Document:

<PAGE>

                                                                   EXHIBIT 10.16

                            BAKER HUGHES INCORPORATED
                       DIRECTOR COMPENSATION DEFERRAL PLAN
                            (AS AMENDED AND RESTATED
                         EFFECTIVE AS OF JULY 24, 2002)

<PAGE>

                                                                   EXHIBIT 10.16

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                <C>
1.       PURPOSES OF THE PLAN; DEFINITIONS; INTERPRETATION AND CONSTRUCTION....................     1
         1.1      General......................................................................     1
         1.2      Definitions..................................................................     1
         1.3      Interpretation and Construction..............................................     3

2.       ADMINISTRATION........................................................................     3

3.       PARTICIPATION IN THE PLAN.............................................................     4
         3.1      Eligibility..................................................................     4
         3.2      Election to Participate......................................................     4

4.       DEFERRAL ELECTIONS....................................................................     4
         4.1      Compensation Deferrals.......................................................     4
         4.2      Retirement Income Deferrals..................................................     4

5.       ELECTION OF DEFERRAL VEHICLES.........................................................     4
         5.1      Stock Option-Related Deferral Vehicles.......................................     4
         5.2      Cash-Based Deferral Vehicles.................................................     5

6.       SHARES AVAILABLE FOR STOCK OPTIONS....................................................     5
         6.1      Number of Shares Available for Stock Options.................................     5
         6.2      Adjustments in Authorized Shares.............................................     6

7.       STOCK OPTIONS.........................................................................     6
         7.1      Calculation of Exercise Price................................................     6
         7.2      Terms and Conditions of Options..............................................     6

8.       PAYMENT OF AMOUNTS IN ACCOUNTS........................................................     8
         8.1      Payment Generally............................................................     8
         8.2      Payment of Simultaneous Amounts..............................................     8
         8.3      Hardship.....................................................................     8
         8.4      Disability...................................................................     8
         8.5      Death........................................................................     9
         8.6      Change in Purpose............................................................     9
         8.7      Debiting of Plan Accounts....................................................     9

9.       PROHIBITION AGAINST ASSIGNMENT OR ENCUMBRANCE.........................................     9

10.      EFFECTIVE DATE, AMENDMENT AND TERMINATION OF THE PLAN.................................     9

11.      NATURE OF THE PLAN....................................................................     9

12.      REORGANIZATION........................................................................    10

13.      ACCELERATION..........................................................................    10

14.      MISCELLANEOUS.........................................................................    10
         14.1     Severability.................................................................    10
         14.2     Requirements of Law..........................................................    10
         14.3     Securities Law Compliance....................................................    10
         14.4     Governing Law................................................................    10
</TABLE>

                                       i

<PAGE>

                                                                   EXHIBIT 10.16

                            BAKER HUGHES INCORPORATED
                       DIRECTOR COMPENSATION DEFERRAL PLAN
                            (AS AMENDED AND RESTATED
                            EFFECTIVE JULY 24, 2002)

1.       PURPOSES OF THE PLAN; DEFINITIONS; INTERPRETATION AND CONSTRUCTION.

         1.1      GENERAL. The Baker Hughes Incorporated Director Compensation
         Deferral Plan, as amended and restated (the "PLAN"), is intended to
         provide a means whereby non-employee directors of Baker Hughes
         Incorporated, a Delaware corporation (the "COMPANY") may defer
         compensation otherwise payable and provide flexibility respecting the
         Company's compensation policies.

         1.2      DEFINITIONS. Whenever used in this Plan, the following
         capitalized terms shall have the meanings set forth below, and when the
         meaning is intended, the initial letter of the word shall be
         capitalized.

                  "ACCOUNT" means the account established by the Committee for
         each Participant in accordance with Section 5.2.

                  "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the
         meaning ascribed to the term in Rule 13d-3 of the General Rules and
         Regulations under the Exchange Act.

                  "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors
         of the Company.

                  "CHANGE IN CONTROL" of the Company shall be deemed to have
         occurred as of the first day that any one or more of the following
         conditions shall have been satisfied:

                           (A)      Any Person is or becomes a Beneficial Owner,
                  directly or indirectly, of securities of the Company (not
                  including in the securities beneficially owned by this Person
                  any securities acquired directly from the Company or its
                  affiliates) representing 30% or more of the combined voting
                  power of the Company's then outstanding securities, excluding
                  any Person who becomes, as described in this Section (A), a
                  Beneficial Owner in connection with a transaction described in
                  Section (C)(1) of this definition below; or

                            (B)     The following individuals cease for any
                  reason to constitute a majority of the number of Directors
                  then serving: individuals who, on the Effective Date,
                  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
                  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

                           (C)      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 (1) a merger or consolidation that 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 Affiliate, at least 55% 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 (2) 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 this Person any securities acquired
                  directly from the

                                       1

<PAGE>

                                                                   EXHIBIT 10.16

                  Company or its Affiliates other than in connection with the
                  acquisition by the Company or its Affiliates of a business)
                  representing 30% or more of the combined voting power of the
                  Company's then outstanding securities; or

                           (D)      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 entity surviving such merger or any parent thereof (or a
                  majority plus one member where such board is comprised of an
                  odd number of members); or

                           (E)      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 (i) a sale or disposition by the Company of
                  all or substantially all of the Company's assets to an entity,
                  at least 55% 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, or (ii) where the
                  individuals who comprise the Board immediately prior thereto
                  constitute at least a majority of the board of directors of
                  such entity or any parent thereof (or a majority plus one
                  member where such board is comprised of an odd number of
                  members).

                  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 that owns all or
                  substantially all of the assets of the Company immediately
                  following such transaction or series of transactions.

