietary interest in the growth and performance
of the Company and its Subsidiaries.

3. Definitions. As used herein, the terms set forth below shall have the
following respective meanings:

         "Affiliate" is as defined in Section 16.

         "Annual Director Award Date" means, for each year beginning on or after
October 28, 1998, the fourth Wednesday of October of each year.

         "Authorized Officer" means the Chairman of the Board or the Chief
Executive Officer of the Company (or any other senior officer of the Company to
whom either of them shall delegate the authority to execute any Award
Agreement).

         "Award" means an Employee Award or a Director Award.

         "Award Agreement" means any Employee Award Agreement or Director Award
Agreement.

         "Beneficial Owner" is as defined in Section 16.

         "Board" means the Board of Directors of the Company.

         "Cause" is as defined in Section 16.

         "Change in Control" is as defined in Section 16.

         "Code" means the Internal Revenue Code of 1986, as amended from time to
time.

         "Committee" means the Compensation Committee of the Board or such other
committee of the Board as is designated by the Board to administer the Plan;
provided, for purposes of Section 16, Committee is as defined therein.

         "Common Stock" means the Common Stock, par value $1.00 per share, of
the Company.

         "Company" means Baker Hughes Incorporated, a Delaware corporation.

         "Director" means an individual serving as a member of the Board.

         "Director Award" means the grant of a Director Option.

         "Director Award Agreement" means a written agreement between the
Company and a Participant who is a Nonemployee Director setting forth the terms,
conditions and limitations applicable to a Director Award.

         "Disability" means, with respect to a Nonemployee Director, the
inability to perform the duties of a Director for a continuous period of more
than three months by reason of any medically determinable physical or mental
impairment.

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         "Dividend Equivalents" means, with respect to shares of Restricted
Stock that are to be issued at the end of the Restriction Period, an amount
equal to all dividends and other distributions (or the economic equivalent
thereof) that are payable to stockholders of record during the Restriction
Period on a like number of shares of Common Stock.

         "Employee" means an employee of the Company or any of its Subsidiaries
and an individual who has agreed to become an Employee of the Company or any of
its Subsidiaries and is expected to become such an Employee within the following
six months.

         "Employee Award" means the grant of any Option, SAR or Stock Award,
whether granted singly, in combination or in tandem, to a Participant who is an
Employee pursuant to such applicable terms, conditions and limitations as the
Committee may establish in order to fulfill the objectives of the Plan.

         "Employee Award Agreement" means a written agreement between the
Company and a Participant who is an Employee setting forth the terms, conditions
and limitations applicable to an Employee Award.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.

         "Fair Market Value" per share of Common Stock shall be determined by
the Committee, based on the composite transactions in Common Stock as reported
by The Wall Street Journal, and shall be equal to the per share price of the
last sale of Common Stock on the trading day prior to the date on which value is
being determined.

         "Fiscal Year" shall mean the year commencing October 1 and ending
September 30.

         "Good Reason" is as defined in Section 16.

         "Incentive Option" means an Option that is intended to comply with the
requirements set forth in Section 422 of the Code.

         "Nonemployee Director" has the meaning set forth in paragraph 4(b)
hereof.

         "Nonqualified Stock Option" means an Option that is not an Incentive
Option.

         "Option" means a right to purchase a specified number of shares of
Common Stock at a specified price.

         "Participant" means an Employee or Director to whom an Award has been
made under this Plan.

         "Person" is as defined in Section 16.

         "Potential Change in Control" is as defined in Section 16.

         "Restricted Stock" means any Common Stock that is restricted or subject
to forfeiture provisions.

         "Restriction Period" means a period of time beginning as of the date
upon which an Award of Restricted Stock is made pursuant to this Plan and ending
as of the date upon which the Common Stock subject to such Award is no longer
restricted or subject to forfeiture provisions.

         "SAR" means a right to receive a payment, in cash or Common Stock,
equal to the excess of the Fair Market Value or other specified valuation of a
specified number of shares of Common Stock on the date the right is exercised
over a specified strike price, in each case, as determined by the Committee.

         "Stock Award" means an award in the form of shares of Common Stock or
units denominated in shares of Common Stock.

         "Subsidiary" means (i) in the case of a corporation, any corporation of
which the Company directly or indirectly owns shares representing more than 50%
of the combined voting power of the shares of all classes or series of capital
stock of such corporation which have the right to vote generally on matters
submitted to a vote of the stockholders of such corporation and (ii) in the case
of a partnership or other business entity not organized as a corporation, any
such business entity of which

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the Company directly or indirectly owns more than 50% of the voting capital or
profits interests (whether in the form of partnership interests, membership
interests or otherwise).

