Document:

exv10w18

 

     Exhibit 10.18

BAKER HUGHES INCORPORATED

ANNUAL INCENTIVE COMPENSATION PLAN

(Amendment and Restatement

Adopted by the Board of

Directors on February 20, 2008)

 

 

BAKER HUGHES INCORPORATED

ANNUAL INCENTIVE COMPENSATION PLAN

(Amendment and Restatement

Adopted by the Board of Directors

on February 20, 2008)

WITNESSETH:

     WHEREAS, effective October 1, 1994, Baker Hughes Incorporated (the “Company”) previously
adopted the Baker Hughes Incorporated 1995 Employee Annual Incentive Compensation Plan (the “Plan”)
for the benefit of certain employees of the Company and affiliates of the Company;

     WHEREAS, the Plan is a bonus program exempt from coverage under the Employee Retirement Income
Security Act of 1974, as amended pursuant to Department of Labor regulation section 2510.3-2(c);
and

     WHEREAS, the Company desires to amend and restate the Plan on behalf of itself and on behalf
of the other adopting entities;

     NOW THEREFORE, the Plan is hereby amended and restated in its entirety as follows, effective
as of January 1, 2005 except insofar as a later effective date is expressly specified.

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	 
	ARTICLE I	 	DEFINITIONS AND CONSTRUCTION	 	 	 	 
	 

	 	 	1.01	 	 	Definitions
	 	 	1	 
	 

	 	 	1.02	 	 	Number and Gender
	 	 	9	 
	 

	 	 	1.03	 	 	Headings
	 	 	9	 
	ARTICLE II	 	PARTICIPATION	 	 	 	 
	 

	 	 	2.01	 	 	Eligibility
	 	 	9	 
	 

	 	 	2.02	 	 	Participation
	 	 	9	 
	 

	 	 	2.03	 	 	Partial Plan Year Participation
	 	 	9	 
	 

	 	 	2.04	 	 	Termination of Approval
	 	 	9	 
	ARTICLE III	 	AWARD OPPORTUNITIES AND PERFORMANCE GOALS	 	 	 	 
	 

	 	 	3.01	 	 	Award Opportunities
	 	 	10	 
	 

	 	 	3.02	 	 	Performance Goals
	 	 	10	 
	 

	 	 	3.03	 	 	Time of Establishment of Award Opportunities and Performance Goals
	 	 	11	 
	 

	 	 	3.04	 	 	Adjustment of Performance Goals
	 	 	11	 
	 

	 	 	3.05	 	 	Individual Award Cap
	 	 	11	 
	ARTICLE IV	 	FINAL AWARD DETERMINATIONS	 	 	 	 
	 

	 	 	4.01	 	 	Final Award Determinations
	 	 	11	 
	 

	 	 	4.02	 	 	Separation From Service Due to Death, Disability, or Retirement or
Involuntary Termination of Employment
	 	 	11	 
	 

	 	 	4.03	 	 	Employment Transfers
	 	 	11	 
	 

	 	 	4.04	 	 	Disposition of Business
	 	 	12	 
	 

	 	 	4.05	 	 	Separation From Service for Other Reasons
	 	 	12	 
	ARTICLE V	 	BANKING OF AWARDS	 	 	 	 
	 

	 	 	5.01	 	 	General Banking Procedures
	 	 	12	 
	 

	 	 	5.02	 	 	Exceptions
	 	 	13	 
	ARTICLE VI	 	DEEMED INVESTMENT OF FUNDS	 	 	 	 
	ARTICLE VII	 	PAYMENT OF BENEFITS	 	 	 	 
	 

	 	 	7.01	 	 	Time of Payment of Unbanked Final Award
	 	 	13	 
	 

	 	 	7.02	 	 	Time of Payment of Banked Final Award
	 	 	13	 
	 

	 	 	7.03	 	 	Form of Payment of Benefits
	 	 	14	 

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TABLE OF CONTENTS

(Continued)

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	 
	 

	 	 	7.04	 	 	Account Debits
	 	 	14	 
	 

	 	 	7.05	 	 	Unclaimed Benefits
	 	 	14	 
	 

	 	 	7.06	 	 	Statutory Benefits
	 	 	14	 
	 

	 	 	7.07	 	 	Payment to Alternate Payee Under Domestic Relations Order
	 	 	14	 
	ARTICLE VIII	 	FORFEITURE OF BENEFITS	 	 	 	 
	ARTICLE IX	 	DEATH	 	 	 	 
	 