                  "COMMITTEE" means the Compensation Committee of the Board or
         such other committee of the Board or the entire Board as the Board
         designates to administer the terms and provisions of this Plan, as
         specified in Section 2.

                  "COMMON STOCK" means the Company's common stock, $1.00 par
         value.

                  "COMPENSATION" means a Director's annual retainer.

                  "DEFERRAL VEHICLES" has the meaning specified in Section 5.

                  "DEFERRED COMPENSATION" means the Compensation and Retirement
         Income deferred by a Participant with respect to any calendar year
         pursuant to an election as provided in Section 4.

                  "DESIGNATED DATE" means the designated payment date
            selected by a Participant at the time of the deferral election is
            made, and with the consent of the Committee, a Participant may elect
            multiple Designated Dates with respect to Deferred Compensation.
            Designated Dates are further described in clause 5.2 and Section 8.

                  "DIRECTORS" means all non-employee directors of the Company.

                  "DISCOUNTED STOCK OPTIONS" means the Stock Options described
         in Section 5.1(b).

                  "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
         amended.

                  "FAIR MARKET VALUE" means the price per share of Common Stock,
         based on the composite transactions in the Common Stock as reported by
         The Wall Street Journal, and shall be equal to the per share price of
         the last sale of Common Stock on the trading day prior to the date of
         grant of the Stock Option.

                                       2

<PAGE>

                                                                   EXHIBIT 10.16

                  "MARKET-PRICED STOCK OPTIONS" means the Stock Options
         described in Section 5.1(a).

                  "OPTION EXPIRATION DATE" has the meaning specified in Section
         7.2.

                  "PARTICIPANT" means an eligible Director who elects to become
         a participant in the Plan.

                  "PERSON" shall have the meaning ascribed to the term in
         Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and
         14(d) thereof, including a "group" as defined in Section 13(d) thereof,
         except that the term shall not include (a) the Company or any of its
         affiliates, (b) a trustee or other fiduciary holding Company securities
         under an employee benefit plan of the Company or any of its affiliates,
         (c) an underwriter temporarily holding securities pursuant to an
         offering of those securities or (d) a corporation owned, directly or
         indirectly, by the stockholders of the Company in substantially the
         same proportions as their ownership of stock of the Company.

                  "PRIME RATE EQUIVALENTS" has the meaning specified in Section
         5.2.

                  "RETIREMENT INCOME" means retirement benefits pursuant to the
         Company's Director Retirement Policy.

                  "S&P 500 EQUIVALENTS" has the meaning specified in Section
         5.2.

                  "SHARES" means the shares of Common Stock reserved for
         issuance under this Plan.

                  "STOCK OPTION" or "STOCK OPTIONS" are the stock options issued
         to Participants in exchange for Deferred Compensation pursuant to
         Section 7, or if permitted by the Committee, pursuant to any other plan
         that would permit the grant of options under this Plan.

                  "STOCK OPTION PRICE" means the price at which a Participant
         may purchase a Share pursuant to a Stock Option.

         1.3      INTERPRETATION AND CONSTRUCTION. As used in this Plan, unless
         the context otherwise expressly requires to the contrary, references to
         the singular include the plural, and vice versa; references to the
         masculine include the feminine and neuter; references to "including"
         mean "including (without limitation)," and references to Sections mean
         the sections of this Plan.

2.       ADMINISTRATION.

                  The Plan shall be administered by the Committee. The Committee
         is authorized to interpret the Plan and may, from time to time, adopt
         such rules and regulations, consistent with the provisions of the Plan,
         as it may deem advisable to carry out the Plan. All determinations made
         by the Committee shall be final. No member of the Committee shall have
         any right to vote or decide upon any matter relating to himself under
         the Plan or to vote in any case in which his individual right to claim
         any benefit under the Plan is particularly involved. The Committee may
         delegate to the Vice President of Human Resources or other officer of
         the Company its duties for the day-to-day administration of the Plan,
         including accepting deferral elections and accounting for deferrals and
         distributions under the Plan. All expenses incurred in connection with
         the administration of the Plan shall be borne by the Company.

                  All determinations and decisions made by the Committee and the
         Board pursuant to the provisions of this Plan and all related orders
         and resolutions of the Committee and the Board shall be final,
         conclusive and binding on all Persons, including the Company, its
         stockholders, Directors, Participants and the estates and beneficiaries
         of Directors and Participants.

                                       3

<PAGE>

                                                                   EXHIBIT 10.16

3.       PARTICIPATION IN THE PLAN.

         3.1      ELIGIBILITY. Directors shall be eligible to participate in the
         Plan. An individual shall be considered to be a Director until the
         close of business on the day preceding the earlier of the first date
         the individual (1) becomes a common-law employee of the Company or its
         subsidiaries or (2) ceases to be a member of the Board for any reason
         whatsoever.

         3.2      ELECTION TO PARTICIPATE. An eligible Director may elect to
         become a Participant by electing to defer an integral percentage (from
         1% to 100%) of his Compensation. All elections shall be made in the
         form and manner prescribed by the Committee.

4.       DEFERRAL ELECTIONS.

         4.1      COMPENSATION DEFERRALS.

                  (a)      Compensation deferral elections shall be made with
         respect to each calendar year. Unless otherwise determined by the
         Committee, any election by a Participant to defer Compensation under
         this Plan must be made on or before the DECEMBER 1st preceding the
         calendar year to which the election relates. Any such election shall
         apply to the Participant's Compensation for the period commencing on
         January 1st of the applicable calendar year and ending upon the earlier
         of December 31st of such calendar year or the date during such calendar
         year that his directorship is terminated for any reason.