4. Eligibility.

         (a) Employees. Key Employees eligible for Employee Awards under this
Plan are those who hold positions of responsibility and whose performance, in
the judgment of the Committee, can have a significant effect on the success of
the Company and its Subsidiaries.

         (b) Directors. Directors eligible for Director Awards under this Plan
are those who are not employees of the Company or any of its Subsidiaries
("Nonemployee Directors").

5. Common Stock Available for Awards. Subject to the provisions of Section 15
hereof, there shall be available for Awards under this Plan granted wholly or
partly in Common Stock (including rights or options that may be exercised for or
settled in Common Stock) an aggregate of (a) 6,000,000 shares of Common Stock
plus (b) the number of shares of Common Stock that have been reserved for
issuance under the Company's 1991 and 1993 Employee Stock Bonus Plan but are
from time to time no longer needed to be reserved under such plans because there
are no longer any eligible options in respect of which awards are made under
such plans, all of which shall be available for Incentive Options or
Nonqualified Stock Options. The number of shares of Common Stock that are the
subject of Awards under this Plan, that are forfeited or terminated, expire
unexercised, are settled in cash in lieu of Common Stock or in a manner such
that all or some of the shares covered by an Award are not issued to a
Participant or are exchanged for Awards that do not involve Common Stock, shall
again immediately become available for Awards hereunder. The Committee may from
time to time adopt and observe such procedures concerning the counting of shares
against the Plan maximum as it may deem appropriate. The Board and the
appropriate officers of the Company shall from time to time take whatever
actions are necessary to file any required documents with governmental
authorities, stock exchanges and transaction reporting systems to ensure that
shares of Common Stock are available for issuance pursuant to Awards.

6. Administration.

         (a) This Plan, as it applies to Participants who are Employees but not
with respect to Participants who are Nonemployee Directors, shall be
administered by the Committee.

         (b) Subject to the provisions hereof, insofar as this Plan relates to
the Employee Awards, the Committee shall have full and exclusive power and
authority to administer this Plan and to take all actions that are specifically
contemplated hereby or are necessary or appropriate in connection with the
administration hereof. Insofar as this Plan relates to Employee Awards, the
Committee shall also have full and exclusive power to interpret this Plan and to
adopt such rules, regulations and guidelines for carrying out this Plan as it
may deem necessary or proper, all of which powers shall be exercised in the best
interests of the Company and in keeping with the objectives of this Plan.
Subject to Section 8(b)(v) of this Plan, the Committee may, in its discretion,
provide for the extension of the exercisability of an Employee Award, accelerate
the vesting or exercisability of an Employee Award, eliminate or make less
restrictive any restrictions contained in an Employee Award, waive any
restriction or other provision of this Plan (insofar as such provision relates
to Employee Awards) or an Employee Award or otherwise amend or modify an
Employee Award in any manner that is either (i) not adverse to the Participant
to whom such Employee Award was granted or (ii) consented to by such
Participant. The Committee may make an award to an individual who it expects to
become an Employee of the Company or any of its Subsidiaries within the next six
months, with such award being subject to the individual's actually becoming an
Employee within such time period, and subject to such other terms and conditions
as may be established by the Committee. The Committee may correct any defect or
supply any omission or reconcile any inconsistency in this Plan or in any
Employee Award in the manner and to the extent the Committee deems necessary or
desirable to further the Plan purposes. Any decision of the Committee in the
interpretation and administration of this Plan shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned.

         (c) No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of Section 7
of this Plan shall be liable for anything done or omitted to be done by him or
her, by any member of the Committee or by any officer of the Company in
connection with the performance of any duties under this Plan, except for his or
her own willful misconduct or as expressly provided by statute.

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7. Delegation of Authority. The Committee may delegate to the Chief Executive
Officer and to other senior officers of the Company its duties under this Plan
pursuant to such conditions or limitations as the Committee may establish,
except that the Committee may not delegate to any person the authority to grant
Awards to, or take other action with respect to, Participants who are subject to
Section 16 of the Exchange Act.