	 	 	9.01	 	 	Payment of Unbanked Amounts
	 	 	15	 
	 

	 	 	9.02	 	 	Payment of Banked Amounts
	 	 	15	 
	 

	 	 	9.03	 	 	Designation of Beneficiaries
	 	 	15	 
	ARTICLE X	 	CHANGE IN CONTROL	 	 	 	 
	 

	 	 	10.01	 	 	General
	 	 	15	 
	 

	 	 	10.02	 	 	CIC Committee
	 	 	15	 
	 

	 	 	10.03	 	 	Change in Control During a Performance Period
	 	 	15	 
	 

	 	 	10.04	 	 	Termination of Employment Prior to Change in Control or
Following
Certain Changes in Control
	 	 	16	 
	 

	 	 	10.05	 	 	Payment of Expected Value Awards and Tax-Gross Up for Delayed
Payment
	 	 	16	 
	 

	 	 	10.06	 	 	Forfeiture Restrictions
	 	 	16	 
	ARTICLE XI	 	ADMINISTRATION OF THE PLAN	 	 	 	 
	 

	 	 	11.01	 	 	Resignation and Removal
	 	 	16	 
	 

	 	 	11.02	 	 	Records and Procedures
	 	 	17	 
	 

	 	 	11.03	 	 	Self-Interest of Plan Administrator
	 	 	17	 
	 

	 	 	11.04	 	 	Compensation and Bonding
	 	 	17	 
	 

	 	 	11.05	 	 	Plan Administrator Powers and Duties
	 	 	17	 
	 

	 	 	11.06	 	 	Reliance on Documents, Instruments, etc
	 	 	18	 
	 

	 	 	11.07	 	 	Claims Review Procedures; Claims Appeals Procedures
	 	 	18	 
	 

	 	 	11.08	 	 	Company to Supply Information
	 	 	19	 
	 

	 	 	11.09	 	 	Indemnity
	 	 	20	 
	ARTICLE XII	 	PARTICIPATION IN THE PLAN BY AFFILIATES	 	 	 	 
	 

	 	 	12.01	 	 	Adoption Procedure
	 	 	20	 
	 

	 	 	12.02	 	 	No Joint Venture Implied
	 	 	21	 

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TABLE OF CONTENTS

(Continued)

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	 
	ARTICLE XIII	 	MISCELLANEOUS	 	 	 	 
	 

	 	 	13.01	 	 	Plan Not Contract of Employment
	 	 	21	 
	 

	 	 	13.02	 	 	Funding
	 	 	21	 
	 

	 	 	13.03	 	 	Alienation of Interest Forbidden
	 	 	21	 
	 

	 	 	13.04	 	 	Withholding
	 	 	21	 
	 

	 	 	13.05	 	 	Amendment and Termination
	 	 	21	 
	 

	 	 	13.06	 	 	Severability
	 	 	22	 
	 

	 	 	13.07	 	 	Arbitration
	 	 	22	 
	 

	 	 	13.08	 	 	Compliance With Section 409A
	 	 	22	 
	 

	 	 	13.09	 	 	Governing Law
	 	 	22	 

-iii-

 

BAKER HUGHES INCORPORATED

ANNUAL INCENTIVE COMPENSATION PLAN

(Amendment and Restatement

Adopted by the Board of Directors

on February 20, 2008)

ARTICLE I

DEFINITIONS AND CONSTRUCTION

     1.01 Definitions. The words and phrases defined in this Article shall have the meaning set
out in the definitions below unless the context in which the word or phrase appears reasonably
requires a broader, narrower or different meaning. These definitions shall apply solely for
purposes of this Plan.

     “Account(s)” means all ledger accounts pertaining to a Participant or former Participant which
are maintained by the Plan Administrator to reflect the Company’s obligation to the Participant or
former Participant under the Plan. The Plan Administrator shall establish the following
subaccounts and any additional subaccounts that the Plan Administrator considers necessary to
reflect the entire interest of the Participant or former Participant under the Plan. Each of the
subaccounts listed below and any additional subaccounts established by the Plan Administrator shall
reflect credits and debits made to such subaccounts for earnings, distributions and forfeitures:

     (a) Banked Account — the Participant’s or former Participant’s banked Final Award for
a given Performance Period.

     (b) Unbanked Account —the Participant’s or former Participant’s Final Award for a
given Performance Period that is not banked pursuant to Article V.

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

     “Applicable Interest Rate” means the 10-year U.S. Treasury rate plus 25 basis points (0.25%).

     “Award Opportunity” has the meaning specified in Section 3.01 of the Plan.

     “Baker Hughes” means Baker Hughes Incorporated, a Delaware corporation.