                  If a directorship commences during a calendar year, any
         deferral election with respect to the first year of the directorship
         must be made by the Director WITHIN THIRTY (30) days of the date he or
         she first becomes a Director. Any such deferral election will apply
         commencing on the date he or she first becomes a Director to the
         Participant's Compensation during the calendar year in which he or she
         first becomes a Director.

                  (b)      Any election to defer Compensation which may be made
         by a Participant shall be irrevocable once made with respect to the
         calendar year. Any election to defer Compensation made by a Participant
         with respect to any calendar year shall be deemed to have been made
         with respect to each subsequent calendar year, unless the Participant
         changes such election prior to the expiration of the time for making
         the election with respect to the subsequent calendar year.

         4.2      RETIREMENT INCOME DEFERRALS. Deferrals of Retirement Income
         were allowed prior to January 1, 2002. Amounts attributable to such
         deferrals shall be paid in accordance with the Participants' Retirement
         Income deferral elections made hereunder prior to January 1, 2002.

5.       ELECTION OF DEFERRAL VEHICLES.

         At the time of making a deferral election, a Participant shall select
         one or more deferral vehicles ("Deferral Vehicles") for the
         Participant's Deferred Compensation respecting the applicable calendar
         year or years as described in Sections 5.1 and 5.2.

         5.1      STOCK OPTION-RELATED DEFERRAL VEHICLES. The Participant's
         Deferred Compensation shall be exchanged for Stock Options. All Stock
         Options granted in exchange for Deferred Compensation under this Plan
         shall be subject to all of the applicable terms and provisions of this
         Plan or such other plan from which the Stock Option is granted.

                  A Participant who elects a Stock Option-Related Deferral
         Vehicle shall also elect whether to receive such Stock Options priced
         in accordance with the following subsection (a) or (b):

                  (a)      "MARKET-PRICED STOCK OPTIONS." If Market-Priced Stock
         Options are elected, the amount of the Participant's aggregate Deferred
         Compensation as of the last day of each calendar quarter which would
         otherwise have been paid during such quarter shall be multiplied by 4.4
         and then divided by

                                       4

<PAGE>

                                                                   EXHIBIT 10.16

         the Fair Market Value of the Company's Common Stock on the last day of
         the quarter to determine the number of Market-Priced Stock Options to
         be granted in exchange for the Deferred Compensation.

                  OR

                  (b)      "DISCOUNTED STOCK OPTIONS." If Discounted Stock
         Options are elected, the Participant's aggregate Deferred Compensation
         as of the last day of each calendar quarter which would otherwise have
         been paid during such quarter shall be divided by the discounted price
         of the Company's Common Stock on the last day of such quarter to
         determine the number of Discounted Stock Options to be granted in
         exchange for the Deferred Compensation. The discounted price is a 50%
         discount to the Fair Market Value of the Company's Common Stock on the
         last day of the quarter.

         5.2      CASH-BASED DEFERRAL VEHICLES. The Participant's Deferred
         Compensation shall be credited to an Account established by the
         Committee as of the date or dates the Deferred Compensation would
         otherwise have been paid. A Participant who elects a Cash-Based
         Deferral Vehicle shall also elect whether to receive Prime Rate
         Equivalents or S&P 500 Equivalents for the deferral period that
         commences on the date or dates such Deferred Compensation is credited
         to the Account and ending on the Designated Date. All Deferred
         Compensation and interest and earnings equivalents credited to an
         Account shall be nonforfeitable pending payment as of the Designated
         Date.

                  (a)      Prime Rate Equivalents. To the extent Prime Rate
         Equivalents are elected, interest equivalents will be credited to the
         Participant's Account as of the last day of each calendar month based
         upon the average daily balance in the Account for the month and the
         prime lending rate as declared by Citibank, or such other lending
         institution selected by the Committee, to be in effect from time to
         time.

                  (b)      S&P 500 Equivalents. To the extent S&P 500
         Equivalents are elected, the earnings (or loss) equivalents will be
         credited (or debited) to the Participant's Account as of the last day
         of each calendar quarter based upon the balance in the Account as of
         the last day of the quarter and the returns realized by the Standard &
         Poor's 500 Index for the quarter.

                  (c)      Designated Date.

                           (1)      Any Designated Date respecting Deferred
                  Compensation subject to Prime Rate Equivalents shall be as of
                  the last day of a calendar month.

                           (2)      Any Designated Date respecting Deferred
                  Compensation subject to S&P 500 Equivalents shall be as of the
                  last day of a calendar quarter.

                           (3)      Any such Designated Date so elected may be
                  either during the Participant's active tenure as a Director or
                  after cessation of the Participant's directorship for any
                  reason and may be elected either by specifying a particular
                  date or by selecting a date that follows the occurrence of a
                  specified event; provided, however, that in no event shall a
                  Designated Date be more than 10 years from the date the
                  Participant's directorship terminates.

6.       SHARES AVAILABLE FOR STOCK OPTIONS.

         6.1      NUMBER OF SHARES AVAILABLE FOR STOCK OPTIONS. Subject to
         adjustment as provided in Section 6.2, the number of Shares of Common
         Stock reserved for issuance to Participants under this Plan shall be up
         to 500,000. These Shares may consist of authorized but unissued Shares
         or previously issued Shares reacquired by the Company as treasury
         shares. The number of Shares that are the subject of Stock Options
         under this Plan that are forfeited or terminated or expire unexercised
         shall again immediately become available to be issued as Stock Options
         under this Plan. Shares approved pursuant to the Long Term Incentive
         Plan of Baker Hughes Incorporated, as amended, and the Baker Hughes
         Incorporated 1998 Employee Stock Option Plan, as amended, that have not
         been awarded under such plans, including Shares that are canceled,
         terminated, expired unexercised, settled in cash in lieu of Shares or
         in a manner such that all or some of the Shares covered thereby are not
         issued to a participant or are exchanged for a consideration that does
         not involve Shares, and Shares that are so canceled, terminated,
         expired unexercised, settled in cash in lieu of Shares or in a manner
         such that all or some of the Shares covered thereby are not issued to a
         participant or are exchanged for a