8. Employee Awards.

         (a) The Committee shall determine the type or types of Employee Awards
to be made under this Plan and shall designate from time to time the Employees
who are to be the recipients of such Awards. Each Employee Award may be embodied
in an Employee Award Agreement, which shall contain such terms, conditions and
limitations as shall be determined by the Committee in its sole discretion and
shall be signed by an Authorized Officer for and on behalf of the Company.
Employee Awards may consist of those listed in this paragraph 8(a) hereof and
may be granted singly, in combination or in tandem. Employee Awards may also be
made in combination or in tandem with, or as alternatives to, grants or rights
under this Plan or any other employee plan of the Company or any of its
Subsidiaries, including the plan of any acquired entity. An Employee Award may
provide for the grant or issuance of additional or alternative Employee Awards
upon the occurrence of specified events. All or part of an Employee Award may be
subject to conditions established by the Committee, which may include, but are
not limited to, continuous service with the Company and its Subsidiaries,
achievement of specific business objectives, increases in specified indices,
attainment of specified growth rates and other comparable measurements of
performance. Upon the termination of employment by a Participant who is an
Employee, any unexercised, deferred, unvested or unpaid Employee Awards shall be
treated as set forth in the applicable Employee Award Agreement.

                  (i) Option. An Employee Award may be in the form of an Option.
         An Option awarded to an Employee pursuant to this Plan may consist of
         an Incentive Stock Option or a Nonqualified Option. The price at which
         shares of Common Stock may be purchased upon the exercise of an Option
         shall not be less than the Fair Market Value of the Common Stock on the
         date of grant. Subject to the foregoing provisions, the terms,
         conditions and limitations applicable to any Option awarded pursuant to
         this Plan, including the term of any Option and the date or dates upon
         which it becomes exercisable, shall be determined by the Committee.

                  (ii) Stock Appreciation Right. An Employee Award may be in the
         form of an SAR. The terms, conditions and limitations applicable to any
         SARs awarded pursuant to this Plan, including the term of any SARs and
         the date or dates upon which they become exercisable, shall be
         determined by the Committee.

                  (iii) Stock Award. An Employee Award may be in the form of a
         Stock Award. The terms, conditions and limitations applicable to any
         Stock Awards granted pursuant to this Plan shall be determined by the
         Committee.

         (b) Notwithstanding anything to the contrary contained in this Plan,
the following limitations shall apply to any Employee Awards made hereunder:

                  (i) no Participant may be granted, during any Fiscal Year,
         Employee Awards consisting of Options or SARs that are exercisable for
         more than 500,000 shares of Common Stock;

                  (ii) no more than 700,000 shares of Common Stock may be
         awarded as Stock Awards that are not Options or SARs not including the
         Stock Awards in clause (iii) below;

                  (iii) no more than 900,000 shares may be awarded in respect of
         the exercise of a stock option on a basis of not more than one share of
         Common Stock for each 5 shares of Common Stock acquired pursuant to an
         Option exercise (the limitation set forth in this clause (iii)),
         together with the limitations set forth in clauses (i) and (ii) above,
         being hereinafter collectively referred to as the "Stock Based Awards
         Limitations");

                  (iv) the term of any Option shall not exceed ten years; and

                  (v) once granted, an Option may not be repriced or exchanged
         for an option having a lower exercise price.

9. Director Awards. Each Nonemployee Director of the Company shall be granted
Director Awards in accordance with this Section 9 and subject to the applicable
terms, conditions and limitations set forth in this Plan and the applicable

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Director Award Agreement. Notwithstanding anything to the contrary contained
herein, Director Awards shall not be made in any year in which a sufficient
number of shares of Common Stock are not available to make such Awards under
this Plan.

         (a) Director Options. Subject to shareholder approval required for the
Plan in Section 20, effective October 23, 1997, on the date of his or her first
appointment or election to the Board of Directors, a Nonemployee Director shall
automatically be granted a Director Option that provides for the purchase of
2,000 shares of Common Stock. In addition, on each Annual Director Award Date,
each Nonemployee Director shall automatically be granted a Director Option that
provides for the purchase of 1,000 shares of Common Stock.

         (b) Terms.

                  (i) Each Director Option shall have a term of seven years from
         the date of grant, notwithstanding any earlier termination of the
         status of the holder as a Nonemployee Director (the "Option Expiration
         Date").

                  (ii) The purchase price of each share of Common Stock subject
         to a Director Option shall be equal to the Fair Market Value of the
         Common Stock on the date of grant.

                  (iii) All Director Options shall vest and become exercisable
         on the first anniversary of the date of grant.

                  (iv) a Nonemployee Director's directorship shall be deemed to
         have terminated at the close of business on the day preceding the first
         date on which he ceases to be a member of the Board of Directors of the
         Company for any reason whatsoever (including his death). If a
         Nonemployee Director's directorship is terminated for any reason
         whatsoever (including his death), each option granted to him under
         Section 9 and all of his rights thereunder shall wholly and completely
         terminate:

                           (A) With respect to each option granted within the
                  one-year period preceding such termination of service:

                                    (1) At the time the Nonemployee Director's
                           directorship is terminated, if such termination of
                           service occurs prior to a Change in Control; or

                                    (2) At the time determined under Section
                           9(b)(iv)(B), if such termination of service occurs
                           within two years following or in connection with a
                           Change in Control.