     “Baker Value Added” and “BVA” mean, with respect to a Performance Period, the amount
calculated under the following formula:

[[(a) + (b) + (c)] x (1 — (d))] — (e)

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where (a) is the Profit Before Tax of the Company for the Performance Period, (b) is the
interest expense of the Company for the Performance Period, (c) is the non-compete
amortization expense of the Company for the Performance Period, (d) is the Tax Rate for the Performance
Period and (e) is the Capital Charge determined for the Company for the Performance Period. For
this purpose, “Average Adjusted Net Capital Employed” means the sum of the Monthly Adjusted Net
Capital Employed during the Performance Period divided by 12; “Capital Charge” means Average
Adjusted Net Capital Employed multiplied by the Cost of Capital; “Company” means Baker Hughes and
all of its Affiliates in which Baker Hughes directly or indirectly has a capital investment, or one
or more business units of Baker Hughes and its Affiliates, as specified in the written Award
Opportunities; “Cost of Capital” means the weighted average after-tax cost of debt and cost of
equity for the Company for the Performance Period; “Cost of
Revenues” means the cost of products sold
and the cost of providing services, including personnel costs, repair and maintenance costs,
freight/custom, depreciation, and other costs (e.g.,
commission and royalty) directly relating to
the sale or service provided; “Monthly Adjusted Net Capital Employed” means the capital employed by the
Company during a month of the Performance Period plus accumulated
goodwill and non-compete amortization plus the
value of significant operating leases; “Operating Expenses” means costs incurred in
non-manufacturing areas to provide products and services to customers (e.g., finance and
administrative support) during the Performance Period;
“Profit Before Tax” means the revenues of the
Company for the Performance Period minus the Cost of Revenues of the Company for the Performance
Period minus the Operating Expenses of the Company for the Performance Period minus net interest
expense of the Company for the Performance Period; and “Tax Rate” means the effective tax rate for
the Company determined in a manner consistent with Baker Hughes tax policies and practices in
effect on the date hereof.

     “
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.

     “Beneficiary” means the person or persons who are eligible to receive a Participant’s benefits
payable under the Plan upon his death in accordance with the procedures specified in Section 9.03.

     “Board” means the Board of Directors of Baker Hughes.

     “Cause” means (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) after a written demand for substantial
performance is delivered to the Participant by the Committee, which demand specifically identifies
the manner in which the 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 Baker Hughes or any of the Affiliates, monetarily or
otherwise. For purposes of clauses (i) and (ii) of this definition, (A) no act, or failure to act,
on the Participant’s part shall be deemed “willful” if done, or omitted to be done, by the
Participant in good faith and with reasonable belief that the act, or failure to act, was in the
best interest of the Company and (B) in the event of a dispute concerning the application of this
provision, no claim by the Company that Cause exists shall be given effect unless the Company
establishes to the Committee by clear and convincing evidence that Cause exists. The

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Committee’s determination regarding the existence of Cause shall be conclusive and binding
upon all parties.

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

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

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

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

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

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

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

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

     “CIC Committee” means (i) the individuals (not fewer than three in number) who, on the date
six months before a Change in Control or a Potential 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.

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

-3-

 

     “Committee” means the Compensation Committee of the Board.

     “Company” means Baker Hughes and any Affiliate that adopts the Plan pursuant to the provisions
of Article XII.

     “Continuous Service” means a Participant’s service for the Company and Affiliates commencing
on his most recent date of hire by the Company or an Affiliate and ending on the date of the
complete severance of the Participant’s employment relationship with the Company or an Affiliate
without a contemporaneous transfer to the employ of the Company or any Affiliate. For this
purpose, a Participant will not be treated as having a new date of hire if he is directly
transferred from the employ of the Company or an Affiliate to the employ of an Affiliate or the
Company.

     “Covered Employee” has the meaning ascribed to that term in Section 162(m).

     “Disability” means the inability of a Participant to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment which can be
expected to result in death or can be expected to last for a continuous period of not less than 12
months. The Plan Administrator’s determination regarding the existence of Disability shall be
conclusive and binding upon all parties.

     “Domestic Relations Order” has the meaning ascribed to that term in section 414(p) of the
Code.

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

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

     “Final Award” means the actual award that may be paid for a Plan Year to a Participant, if it
is not forfeited pursuant to Article VIII, as determined by the Committee.

     “Good Reason” for termination by the Participant of his employment means 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 Section 10.04
(treating all references to “Change in Control” in paragraphs (a) through (f) below as references
to a “Potential Change in Control”), of any one of the following acts by the Company, or failures
by the Company to act, unless, in the case of any act or failure to act described in paragraph (a),
(e), (f) or (g) below, such act or failure to act is corrected prior to the effective date of the
Participant’s termination for Good Reason:

     (a) the assignment to the Participant of any duties or responsibilities which are
substantially diminished as compared to the Participant’s duties and responsibilities
immediately prior to the Change in Control;

     (b) 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

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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;

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

     (d) 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 days of the date such compensation is due;

     (e) 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 Baker Hughes Participants, as existed immediately prior to the Change in
Control;

     (f) 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 immediately prior to the time of the Change in Control; or

     (g) if the Participant is party to an individual employment, severance or other similar
agreement with the Company, any purported termination of the Participant’s

-5-

 

employment which is not effected pursuant to the notice of termination or other
procedures specified therein.