                                       5

<PAGE>

                                                                  EXHIBIT 10.16

         consideration that does not involve Shares, and Shares that are so
         canceled, terminated, expired unexercised, settled in cash in lieu of
         Shares or in a manner such that all or some of the Shares covered
         thereby are not issued to a participant or are exchanged for a
         consideration that does not involve Shares, will immediately become
         available for Stock Options under this Plan. The Shares described in
         the foregoing sentence shall be included in the up to 500,000 Shares
         reserved for issuance under this Plan. The Committee shall determine
         the appropriate methodology for calculating the number of Shares issued
         pursuant to this Plan.

         6.2      ADJUSTMENTS IN AUTHORIZED SHARES. The existence of outstanding
         Stock Options 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 Shares) 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.

                  If there shall be any change in the Shares of the Company or
         the capitalization of the Company through merger, consolidation,
         reorganization, recapitalization, stock dividend, stock split, reverse
         stock split, split up, spin-off, combination of shares, exchange of
         shares, dividend in kind or other like change in capital structure or
         distribution (other than normal cash dividends) to stockholders of the
         Company, the Board, in its sole discretion, to prevent dilution or
         enlargement of Participants' rights under this Plan, shall adjust, in
         an equitable manner, as applicable, the number and kind of Shares that
         may be issued under this Plan, the number and kind of Shares subject to
         outstanding Stock Options and other value determinations applicable to
         outstanding Stock Options. 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 Stock Options by means of substitution of new Stock Options,
         as appropriate, for previously issued Stock Options.

7.       STOCK OPTIONS

         7.1      CALCULATION OF EXERCISE PRICE. The exercise price to be paid
         for each share of Common Stock deliverable upon exercise of each Stock
         Option granted shall be equal to the Fair Market Value per share of
         Common Stock at the time of grant as determined by the Committee,
         provided, that the exercise price of each Stock Option may, in the
         discretion of the Committee, be discounted from Fair Market Value, in
         accordance with the provisions of Section 5.1. The exercise price for
         each Stock Option shall be subject to adjustment as provided in Section
         6.2.

         7.2      TERMS AND CONDITIONS OF OPTIONS. Stock Options shall be in
         such form as the Committee may from time to time approve and shall be
         subject to the following terms and conditions:

                  (a)      EXERCISE PERIODS FOR STOCK OPTIONS. All Stock Options
                  shall vest and become exercisable on the first anniversary of
                  the date of grant. Each Stock Option shall be exercisable from
                  time to time, in whole or in part, at any time after one year
                  from the date of grant and prior to the date which is 10 years
                  after the date of grant, subject to the provisions of clause
                  (b) of this Section 7.2 (the "OPTION EXPIRATION DATE").

                  (b)      EXERCISE PERIODS IN THE EVENT OF DIRECTORSHIP
                  TERMINATION. A Director's directorship shall terminate at the
                  close of business on the day preceding the day he or she
                  ceases to be a member of the Board for any reason whatsoever.
                  When a Director's directorship terminates, each of his or her
                  Stock Options and all rights thereunder shall expire three (3)
                  years after the Director's directorship terminates for any
                  reason. Any Stock Options unexercised at the time of the
                  Director's death (including the Director's death which results
                  in termination of his or her directorship or the Director's
                  death during the 3-year period after his or her directorship
                  terminates) may be exercised by the Director's estate or by
                  the Person or Persons who acquire the right to exercise his or
                  her Stock Option by bequest or inheritance.

                                       6

<PAGE>

                                                                   EXHIBIT 10.16

                  (c)      TRANSFERABILITY OF STOCK OPTIONS. Except as otherwise
                  provided in the Stock Option agreement, no Stock Option may be
                  sold, transferred, pledged, assigned, or otherwise alienated
                  or hypothecated, other than by will or by the laws of descent
                  and distribution. Further, except as otherwise provided in the
                  Stock Option agreement, all Stock Options granted under this
                  Plan shall be exercisable during his or her lifetime only by
                  the Participant. Any attempted assignment of a Stock Option in
                  violation of this Section shall be null and void.

                  (d)      PAYMENT OF STOCK OPTION PRICE. Stock Options granted
                  under this Plan shall be exercised in the form and manner as
                  the Committee shall determine from time to time.

                           Upon the exercise of any Stock Option, the Stock
                  Option Price shall be payable to the Company in full either
                  (i) in cash or its equivalent; (ii) by tendering previously
                  acquired Shares having an aggregate fair market value at the
                  time of exercise equal to the total Stock Option Price
                  (provided that the Shares that are tendered must have been
                  held by the Participant for at least 6 months prior to their
                  tender to satisfy the Stock Option Price); (iii) by a
                  combination of (i) and (ii); or (iv) any other method approved
                  by the Committee in its sole discretion at the time of grant
                  and as set forth in the Stock Option.

                           Subject to any governing rules or regulations, after
                  the exercise of the Stock Option and full payment of the Stock
                  Option Price in the form and manner as the Committee shall
                  determine, the Director may pay the required fee and request a
                  Share certificate based upon the number of Shares purchased
                  under the Stock Option through the third-party administrator
                  designated by the Committee to have this administrative duty.
                  In addition, the Company may, at its option, issue or cause to
                  be issued Share certificates.

                           Unless otherwise determined by the Committee, all
                  payments under all of the methods indicated above shall be
                  paid in United States dollars.