                           (B) With respect to each option granted prior to the
                  one-year period preceding such termination:

                                    (1) At the time the Nonemployee Director's
                           directorship is terminated if his directorship is
                           terminated as a result of his removal from the Board
                           of Directors for cause not defined for Directors
                           (other than disability not defined for Directors or
                           in accordance with the provision of the Company's
                           Bylaws regarding automatic termination of directors'
                           terms of office), if such termination of service
                           occurs prior to a Change in Control, and 30 days
                           following such termination of service if such
                           termination occurs within two years following a
                           Change in Control; or

                                    (2) At the expiration of a period of one
                           year after the Nonemployee Director's death (but in
                           no event later than the Option Expiration Date) if
                           the Nonemployee Director's directorship is terminated
                           by reason of his death. An option granted to a
                           Nonemployee Director may be exercised by the
                           Nonemployee Director's estate or by the person or
                           persons who acquire the right to exercise his option
                           by bequest or inheritance with respect to any or all
                           of the shares remaining subject to his option at the
                           time of his death; or

                                    (3) At the expiration of a period of three
                           years after the Nonemployee Director's directorship
                           is terminated as a result of such person's
                           resignation or removal from the Board of Directors of
                           the Company because of disability not defined for
                           Directors or in accordance with the

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                           provisions of the Company's Bylaws regarding
                           automatic termination of directors' terms of office
                           (but in no event later than the Option Expiration
                           Date); or

                                    (4) At the expiration of a period of three
                           months after the Nonemployee Director's directorship
                           is terminated (but in no event later than the Option
                           Expiration Date) if the Nonemployee Director's
                           directorship is terminated for any reason other than
                           the reasons specified above.

         (c) Agreements. Any Award of Director Options shall be embodied in a
Director Award Agreement, which shall contain the terms, conditions and
limitations set forth above and shall be signed by an Authorized Officer for and
on behalf of the Company.

10. Payment of Awards.

         (a) General. Payment of Employee Awards may be made in the form of cash
or Common Stock, or a combination thereof, and may include such restrictions as
the Committee shall determine, including, in the case of Common Stock,
restrictions on transfer and forfeiture provisions. If payment of an Employee
Award is made in the form of Restricted Stock, the applicable Award Agreement
relating to such shares shall specify whether they are to be issued at the
beginning or end of the Restriction Period. In the event that shares of
Restricted Stock are to be issued at the beginning of the Restriction Period,
the certificates evidencing such shares (to the extent that such shares are so
evidenced) shall contain appropriate legends and restrictions that describe the
terms and conditions of the restrictions applicable thereto. In the event that
shares of Restricted Stock are to be issued at the end of the Restricted Period,
the right to receive such shares shall be evidenced by book entry registration
or in such other manner as the Committee may determine.

         (b) Deferral. With the approval of the Committee, amounts payable in
respect of Employee Awards may be deferred and paid either in the form of
installments or as a lump-sum payment. The Committee may permit selected
Participants to elect to defer payments of some or all types of Employee Awards
in accordance with procedures established by the Committee. Any deferred payment
of an Employee Award, whether elected by the Participant or specified by the
Award Agreement or by the Committee, may be forfeited if and to the extent that
the Award Agreement so provides.

         (c) Dividends and Interest. Rights to dividends or Dividend Equivalents
may be extended to and made part of any Employee Award consisting of shares of
Common Stock or units denominated in shares of Common Stock, subject to such
terms, conditions and restrictions as the Committee may establish. The Committee
may also establish rules and procedures for the crediting of interest on
deferred cash payments and Dividend Equivalents for Employee Awards consisting
of shares of Common Stock or units denominated in shares of Common Stock.