     The Participant shall have the right to terminate his employment for Good Reason even
if he becomes incapacitated due to physical or mental illness. The Participant’s continued
employment shall not constitute consent to, or a waiver of any rights with respect to, any
act or failure to act constituting Good Reason hereunder.

     For purposes of any determination regarding the existence of Good Reason, any claim by
the Participant that Good Reason exists shall be presumed to be correct unless the Company
establishes to the Committee by clear and convincing evidence that Good Reason does not
exist. The Committee’s determination regarding the existence of Good Reason shall be
conclusive and binding upon all parties.

     “Incumbent Director” means —

	 	(a)	 	a member of the Board on January 25, 2006 or
	 
	 	(b)	 	an individual-

(1) who becomes a member of the Board after January 25, 2006;

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

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

     “Initial Payment Date” has the meaning ascribed to that term in Section 7.01.

     “Involuntary Termination of Employment” means a Participant’s Separation From Service as a
result of either the elimination of his job or a reduction in force. A Participant whose
employment is terminated by the Company for Cause shall not be treated as having incurred an
“Involuntary Termination of Employment”.

     “Key Employee” means a key employee of Baker Hughes or an Affiliate who, in the opinion of the
Chief Executive Officer of Baker Hughes, is in a position to significantly contribute to the growth
and profitability of Baker Hughes and the Affiliates.

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

     “OA Level” means the over achievement level of performance applicable to the Award.

     “Participant” means an individual who is or was a Key Employee who has been granted an Award
Opportunity or who has unpaid Accounts.

-6-

 

     “Performance Goals” means one or more of the criteria described in Section 3.02 on which the
performance goals applicable to an Award Opportunity are based.

     “
Performance Period” means the 12-month period to which the Performance Goals apply. A
Performance Period shall coincide with a Plan Year.

     “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) Baker Hughes or any of the Affiliates, (b) a
trustee or other fiduciary holding Baker Hughes securities under an employee benefit plan of Baker
Hughes or any of the 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 Baker Hughes in substantially the same proportions as their ownership of stock of
Baker Hughes.

     “Plan” means the Baker Hughes Incorporated Annual Incentive Compensation Plan, as amended from
time to time.

     “Plan Administrator” means Baker Hughes, acting through its delegates. Such delegates shall
include the Administrative Committee, and any individual Plan Administrator appointed by the Board
with respect to the employee benefit plans of Baker Hughes and its Affiliates, each of which shall
have the duties and responsibilities assigned to it from time to time by the Board. As used in the
Plan, the term “Plan Administrator” shall refer to the applicable delegate of Baker Hughes as
determined pursuant to the actions of the Board.

     “Plan Year” means the twelve-consecutive month period commencing January 1 of each year.

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

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

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

     (c) any Person becomes the Beneficial Owner, directly or indirectly, of securities of
Baker Hughes representing 15 percent or more of either the then outstanding shares of common
stock of Baker Hughes’ or the combined voting power of Baker Hughes’ then outstanding
securities (not including in the securities beneficially owned by such Person any securities
acquired directly from Baker Hughes or the Affiliates); or

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

     “Profit
After Tax” means revenues minus cost of revenues (the cost of products sold and the cost
of providing services, including personnel costs, repair and maintenance costs, freight/custom,
depreciation, and other costs (e.g., commission and royalty) directly relating to

- 7 -

 

the sale or service provided) minus operating expenses (costs incurred in non-manufacturing areas to
provide products and services to customers (e.g., finance and
administrative support)) minus net interest expense minus income
taxes.

     “Retirement” means a Participant’s Separation From Service when he has attained at least 55
years of age and has at least ten Years of Service. A Participant whose employment is terminated
by the Company for Cause shall not be treated as having incurred a “Retirement”.

     “Section 162(m)” means section 162(m) of the Code and the Department of Treasury rules and
regulations issued thereunder.

     “Section 409A” means section 409A of the Code and the Department of Treasury rules and
regulations issued thereunder.

     “Separation From Service” has the meaning ascribed to that term in Section 409A.

     “Specified Employee” means a person who is, as of the date of the person’s Separation From
Service, a “specified employee” within the meaning of Section 409A, taking into account the
elections made and procedures established in resolutions adopted by the Administrative Committee of
Baker Hughes.