                  (e)      LISTING AND REGISTRATION OF SHARES. Each Stock Option
                  shall be subject to the requirement that if at any time the
                  Committee determines, in its discretion, that the listing,
                  registration or qualification under the regulations of any
                  securities exchange or under any state or federal law of the
                  Shares subject to the Stock Option, or the consent or approval
                  of any governmental regulatory body, is necessary or desirable
                  as a condition of, or in connection with, the issue or
                  purchase of the Shares under such Stock Option, the Stock
                  Option may not be exercised in whole or in part unless such
                  listing, registration, qualification, consent or approval
                  shall have been effected or obtained and the same shall have
                  been free of any conditions not acceptable to the Committee.

                  (f)      AMENDMENT. The Committee may, with the consent of the
                  Person or Persons entitled to exercise any outstanding Stock
                  Option, amend such Stock Option; provided, however, that any
                  such amendment shall be subject to stockholder approval when
                  required.

                  (g)      INVESTMENT REPRESENTATIONS. As a condition to the
                  exercise of a Stock Option, the Company may require the Person
                  exercising such Stock Option to represent and warrant at the
                  time of any such exercise that the Shares are being purchased
                  only for investment and without any present intention to sell
                  or distribute such Shares if, in the opinion of counsel for
                  the Company, such a representation is required.

                  (h)      UNCERTIFICATED SHARES. To the extent that this Plan
                  provides for issuance of certificates to reflect the transfer
                  of Shares, the transfer of such Shares may be effected on a
                  noncertificated basis, to the extent not prohibited by
                  applicable law or the rules of any stock exchange.

                  (i)      NO FRACTIONAL SHARES. No fractional Shares shall be
                  issued or delivered pursuant to this Plan or any Stock Option
                  agreement. The Committee shall determine whether cash or other
                  property shall be issued or paid in lieu of fractional Shares
                  or whether such fractional Shares or any rights thereto shall
                  be forfeited or otherwise eliminated.

                                       7

<PAGE>

                                                                   EXHIBIT 10.16

                  (j)      OTHER PROVISIONS.

                           (i)      The Person or Persons entitled to exercise,
                           or who have exercised, a Stock Option shall not be
                           entitled to any rights as a stockholder of the
                           Company with respect to any Shares subject to such
                           Stock Option until he or she shall have become the
                           holder of record of such Shares.

                           (ii)     No Stock Option shall be construed as
                           limiting any right which either the Company's
                           stockholders or the Board of Directors may have to
                           remove at any time from the Board of Directors, with
                           or without cause, any Person to whom such Stock
                           Option has been granted.

                           (iii)    Notwithstanding any provision of the Plan or
                           the terms of any Stock Option agreement, the Company
                           shall not be required to issue any Shares hereunder
                           if such issuance would, in the judgment of the
                           Committee, constitute a violation of any state or
                           federal law or of the rules or regulations of any
                           governmental regulatory body.

                           (iv)     Notwithstanding any provision of the Plan,
                           the Committee may not exercise any discretion with
                           respect to this Section 7 which would be inconsistent
                           with the intent that the Plan meet the requirements
                           of Rule 16b-3 promulgated by the Securities Exchange
                           Commission under the Exchange Act.

8.       PAYMENT OF AMOUNTS IN ACCOUNTS.

         8.1      PAYMENT GENERALLY. Except as otherwise provided in this
         Section 8, the Deferred Compensation and interest and earnings
         equivalents credited to a Participant's Account with respect to a
         calendar year or years, as applicable, shall be paid in cash to the
         Participant in one lump sum as of the Designated Date elected by the
         Participant. In the absence of a valid election of a Designated Date by
         the Participant, the Designated Date shall be deemed to be the date of
         cessation of the Participant's status as a Director.

         8.2      PAYMENT OF SIMULTANEOUS AMOUNTS. It is recognized that a
         Participant may elect to defer Compensation with respect to more than
         one calendar year, so that Deferred Compensation and interest and
         earnings equivalents are credited to the Participant's Account with
         respect to more than one calendar year, and the payment of such amounts
         with respect to more than one calendar year may, but need not, become
         payable to the Participant as of the same Designated Date.

         8.3      HARDSHIP. In the event of hardship of the Participant, as
         determined in the sole discretion of the Committee, all or a portion of
         the cash payments that would otherwise be made on a later Designation
         Date under this Section 8 shall be accelerated by being made as soon as
         practicable, following the Committee's determination of hardship, in
         one lump sum. For this purpose, hardship shall mean a severe financial
         hardship of the Participant resulting from a sudden and unexpected
         illness or accident of the Participant or of a dependent (as defined in
         section 152(a) of the Code) of the Participant, loss of the
         Participant's property due to casualty, or any similar extraordinary
         and unforeseeable circumstance arising as a result of events beyond the
         control of the Participant. The circumstances that will constitute a
         hardship will depend upon the facts of each case, but, in any case,
         payment may not be made to the extent that the hardship is or may be
         relieved through reimbursement or compensation by insurance or
         otherwise or by liquidation of the Participant's assets, to the extent
         the liquidation of such assets will not itself cause severe financial
         hardship. Such foreseeable needs for funds as the desire to send a
         Participant's child to college or purchase a home will not be
         considered to be a hardship. No hardship distribution can exceed the
         lesser of the amount deemed credited to the Participant's Account or
         the amount reasonably needed to satisfy the emergency need. Whether a
         hardship exists and the amount reasonably needed to satisfy the
         emergency need will be determined by the Committee.