11. Stock Option Exercise. The price at which shares of Common Stock may be
purchased under an Option shall be paid in full at the time of exercise in cash
or, if elected by the optionee, the optionee may purchase such shares by means
of tendering Common Stock or surrendering another Award, including Restricted
Stock or Director Restricted Stock, valued at Fair Market Value on the date of
exercise, or any combination thereof. The Committee shall determine acceptable
methods for Participants to tender Common Stock or other Awards; provided that
any Common Stock that is or was the subject of an Award may be so tendered only
if it has been held by the Participant for six months. An Award Agreement
evidencing an option may in the discretion of the Committee, provide for a
"cashless exercise" of an option by establishing procedures whereby the
optionee, by a properly executed written notice, directs (1) an immediate sale
or margin loan respecting all or a part of the shares of Common Stock to which
he is entitled upon exercise pursuant to an extension of credit by the Company
to the optionee of the option price, (2) the delivery of the shares of Common
Stock from the Company directly to a brokerage firm and (3) the delivery of the
option price from sale or margin loan proceeds from the brokerage firm directly
to the Company. Unless otherwise provided in the applicable Award Agreement, in
the event shares of Restricted Stock are tendered as consideration for the
exercise of an Option, a number of the shares issued upon the exercise of the
Option, equal to the number of shares of Restricted Stock used as consideration
therefor, shall be subject to the same restrictions as the Restricted Stock so
submitted as well as any additional restrictions that may be imposed by the
Committee.

12. Taxes. The Company shall have the right to deduct applicable taxes from any
Employee Award payment and withhold, at the time of delivery or vesting of cash
or shares of Common Stock under this Plan, an appropriate amount of cash or
number of shares of Common Stock or a combination thereof for payment of taxes
required by law or to take such other action as may be necessary in the opinion
of the Company to satisfy all obligations for withholding of such taxes.
 The Committee may also permit withholding to be satisfied by the transfer to
the Company of shares of Common Stock

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theretofore owned by the holder of the Employee Award with respect to which
withholding is required. If shares of Common Stock are used to satisfy tax
withholding, such shares shall be valued based on the Fair Market Value when the
tax withholding is required to be made. The Committee may provide for loans, on
either a short term or demand basis, from the Company to a Participant who is an
Employee to permit the payment of taxes required by law.

13. Amendment, Modification, Suspension or Termination. The Board may amend,
modify, suspend or terminate this Plan for the purpose of meeting or addressing
any changes in legal requirements or for any other purpose permitted by law,
except that no amendment or alteration that would adversely affect the rights of
any Participant under any Award previously granted to such Participant shall be
made without the consent of such Participant or to the extent stockholder
approval is otherwise required by applicable legal requirements.

14. Assignability. Unless otherwise determined by the Committee and provided in
the Award Agreement, no Award or any other benefit under this Plan shall be
assignable or otherwise transferable except by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder. The Committee may prescribe and include in applicable Award
Agreements other restrictions on transfer. Any attempted assignment of an Award
or any other benefit under this Plan in violation of this Section 14 shall be
null and void.

15. Adjustments.

         (a) The existence of outstanding Awards shall not affect in any manner
the right or power of the Company or its stockholders to make or authorize any
or all adjustments, recapitalizations, reorganizations or other changes in the
capital stock of the Company or its business or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock (whether or not such issue is prior to, on a parity with or junior to the
Common Stock) or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding of any kind, whether or not of a character similar to that of
the acts or proceedings enumerated above.

         (b) In the event of any subdivision or consolidation of outstanding
shares of Common Stock, declaration of a dividend payable in shares of Common
Stock or other stock split, then, (i) the number of shares of Common Stock
reserved under this Plan, (ii) the number of shares of Common Stock covered by
outstanding Awards in the form of Common Stock or units denominated in Common
Stock, (iii) the exercise or other price in respect of such Awards, (iv) the
appropriate Fair Market Value and other price determinations for such Awards,
(v) the number of shares of Common Stock covered by Director Options
automatically granted pursuant to Section 9 hereof and (vi) the Stock Based
Awards Limitations shall each be proportionately adjusted by the Board to
reflect such transaction. In the event of any other recapitalization or capital
reorganization of the Company, any consolidation or merger of the Company with
another corporation or entity, the adoption by the Company of any plan of
exchange affecting the Common Stock or any distribution to holders of Common
Stock of securities or property (other than normal cash dividends or dividends
payable in Common Stock), the Board shall make appropriate adjustments to (i)
the number of shares of Common Stock covered by Awards in the form of Common
Stock or units denominated in Common Stock, (ii) the exercise or other price in
respect of such Awards, (iii) the appropriate Fair Market Value and other price
determinations for such Awards, (iv) the number of shares of Common Stock
covered by Director Options automatically granted pursuant to Section 9 hereof
and (v) the Stock Based Awards Limitations to give effect to such transaction
shall each be proportionately adjusted by he Board to reflect such transaction;
provided that such adjustments shall only be such as are necessary to maintain
the proportionate interest of the holders of the Awards and preserve, without
exceeding, the value of such Awards. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Board shall be authorized to issue or assume Awards by means of
substitution of new Awards, as appropriate, for previously issued Awards or to
assume previously issued Awards as part of such adjustment.