     “Specified Owner” means any of the following:

     (a) Baker Hughes;

     (b) an Affiliate of Baker Hughes;

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

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

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

     “Supplemental Retirement Plan” means the Baker Hughes Incorporated Supplemental Retirement
Plan.

-8-

 

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

     “Year of Service” means 365 days of Continuous Service.

     1.02 Number and Gender. Wherever appropriate herein, words used in the singular shall be
considered to include the plural and words used in the plural shall be considered to include the
singular. The masculine gender, where appearing in the Plan, shall be deemed to include the
feminine gender.

     1.03 Headings. The headings of Articles and Sections herein are included solely for
convenience, and if there is any conflict between such headings and the text of the Plan, the text
shall control.

ARTICLE II

PARTICIPATION

     2.01 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 Companies.

     2.02 Participation. Participation in the Plan shall be determined annually based upon the
recommendation of the Chief Executive Officer of Baker Hughes 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 soon after approval as is practicable.

     2.03 Partial Plan Year Participation. The Committee may, upon recommendation of the Chief
Executive Officer of Baker Hughes, allow an individual who becomes eligible after the beginning of
a Plan Year to participate in the Plan for that Plan Year. In such a case, the Participant’s Final
Award shall normally be reduced, in accordance with procedures established by the Committee, to
reflect the fact that the Participant has not been eligible to participate in the Plan for the
entire Plan Year. Until the Committee specifies otherwise, such procedures shall be as follows:
Normally, the reduction shall be effected by taking into account the Participant’s compensation
(within the meaning of his Award Opportunity) for only the portion of the Plan Year in which he is
eligible to participate in the Plan; provided, however, that if the Participant has an Award
Opportunity that is based upon annualized compensation determined as of a particular date, his
Final Award shall be prorated based upon the number of full months of participation.
Notwithstanding the foregoing, the Committee may, based upon the recommendation of the Chief
Executive Officer of Baker Hughes, authorize an unreduced Final Award. Unless the Chief Executive
Officer of Baker Hughes or the Committee specifically determines otherwise, an individual who
becomes a Key Employee on or after October 1 of a Plan Year shall not be eligible to participate in
the Plan for such Plan Year.

     2.04 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 individual concerned
shall cease to be a Participant as of the date designated by the Committee and he shall be notified
of such withdrawal as soon as practicable following such action. Further,

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such individual shall cease to have any right to a Final Award for the Plan Year in which such
withdrawal is effective; provided, however, that the Committee may, in its sole discretion,
authorize a prorated award based on the number of full months of participation prior to the
effective date of such withdrawal. 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 months after the cessation thereof.

ARTICLE III

AWARD OPPORTUNITIES AND

PERFORMANCE GOALS

     3.01 Award Opportunities. The Committee shall establish, in writing, over achievement,
expected value, and entry value incentive award levels (the “Award Opportunities”) for each
Participant who is eligible to participate in the Plan for the Performance Period. The established
Award Opportunities may vary in relation to the responsibility level of the Participant. Except in
the case of a Covered Employee, if 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.

     3.02 Performance Goals. The Committee shall establish, in writing, Performance Goals for each
Participant for a Plan Year. A Performance Goal may be based on one or more business criteria that
apply to the Participant, one or more business units of Baker Hughes and the Affiliates, or Baker
Hughes and the Affiliates as a whole, with reference to one or more of the following: earnings per
share, total shareholder return, cash return on capitalization, increased revenue, revenue ratios,
net income, stock price, market share, return on equity, return on assets, return on capital,
return on capital compared to cost of capital, return on capital employed, return on invested
capital, shareholder value, net cash flow, operating income, earnings before interest and taxes,
cash flow, cash flow from operations, cost reductions, cost ratios, Profit After Tax and Baker
Value Added. Performance Goals may also be based on performance relative to a peer group of
companies. Unless otherwise stated, a Performance Goal need not be based upon an increase or
positive result under a particular business criterion and could include, for example, maintaining
the status quo or limiting economic losses (measured, in each case, by reference to specific
business criteria). All items of gain, loss, or expense for the Performance Period, and such other
items utilized in measuring the achievement of Performance Goals for the Performance Period,
determined to be extraordinary, unusual in nature, infrequent in occurrence, related to the
acquisition or disposal of a business, or related to a change in accounting principle, all as
determined in accordance with standards established by Opinion No. 30 of the Accounting Principles
Board (APB Opinion No. 30), other applicable accounting rules, or consistent with Baker Hughes
policies and practices for measuring the achievement of Performance Goals on the date the Committee
establishes the Performance Goals may be included or excluded in calculating whether a Performance
Goal has been achieved. In the case of a Participant other than a Participant who is or during the
Performance Period may become a Covered Employee, nonfinancial objectives may also be included in a
Participant’s Performance Goals but may not represent more than 25 percent of the Participant’s
expected value Award Opportunity. No Participant who is a Covered Employee, or who the Committee
expects may

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become a Covered Employee during the next three Plan Years, may have any portion of his Final
Award based on nonfinancial, subjective Performance Goals.