         8.4      DISABILITY. In the event of the disability of the Participant,
         as determined in the sole discretion of the Committee, all cash
         payments that would otherwise be made on a later Designation Date under
         this Section 8 shall be accelerated by being made as soon as
         practicable, following the Committee's

                                       8

<PAGE>

                                                                   EXHIBIT 10.16

         determination of such disability, in one lump sum. For this purpose,
         disability shall mean total and permanent disability that will prevent
         the Participant from engaging in meaningful business activities.

         8.5      DEATH. In the event of the death of the Participant, all of
         the cash payments that would otherwise be made on later Designation
         Date under this Section 8, shall be accelerated by being made as soon
         as practicable following the death of the Participant. A Participant,
         by written instrument filed with the Committee in such manner and form
         as it may prescribe, may designate one or more beneficiaries to receive
         payment of the Participant's Deferred Compensation and interest or
         earnings equivalents in the event of the death of the Participant. Any
         such beneficiary designation may be changed from time to time prior to
         the death of the Participant. In the absence of a beneficiary
         designation on file with the Committee at the time of the Participant's
         death, the Deferred Compensation and interest or earnings equivalents
         remaining to be paid to the Participant shall be paid to the executor
         or administrator of the Participant's estate.

         8.6      CHANGE IN PURPOSE. In the event of a major tax law change or
         other reason, as determined in the sole discretion of the Committee,
         which makes the continued deferral of amounts under the Plan
         undesirable, cash payments under this Section 8 shall be accelerated by
         being made as soon as practicable following the Committee's
         determination to discontinue deferrals, in one lump sum.

         8.7      DEBITING OF PLAN ACCOUNTS. Once Deferred Compensation and
         interest or earnings equivalents have been paid, such amounts shall be
         debited from the Participant's Account, and the Company shall no longer
         be accountable for such paid amounts.

9.       PROHIBITION AGAINST ASSIGNMENT OR ENCUMBRANCE.

                  No right, title, interest or benefit hereunder shall ever be
         liable for or charged with any of the torts or obligations of a
         Participant or any Person claiming under a Participant, or be subject
         to seizure by any creditor of a Participant or any Person claiming
         under a Participant. Except as to the selection of a "designated
         beneficiary" in the event of death, no Participant or any Person
         claiming under a Participant shall have the power to anticipate or
         dispose of any right, title, interest or benefit hereunder in any
         manner until the same shall have been actually distributed free and
         clear of the terms of the Plan.

10.      EFFECTIVE DATE, AMENDMENT AND TERMINATION OF THE PLAN.

                  The Plan shall be amended and restated effective as of July
         24, 2002. Subject to the terms of this Plan, the Committee may at any
         time and from time to time alter, amend, modify, suspend or terminate
         this Plan in whole or in part, except that no amendment, modification,
         suspension or termination that would adversely affect in any material
         way the rights of any Participant under any Stock Option previously
         granted to such Participant under this Plan shall be made without the
         written consent of such Participant or to the extent stockholder
         approval is otherwise required by applicable legal requirements. The
         Committee may terminate the Plan at any time with respect to periods
         following the date such termination is effected.

11.      NATURE OF THE PLAN.

                  The Plan constitutes an unfunded, unsecured liability of the
         Company to provide benefits in accordance with the provisions hereof.
         The Company, at its election, may fund the payment of benefits under
         the Plan by setting aside and investing, in an account on the Company's
         books, such funds as the Company may, from time to time, determine.
         Neither the establishment of the Plan, the crediting of amounts to
         Accounts nor the setting aside of any funds shall be deemed to create a
         trust. Legal and equitable title to any funds set aside pursuant to the
         Plan shall remain in the Company, and neither the Participants nor any
         Persons claiming under the Participants shall have any security or
         other interest in such funds. Any funds so set aside or acquired shall
         remain subject to the claims of the creditors of the Company, present
         and future. This Plan is not intended to be subject to Employee
         Retirement Income Security Act of 1974, as amended.

                                       9

<PAGE>

                                                                   EXHIBIT 10.16

12.      REORGANIZATION.

                  The Company shall not merge or consolidate with any other
         entity or entities, liquidate, dissolve, reorganize, or sell
         substantially all of its assets and business unless and until a
         succeeding or continuing entity or entities agrees to assume and
         discharge the obligations of the Company under this Agreement. Upon the
         occurrence of such an event, the term "Company" as used in this
         Agreement shall be deemed to refer to such successor or survivor entity
         or entities.

13.      ACCELERATION.

                  Notwithstanding any provision of this Plan to the contrary, in
         the event of an occurrence of a Change in Control other than an event
         described only in Section (C) of the definition of Change in Control,
         all Stock Options granted pursuant to this Plan shall become fully
         vested and shall become immediately exercisable.

14.      MISCELLANEOUS.

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

         14.2     REQUIREMENTS OF LAW. The issuance of Shares under this Plan
         shall be subject to all applicable laws, rules and regulations and to
         such approvals by any governmental agencies or national securities
         exchanges as may be required. The Company shall receive the
         consideration required by law for the issuance of Shares under this
         Plan.

         14.3     SECURITIES LAW COMPLIANCE. All transactions under this Plan
         are intended to comply with all applicable conditions of Rule 16b-3 or
         its successor under the Exchange Act, unless determined otherwise by
         the Board. To the extent any provision of this Plan or action by the
         Board fails to so comply, it shall be deemed null and void, to the
         extent permitted by law and deemed advisable by the Board.

         14.4     GOVERNING LAW. This Plan shall be governed by the laws of the
         State of Texas, excluding any conflicts or choice of law rule or
         principle that might otherwise refer construction or interpretation of
         this Plan to the substantive law of another jurisdiction.