16. Change in Control.

         (a) Notwithstanding any provision of the Plan to the contrary other
than the last paragraph of this Section 16, in the event of an occurrence of a
Change in Control, all Awards granted pursuant to this Plan shall become fully
vested and, if either an Option or SAR or similar Award, immediately
exercisable.

         (b) Notwithstanding any provision of the Plan to the contrary, all
outstanding options held by an Employee shall become fully vested and
exercisable as of the effective date of termination of such Employee's
employment if (i) such

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Employee's employment is terminated by the Company without Cause prior to a
Change in Control (whether or not a Change in Control ever occurs) and such
termination was at the request or direction of a Person who has entered into an
agreement with the Company the consummation of which would constitute a Change
in Control, (ii) such Employee terminates his or her employment for Good Reason
prior to a change in Control (whether or not a Change in Control ever occurs)
and the circumstance or event which constitutes Good Reason occurs at the
request or direction of the Person described in clause (i), or (iii) such
Employee's employment is terminated by the Company without Cause or by the
Employee for Good Reason and such termination or the circumstance or event which
constitutes Good Reason is otherwise in connection with or in anticipation of a
Change in Control (whether or not a Change in Control ever occurs).

         (c) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.

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

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

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

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

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

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

                                                                               8
<PAGE>

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

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

         (g) "Committee" shall mean (i) the individuals (not fewer than three in
number) who, on the date six months before a Change in Control, constitute the
Compensation Committee of the Board of Directors of the Company, plus (ii) in
the event that fewer than three individuals are available from the group
specified in clause (i) above for any reason, such individuals as may be
appointed by the individual or individuals so available (including for this
purpose any individual or individuals previously so appointed under this clause
(ii)); provided, however, that the maximum number of individuals constituting
the Committee shall not exceed six (6).

         (h) "Good Reason" for termination by the Employee of the Employee's
employment shall mean the occurrence (without the Employee'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 Section 16(b) hereof
(treating all references in paragraphs (1) through (7) below to a "Change in
Control" as references to a "Potential Change in Control"), of any one of the
following acts by the Company, or failures by the Company to act, unless, in the
case of any act or failure to act described in paragraph (1), (5), (6) or (7)
below, such act or failure to act is corrected prior to the effective date of
the Employee's termination for Good Reason;

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

                  (2) a reduction by the Company in the Employee's annual base
         salary as in effect on the date hereof or as the same may be increased
         from time to time except for across-the-board salary reductions
         similarly affecting all individuals having a similar level of authority
         and responsibility with the Company and all individuals having a
         similar level of authority and responsibility with any Person in
         control of the Company;

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

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

                  (5) the failure by the Company to continue in effect any
         compensation plan in which the Employee participates immediately prior
         to the Change in Control which is material to the Employee's total
         compensation, unless an equitable arrangement (embodied in an ongoing
         substitute or alternative plan) has been made with respect to such
         plan, or the failure by the Company to continue the Employee's
         participation therein (or in such substitute or alternative plan) on a
         basis not materially less favorable, both in terms of the amount or
         timing of payment of benefits provided and the level of the Employee's
         participation relative to other participants, as existed immediately
         prior to the Change in Control;

                                                                               9
<PAGE>

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

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

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

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

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

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

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

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

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

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

         In the event that the Company is party to a transaction which is
otherwise intended to qualify for "pooling of interests" accounting treatment,
such transaction constitutes a Change in Control within the meaning of the Plan
and individuals who satisfy the requirements in clauses (i) and (ii) below
constitute at least two-thirds (2/3) of the number of directors of the entity
surviving such transaction or any parent thereof: individuals who (i)
immediately prior to such transaction constitute the Board of Directors of the
Company and (ii) on the date hereof constitute the Board of Directors of the
Company and any new director (other than a director whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of directors of the Company) whose appointment or election by
the Board of Directors of the Company or nomination for election by the
Company's stockholders was approved or recommended, by a

                                                                              10
<PAGE>

vote of at least two-thirds (2/3) of the directors then still in office who
either were directors on the date hereof or whose appointment, election or
nomination for election was previously so approved or recommended then this
Section 16 and other Plan provisions concerning a Change in Control shall, to
the extent practicable, be interpreted so as to permit such accounting
treatment, and to the extent that the application of this sentence does not
preserve the availability of such accounting treatment, then, to the extent that
any provision or combination of provisions of this Section 16 and other Plan
provisions concerning a Change in Control disqualifies the transaction as a
"pooling" transaction (including, if applicable, all provisions of the Plan
relating to a Change in Control), the Board of Directors of the Company shall
amend such provision or provisions if and to the extent necessary (including
declaring such provision or provisions to be null and void as of the date
hereof) so that such transaction may be accounted for as a "pooling of
interests." All determinations with respect to this paragraph shall be made by
the Company, based upon the advice of the accounting firm whose opinion with
respect to "pooling of interests" is required as a condition to the consummation
of such transaction.