     3.03 Time of Establishment of Award Opportunities and Performance Goals. Performance Goals
and Award Opportunities for a Participant for a Plan Year must be established by the Committee
prior to the earlier to occur of (a) 90 days after the commencement of the period of service to
which the Performance Goal relates or (b) the lapse of 25 percent of the period of service, and in
any event while the outcome is substantially uncertain.

     3.04 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 ability to meet them. Notwithstanding the foregoing, no such adjustment shall
be made with respect to an individual who is a Covered Employee 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)).

     3.05 Individual Award Cap. Effective for Final Awards earned for Performance Periods
commencing on and after January 1, 2006, the maximum annual Final Award any individual may receive
under the Plan is $4,000,000.

ARTICLE IV

FINAL AWARD DETERMINATIONS

     4.01 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 in writing the extent to which the Performance Goals established pursuant to Section
3.02 and any other material terms of an award were in fact satisfied.

     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 will not be subject to upward discretionary adjustment by the Committee. Downward
discretionary adjustment for Covered Employees will be permitted.

     4.02 Separation From Service Due to Death, Disability, or Retirement or Involuntary
Termination of Employment. If a Participant incurs a Separation From Service by reason of death,
Disability or Retirement, or he incurs an Involuntary Termination of Employment, the Final Award,
determined in accordance with Section 4.01, shall be reduced so that it reflects only participation
prior to the Separation From Service. This reduction shall be determined in a manner consistent
with Section 2.03.

     4.03 Employment Transfers. If a Participant transfers from one division to another division
within Baker Hughes and the Affiliates, the Final Award for the Participant’s services performed
for each division will be reduced in accordance with procedures established by the Committee.
Normally, the reduction shall be effected by taking into account the Participant’s compensation
(within the meaning of his Award Opportunity) for only the portion of the Plan

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Year in which he performed services for the applicable division. However, if the Participant
has an Award Opportunity that is based upon annualized compensation determined as of a particular
date, his Final Award shall normally be prorated based upon the number of full months of
participation during which he performed services for the applicable division. The Final Award will
be determined as soon as practicable after the end of the Plan Year and will be based upon 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 the applicable division are paid. If a Participant is eligible for a Final
Award in his new position with a different division, the Final Award for services performed for the
new division will be based upon the Award Opportunities established by the Committee based upon the
recommendation of the Chief Executive Officer of Baker Hughes.

     4.04 Disposition of Business. If the Participant’s employer or division is disposed of during
the Plan Year and such disposition does not qualify as a Change in Control, payment of the
Participant’s Final Award shall be determined in accordance with the following alternatives:

     (a) If the acquirer 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 Participant’s Final Award will not be forfeited but 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.

     (b) If the acquirer does not assume the obligations under the Plan, whether or not the
Participant is offered and accepts employment, then the Participant’s Final Award will not
be forfeited and 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 Company or 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.

     (c) If the acquirer 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 forfeit his Final Award for the Performance Period then in progress
pursuant to Section 4.05.

     4.05 Separation From Service for Other Reasons. Except as specified in Article X or Section
4.04, if a Participant incurs a Separation From Service for any reason other than Retirement,
Disability, Involuntary Termination of Employment or death, all of the Participant’s rights to any
unpaid Final Award shall be forfeited.

ARTICLE V

BANKING OF AWARDS

     5.01 General Banking Procedures. Except as specified in Section 5.02, if Performance Goals
applicable to a Final Award that are designated by the Committee as Company Performance Goals are
achieved at a level in excess of the OA Level, the amount of the Final Award that is attributable
to exceeding the OA Level will be banked and paid at the

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times specified in Section 7.02. To the extent that a Final Award for a Performance Period is
banked, it shall be credited to the Participant’s Banked Account for the Performance Period
effective as of the Initial Payment Date.

     5.02 Exceptions. No portion of a Final Award will be banked pursuant to Section 5.01 if (a)
the amount that would be banked is $2,000 or less (b) the Participant incurs a Separation From Service and the
Participant is described in clause (b) of Section 4.04, (c) a Change in Control occurs during the
Performance Period, (c) applicable local laws prohibit banking of the Final Award or (d) written
procedures adopted by the Committee prior to the Performance Period specify that the Final Award
will not be banked. Effective for amounts earned during Performance
Periods commencing on or after January 1, 2008, no portion of a Final
Award will be banked pursuant to Section 5.01.