                                       10<PAGE>
                                                                   EXHIBIT 10.17

                            BAKER HUGHES INCORPORATED

                1995 EMPLOYEE ANNUAL INCENTIVE COMPENSATION PLAN

                                    CONTENTS

<Table>
<Caption>
                                                                                                                 PAGE

<S>               <C>                                                                                            <C>
ARTICLE 1.        ESTABLISHMENT AND PURPOSE...............................................................        2

ARTICLE 2.        DEFINITIONS.............................................................................        2

ARTICLE 3.        ADMINISTRATION..........................................................................        3

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.................................................................        6

ARTICLE 10.       AMENDMENT AND TERMINATION...............................................................        6

ARTICLE 11.       GOVERNING LAW AND WITHHOLDING...........................................................        6
</Table>

                                       1
<PAGE>

                            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

                  (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).

                                       2
<PAGE>

         (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.

         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

                                       3
<PAGE>

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.

                         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.

         (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).

                                       4
<PAGE>

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 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.

                                       5
<PAGE>

                        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, 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.

                                       6
<PAGE>

                           AMENDMENT NO. 1997-1 TO THE
                              1995 EMPLOYEE ANNUAL
                           INCENTIVE COMPENSATION PLAN

                  This Amendment No. 1997-1 is made to the Baker Hughes
Incorporated 1995 Employee Annual Incentive Compensation Plan ("the Plan").
Capitalized terms used but not defined herein shall have the meanings ascribed
to them in the Plan.

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

                  NOW, THEREFORE, the Plan is amended as follows:

1.       Article 2.1 of the Plan is amended by inserting the following as new
         Articles 2.1(a) and 2.1(b):

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

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

2.       Article 2.1 of the Plan is amended by renumbering Article 2.1(a) as
         Article 2.1(c).

3.       Article 2.1(b) is amended in its entirety to read as follows as a new
         Article 2.1(d):

(d)"Cause" for termination by the Company of the Participant's employment shall
mean (i) the willful and continued failure by the Participant to substantially
perform the Participant's duties with the Company (other than any such failure
resulting from the Participant'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 Participant) after a written demand for
substantial performance is delivered to the Participant by the CIC Committee,
which demand specifically identifies the manner in which the CIC Committee
believes that the Participant has not substantially performed the Participant's
duties, or (ii) the willful engaging by the Participant 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 Participant's part shall be
deemed "willful" unless done, or omitted to be done, by the Participant not in
good faith and without reasonable belief that the Participant'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
CIC Committee by clear and convincing evidence that Cause exists.

4.       Article 2.1 of the Plan is amended by inserting the following as new
         Articles 2.1(e) and 2.1(f):

(e)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:

(i) 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 (1) of paragraph (iii)
below; or

(ii) 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 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 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

                                       7
<PAGE>

directors on the date hereof or whose appointment, election or nomination for
election was previously so approved or recommended; or

(iii) 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 (1) 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 (2) 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

(iv) 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.

(f)"CIC Committee" means (i) the individuals (not fewer than three in number)
who, on the date six months before a Change in Control, constitute the
Committee, 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 CIC Committee shall not exceed six (6).

5. Article 2.1 of the Plan is amended by renumbering Articles 2.1(c) and 2.1(d)
as Articles 2.1(g) and 2.1(h), respectively.

6. Article 2.1 of the Plan is amended by inserting the following as a new
Article 2.1(i):

(i)"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.

7. Article 2.1 of the Plan is amended by renumbering Article 2.1(e) as Article
2.1(j).

8. Article 2.1 of the Plan is amended by inserting the following as a new
Article 2.1(k);

(k)"Good Reason" for termination by the Participant of the Participant's
employment shall mean the occurrence (without the Participant's express written
consent) after any Change in Control, or prior to a Change in Control under the
circumstances described in clauses (ii) and (iii) of Article 12.2 hereof
(treating all references in paragraphs (i) through (vii) 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 (i), (v), (vi) or (vii)
below, such act or failure to act is corrected prior to the effective date of
the Participant's termination for Good Reason;

                                       8
<PAGE>

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

(ii) a reduction by the Company in the Participant'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;

(iii) the relocation of the Participant's principal place of employment to a
location more than 50 miles from the Participant's principal place of employment
immediately prior to the Change in Control or the Company's requiring the
Participant 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 Participant's present
business travel obligations;

(iv) the failure by the Company to pay to the Participant any portion of the
Participant'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 Participant 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;

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

(vi) the failure by the Company to continue to provide the Participant with
benefits substantially similar to those enjoyed by the Participant under any of
the Company's pension, savings, life insurance, medical, health and accident, or
disability plans in which the Participant 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 Participant of any material fringe benefit
or perquisite enjoyed by the Participant at the time of the Change in Control,
or the failure by the Company to provide the Participant with the number of paid
vacation days to which the Participant 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

(vii) if the Participant is party to an individual employment, severance or
other similar agreement with the Company, any purported termination of the
Participant's employment which is not effected pursuant to the notice of
termination or other procedures specified therein.

The Participant's right to terminate the Participant's employment for Good
Reason shall not be affected by the Participant's incapacity due to physical or
mental illness. The Participant'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 Participant that Good Reason exists shall be presumed to be correct
unless the Company establishes to the CIC Committee by clear and convincing
evidence that Good Reason does not exist.

9. Article 2.1 of the Plan is amended by renumbering Articles 2.1(f) and 2.1(g)
as Articles 2.1(l) and (m), respectively.

                                       9
<PAGE>

10. Article 2.1 of the Plan is amended by inserting the following as a new
Article 2.1(n):

(n)"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.