17. Restrictions. No Common Stock or other form of payment shall be issued with
respect to any Award unless the Company shall be satisfied based on the advice
of its counsel that such issuance will be in compliance with applicable federal
and state securities laws. Certificates evidencing shares of Common Stock
delivered under this Plan (to the extent that such shares are so evidenced) may
be subject to such stop transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any securities exchange or transaction
reporting system upon which the Common Stock is then listed or to which it is
admitted for quotation and any applicable federal or state securities law. The
Committee may cause a legend or legends to placed upon such certificates (if
any) to make appropriate reference to such restrictions.

18. Unfunded Plan. Insofar as it provides for Awards of cash, Common Stock or
rights thereto, this Plan shall be unfunded. Although bookkeeping accounts may
be established with respect to Participants who are entitled to cash, Common
Stock or rights thereto under this Plan, any such accounts shall be used merely
as a bookkeeping convenience. The Company shall not be required to segregate any
assets that may at any time be represented by cash, Common Stock or rights
thereto, nor shall this Plan be construed as providing for such segregation, nor
shall the Company, the Board or the Committee be deemed to be a trustee of any
cash, Common Stock or rights thereto to be granted under this Plan. Any
liability or obligation of the Company to any Participant with respect to an
Award of cash, Common Stock or rights thereto under this Plan shall be based
solely upon any contractual obligations that may be created by this Plan and any
Award Agreement, and no such liability or obligation of the Company shall be
deemed to be secured by any pledge or other encumbrance on any property of the
Company. Neither the Company nor the Board nor the Committee shall be required
to give any security or bond for the performance of any obligation that may be
created by this Plan.

19. Governing Law. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by mandatory provisions of
the Code or the securities laws of the United States, shall be governed by and
construed in accordance with the laws of the State of Texas.

20. Effectiveness. The Plan as established by resolution of the Board shall be
effective as set forth herein as of October 23, 1997 but only if the Plan is
approved by the shareholders of the Company on or before January 28, 1998.

                                                                              11
<PAGE>

                      AMENDMENT NO. 1999-1 TO THE LONG TERM
                   INCENTIVE PLAN OF BAKER HUGHES INCORPORATED

         This Amendment No. 1999-1 is made to the Long Term Incentive Plan of
Baker Hughes Incorporated ("the Plan"). Capitalized terms used but not defined
herein shall have the meanings ascribed to them in the Plan.

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

         NOW, THEREFORE, the Plan is amended as follows:

1. Section 9(b)(iv)(B)(1) of the Plan is amended by inserting the phrase "(but
in no event later than the Option Expiration Date)" after the second appearance
of the phrase "termination of service" therein.

2. Section 9(b)(iv)(B)(4) of the Plan is amended in its entirety to read as
follows:

         "At the expiration of a period of three months after the Nonemployee
Director's directorship is terminated (but in no event later than the Option
Expiration Date) if the Nonemployee Director's directorship is terminated for
any reason other than the reasons specified above, if such termination of
service occurs prior to a Change in Control or after the second anniversary of a
Change in Control, and two years following such termination of service (but in
no event later than the Option Expiration Date) if such termination occurs
within two years following a Change in Control (in each case, as such term is
defined in Section 16(f) hereof)."

3. Sections 16(a), (b) and (f) of the Plan are amended in their entirety to read
as follows:

         "16. Change in Control.

                  (a) Notwithstanding any provision of the Plan to the contrary,
         in the event of an occurrence of a Change in Control other than an
         event described only in clause (3) of Section 16(f) of the Plan, all
         Awards granted pursuant to this Plan shall become fully vested and, if
         either an Option or SAR or similar Award, immediately exercisable.