ARTICLE VI

DEEMED INVESTMENT OF FUNDS

     Amounts deemed credited to a Participant’s Banked Account for a Performance Period shall be
deemed to be credited with interest at the annual rate equal to the Applicable Interest Rate
commencing as of the Initial Payment Date. For the period commencing on the Initial Payment Date
and ending on the day before the first anniversary of the Initial Payment Date the Applicable
Interest Rate will be based on the rate in effect as of the Initial Payment Date. For the period
commencing on the first anniversary of the Initial Payment Date and ending on the second
anniversary of the Initial Payment Date the Applicable Interest rate will be based on the rate in
effect as of the first anniversary of the Initial Payment Date.

ARTICLE VII

PAYMENT OF BENEFITS

     7.01 Time of Payment of Unbanked Final Award. Except to the extent that a Final Award is
banked pursuant to Article V, or except as specified in Article X, a Participant’s Final Award, to
the extent not forfeited pursuant to Article VIII, shall be paid to him on March 15 following the
Performance Period (the “Initial Payment Date”). Notwithstanding the foregoing, to the extent that
a Participant has elected to defer payment of his Final Award under the Supplemental Retirement
Plan, such portion of his Final Award shall not be paid earlier than the deferral date selected
under the Supplemental Retirement Plan.

     7.02 Time of Payment of Banked Final Award. To the extent that a Participant’s Final Award is
banked pursuant to Article V, 50 percent of the amount then credited to the Participant’s Banked
Account for the Performance Period, to the extent not forfeited pursuant to Article VIII, shall be
distributed to the Participant on the first anniversary of the Initial Payment Date of the Final
Award. The remaining portion of the amount credited to the Participant’s Banked Account for the
Performance Period, to the extent not forfeited pursuant to Article VIII, shall be distributed to
the Participant on the second anniversary of the Initial Payment Date. Notwithstanding the
foregoing, except as specified below (a) if a Participant incurs a Separation From Service other
than as a result of his death or Disability, any amounts credited to his Banked Account(s) that are
not forfeited pursuant to Article VIII shall be paid to him on the earlier of (1) the date of the
Participant’s Separation From Service if the Participant is not a Specified Employee or the date
that is six months following his Separation From Service if the Participant

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is a Specified Employee, or (2) the date the amount would otherwise be paid under this Section
7.02; (b) if the Participant incurs a Disability, any amounts credited to his Banked Accounts will
be paid to him on the date of the Participant’s Disability; or (c) if the Participant dies, any
amounts credited to his Banked Accounts will be paid as specified in Section 9.02. Further,
notwithstanding the foregoing, upon the occurrence of a Change in Control all amounts that are
credited to the Participant’s Banked Accounts that are not deferred compensation within the meaning
of Section 409A shall be paid to the Participant; and upon the occurrence of a Change in Control
that constitutes a change in the ownership or effective control of a corporation, or in the
ownership of a substantial portion of the assets of a corporation within the meaning of Section
409A, all amounts that are credited to the Participant’ Banked Accounts shall be paid to the
Participant. Notwithstanding the foregoing, to the extent that a Participant has elected to defer
payment of his Final Award under the Supplemental Retirement Plan, such portion of his Final Award
shall not be paid earlier than the deferral date selected under the Supplemental Retirement Plan.

     7.03 Form of Payment of Benefits. All benefit payments shall be made in cash.

     7.04 Account Debits. Any benefit payments made to a Participant, or former Participant, or
for his benefit pursuant to any provision of the Plan shall be debited to such Participant’s or
former Participant’s Accounts.

     7.05 Unclaimed Benefits. In the case of a benefit payable on behalf of a Participant or
former Participant, if the Plan Administrator is unable, after reasonable efforts, to locate the
Participant, the former Participant or the beneficiary to whom such benefit is payable, upon the
Plan Administrator’s determination thereof, such benefit shall be forfeited to the Company.
Notwithstanding the foregoing, if subsequent to any such forfeiture the Participant, the former
Participant or beneficiary to whom such benefit is payable makes a valid claim for such benefit,
such forfeited benefit (without any adjustment for earnings or loss) shall be restored to the Plan
by the Company and paid in accordance with the Plan.

     7.06 Statutory Benefits. If any benefit obligations are required to be paid under the Plan to
a Participant or former Participant in conjunction with severance of employment under the laws of
the country where the Participant or former Participant is employed or under federal, state or
local law, the benefits paid to a Participant or former Participant pursuant to the provisions of
the Plan will be deemed to be in satisfaction of any statutorily required benefit obligations.