11. Article 2.1 of the Plan is amended by renumbering Article 2.1(h) as Article
2.1(o).

12. Article 2.1 of the Plan is amended by inserting the following as a new
Article 2.1(p):

(p) 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:

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

(ii) 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;

(iii) 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

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

13. Article 2.1 of the Plan is amended by renumbering Article 2.1(i) as Article
2.1(q).

14. Article 4.4 of the Plan is amended by adding at the end thereof the
following:

Notwithstanding the foregoing, the Committee may not withdraw its approval for
participation in the Plan during the pendency of a Potential Change in Control
and for a period of six (6) months after the cessation thereof.

15. Article 10 of the Plan is amended by adding at the end thereof the
following:

Notwithstanding the foregoing, the Plan may not be amended in a manner adverse
to any Participant during the pendency of a Potential Change in Control and for
a period of six (6) months after the cessation thereof.

16. The Plan is amended by inserting the following as a new Article 12:

Article 12. Change in Control

12.1 Change in Control. Notwithstanding any provision of the Plan to the
contrary, no later than five (5) days following the occurrence of a Change in
Control, (i) Final Awards shall be computed for each Participant pursuant to
Article 5.4 hereof (assuming for this purpose that the performance goals
established pursuant to Article 5.2 herein have been achieved to the extent
required to earn the expected value target Award Opportunity), and (ii) the
Company shall pay to each participant an amount equal to the Final Award so
determined multiplied by a fraction, the numerator of which is the number of the
Participant's months of participation through the date of Change of Control
(rounded up to the nearest whole month), and the denominator of which is twelve
(12).

                                       10
<PAGE>

12.2 Termination of Employment Prior to Change in Control. Notwithstanding any
provision of the Plan to the contrary, a Participant shall be entitled to
receive, no later than five (5) days following the effective date of such
Participant's termination of employment, the payment described in the previous
Article 12.1 if (i) such Participant'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 Participant 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 Participant's employment is terminated by the Company without
Cause or by the Participant 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).

                  The effective date of this Amendment No. 1997-1 shall be July
23, 1997; 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
and (ii) on the date hereof constitute the Board 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 or nomination for
election by the Company's stockholders was approved or recommended, by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors on the date hereof or whose appointment, election or nomination for
election was previously so approved or recommended then (a) this Amendment No.
1997-1 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. 1997-1 disqualifies the transaction as a "pooling"
transaction (including, if applicable, this entire Amendment No. 1997-1), the
Board 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:
                                                   -------------------------
                                                Title:

                                       11
<PAGE>

                           AMENDMENT NO. 1999-1 TO THE
                              1995 EMPLOYEE ANNUAL
                           INCENTIVE COMPENSATION PLAN

         This Amendment No. 1999-1 is made to the Baker Hughes Incorporated 1995
Employee Annual Incentive Compensation Plan ("the Plan"). Capitalized terms used
but not defined herein shall have the meanings ascribed to them in the Plan.

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

         NOW, THEREFORE, the Plan is amended as follows:

1. Article 2.1(e) of the Plan is amended in its entirety to read as follows:

         "(e) 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:

                  (i) 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 (1) of paragraph
         (iii) below; or

                  (ii) 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 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 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

                  (iii) 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 (1) 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 (2) 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

                  (iv) 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 consolidation or
         any parent thereof (or a majority plus one member where such board
         comprises an odd number of members); or

                  (v) 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

                                       12
<PAGE>

         all of the Company's assets, other than a sale or disposition by the
         Company of all or substantially all of the Company's assets to an
         entity, at least 65% of the combined voting power of the voting
         securities of which are owned by stockholders of the Company in
         substantially the same proportions as their ownership of the Company
         immediately prior to such sale.

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

2. Article 12 of the Plan is amended in its entirety to read as follows:

         "Article 12.  Change in Control

         12.1 Change in Control. Notwithstanding any provision of the Plan to
the contrary, no later than five (5) days following the occurrence of a Change
in Control other than an event described only in clause (iii) of the definition
of Change in Control set forth in Article 2.1(e) of the Plan, (i) Final Awards
shall be computed for each Participant pursuant to Article 5.4 hereof (assuming
for this purpose that the performance goals established pursuant to Article 5.2
herein have been achieved to the extent required to earn the expected value
target Award Opportunity), and (ii) the Company shall pay to each participant an
amount equal to the Final Award so determined multiplied by a fraction, the
numerator of which is the number of the Participant's months of participation
through the date of Change of Control (rounded up to the nearest whole month),
and the denominator of which is twelve (12).

         12.2 Termination of Employment Prior to Change in Control or Following
Certain Changes in Control. Notwithstanding any provision of the Plan to the
contrary, a Participant shall be entitled to receive, no later than five (5)
days following the effective date of such Participant's termination of
employment, the payment described in the previous Article 12.1 if (i) such
Participant'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 Participant 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
Participant's employment is terminated by the Company without Cause or by the
Participant 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 Participant's employment is terminated by the Company without Cause or by
the Participant for Good Reason, in either case within 2 years following the
occurrence of a Change in Control described in clause (iii) of the definition of
Change in Control set forth in Article 2.1(e) of the Plan."

         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
and (ii) on the date hereof constitute the Board 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 or nomination for
election by the Company's stockholders was approved or recommended, by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors on the date hereof or whose appointment, election or nomination for
election was previously so approved or recommended then (a) this Amendment No.
1999-1 shall, to the extent practicable, be interpreted so as to permit such
accounting treatment, and (b) to the extent that the application of clause (a)
of this sentence does not preserve the availability of such accounting
treatment, then, to the extent that any provision or combination of provisions
of this Amendment No. 1999-1 disqualifies the transaction as a "pooling"
transaction (including, if applicable, this entire Amendment No. 1999-1), the
Board 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

                                       13
<PAGE>

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

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00047-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00047-of-00352.parquet"}]]