                  (b) Notwithstanding any provision of the Plan to the contrary,
         all outstanding Awards held by an Employee shall become fully vested
         and, if either an Option or SAR or similar Award, immediately
         exercisable as of the effective date of termination of such Employee's
         employment if (i) such Employee's employment is terminated by the
         Company without Cause prior to a Change in Control (whether or not a
         Change in Control ever occurs) and such termination was at the request
         or direction of a Person who has entered into an agreement with the
         Company the consummation of which would constitute a Change in Control,
         (ii) such Employee terminates his or her employment for Good Reason
         prior to a Change in Control (whether or not a Change in Control ever
         occurs) and the circumstance or event which constitutes Good Reason
         occurs at the request or direction of the Person described in clause
         (i), (iii) such Employee's employment is terminated by the Company
         without Cause or by the Employee for Good Reason and such termination
         or the circumstance or event which constitutes Good Reason is otherwise
         in connection with or in anticipation of a Change in Control (whether
         or not a Change in Control ever occurs) or (iv) such Employee's
         employment is terminated by the Company without Cause or by the
         Employee for Good Reason, in either case within 2 years following the
         occurrence of a Change in Control described in clause (3) of Section
         16(f) of the Plan.

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

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

                           (2) the following individuals cease for any reason to
                  constitute a majority of the number of directors then serving:
                  individuals who, on the date hereof, constitute the Board of
                  Directors of the

                                                                              12
<PAGE>

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

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

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

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

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

4. A new Section 16(k) is added to the end of Section 16 of the Plan to read in
its entirety as follows:

         "Unless specifically provided otherwise in an Employee Award Agreement
dated after January 27, 1999 relating to an Option, if an Employee's employment
is terminated by the Company without Cause or by the Employee for Good Reason,
in either case within 2 years following a Change in Control, the Option shall
remain exercisable until the earlier to occur of (i) 2 years following such
termination of employment or (ii) the expiration date provided in the Employee
Award Agreement."

         The effective date of this Amendment No. 1999-1 shall be January 27,
1999; provided, however, that, in the event that (A) the Company is party to a
transaction which is otherwise intended to qualify for "pooling of interests"
accounting treatment, (B) such transaction constitutes a Change in Control
within the meaning of the Plan and (C) individuals who satisfy the requirements
in clauses (i) and (ii) below constitute at least two-thirds (2/3) of the number
of directors of the entity surviving such transaction or any parent thereof:
individuals who (i) immediately prior to such transaction constitute the Board
of Directors of the Company and (ii) on the date hereof constitute the Board of
Directors of the Company and any new director (other than a director whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of directors of the Company) whose
appointment or election by the Board of Directors of the Company or nomination
for election by the Company's stockholders was approved or recommended, by a
vote of at least two-thirds (2/3)

                                                                              13
<PAGE>

of the directors then still in office who either were directors on the date
hereof or whose appointment, election or nomination for election was previously
so approved or recommended then (a) this Amendment No. 1999-1 shall, to the
extent practicable, be interpreted so as to permit such accounting treatment,
and (b) to the extent that the application of clause (a) of this sentence does
not preserve the availability of such accounting treatment, then, to the extent
that any provision or combination of provisions of this Amendment No. 1999-1
disqualifies the transaction as a "pooling" transaction (including, if
applicable, this entire Amendment No. 1999-1), the Board of Directors of the
Company shall amend such provision or provisions if and to the extent necessary
(including declaring such provision or provisions to be null and void as of the
date hereof) so that such transaction may be accounted for as a "pooling of
interests." All determinations with respect to this paragraph shall be made by
the Company, based upon the advice of the accounting firm whose opinion with
respect to "pooling of interests" is required as a condition to the consummation
of such transaction. Except as herein modified, the Plan shall remain in full
force and effect.

                                  BAKER HUGHES INCORPORATED

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

                                                                              14<PAGE>

                                                                   EXHIBIT 10.46

                            BAKER HUGHES INCORPORATED
                             STOCK OPTION AGREEMENT

                                      NAME
                                     GRANTEE

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

Total Number of Shares Granted:                   GRANT

Exercise Price per Share:                         $24.94

Expiration Date:                                  JULY 24, 2012

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

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

                                 GRANT OF OPTION

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

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

                                          BAKER HUGHES INCORPORATED

                                          /S/ MICHAEL E. WILEY

                                          Michael E. Wiley - Chairman,
                                          President & CEO

<PAGE>

                                                                   EXHIBIT 10.46

                            BAKER HUGHES INCORPORATED

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

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

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

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

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

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

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

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

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

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

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

<PAGE>
                                                                   EXHIBIT 10.46

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

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

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

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

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

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

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

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

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

<PAGE>

                                                                   EXHIBIT 10.46

                            BAKER HUGHES INCORPORATED

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

                                                                   EXHIBIT 10.46

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

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

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

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

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

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

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

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

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

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