     7.07 Payment to Alternate Payee Under Domestic Relations Order. Plan benefits that are
awarded to an Alternate Payee in a Domestic Relations Order shall be paid to the Alternate Payee at
the time and in the form directed in the Domestic Relations Order. The Domestic Relations Order
may provide for an immediate lump sum payment to an Alternate Payee. A Domestic Relations Order
may not otherwise provide for a time or form of payment that is not permitted under the Plan. A
Domestic Relations Order will be disregarded to the extent it awards an Alternate Payee benefits in
excess of the applicable Participant’s or former Participant’s Account balance under the Plan.

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ARTICLE VIII

FORFEITURE OF BENEFITS

     Except as specified in Section 4.04 or Article X, if a Participant incurs a Separation From
Service for any reason other than Retirement, death, Disability or Involuntary Termination of
Employment before the time a payment to him is to be made under Article VII, he shall forfeit the
payment and all amounts then deemed credited to his Accounts.

ARTICLE IX

DEATH

     9.01 Payment of Unbanked Amounts. In the event of a death of a Participant prior to the
Initial Payment Date of a Final Award, the Participant’s Final Award will be paid to the
Participant’s Beneficiary on the Initial Payment Date.

     9.02 Payment of Banked Amounts. Upon the death of a Participant any amounts deemed credited
to the Participant’s Banked Accounts will be paid to his Beneficiary as soon as administratively
practicable.

     9.03 Designation of Beneficiaries.

     The beneficiary or beneficiaries who shall receive payment of a Participant’s benefit
in the event of his death shall be as follows:

     (i) If a Participant or former Participant leaves a surviving spouse, his
benefit shall be paid to such surviving spouse; or

     (ii) If a Participant or former Participant leaves no surviving spouse, his
benefit shall be paid to such Participant’s or former Participant’s executor or
administrator, or to his heirs at law if there is no administration of such
Participant’s or former Participant’s estate.

ARTICLE X

CHANGE IN CONTROL

     10.01 General. The provisions of this Article X shall apply and supersede any contrary
provisions of the Plan in the event of a Change in Control.

     10.02 CIC Committee. If a Change in Control or Potential Change in Control occurs, all
references in the Plan to “Committee” shall at that point be deemed to be references to the CIC
Committee.

     10.03 Change in Control During a Performance Period. Notwithstanding any provision of the
Plan to the contrary, upon the occurrence of a Change in Control during a Performance Period, (i)
Final Awards for the Performance Period shall be computed for each Participant pursuant to Section
4.01 (assuming for this purpose that the Performance Goals established pursuant to Section 3.02
herein have been achieved to the extent required to earn the expected value Award Opportunity), and
(ii) the Company shall pay to each Participant an

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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 during the Performance Period through
the date of Change of Control (rounded up to the nearest whole month), and the denominator of which
is twelve.

     10.04 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 the payment described in Section 10.03 for a Performance Period if (i) such
Participant’s employment is terminated by Baker Hughes or an Affiliate during the Performance
Period 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 Baker Hughes or an Affiliate the consummation of which would constitute a Change in Control,
(ii) such Participant resigns during the Performance Period 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 Baker Hughes or an Affiliate during the
Performance Period 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).

     10.05 Payment of Expected Value Awards and Tax-Gross Up for Delayed Payment. If a Participant
is entitled to a Final Award payment pursuant to Section 10.03, the Company shall pay the
Participant such Final Award within five days following the date of the Change in Control. If a
Participant is entitled to a Final Award payment pursuant to Section 10.04, the Company shall pay
the Participant such Final Award within ten days following the date of the Participant’s
termination of employment. If for any reason the Company fails to timely pay a Participant the
amounts due him pursuant to this Article X, the Company shall pay the Participant additional
compensation in such amount as is necessary to put the Participant in the same federal income tax
position he would have been in had the payment not been subject to Section 409A. Such additional
compensation shall be paid to the Participant at the same time as the delinquent Final Award
payment is paid to the Participant but in any event no later than the last day of the Participant’s
taxable year following the taxable year in which the Participant remits his federal income taxes to
the Internal Revenue Service with respect to the Final Award.

     10.06 Forfeiture Restrictions. Notwithstanding any other provision of the Plan, upon the
occurrence of a Change in Control during a Performance Period or upon a Participant’s termination
of employment during a Performance Period in a circumstance described in Section 10.04, the amount
of the Participant’s Final Award for the Performance Period, calculated in accordance with Section
10.03, shall not be forfeited, and any amounts then credited to the Participant’s Accounts shall
not be forfeited.

ARTICLE XI

ADMINISTRATION OF THE PLAN

     11.01 Resignation and Removal. The members of a Committee serving as Plan Administrator shall
serve at the pleasure of the Board; they may be officers, directors, or

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employees or any other individuals. At any time during his term of office, any member of a
Committee or any individual serving as Plan Administrator may resign by giving written notice to
the Board, such resignation to become effective upon the appointment of a substitute or, if
earlier, the lapse of thirty days after such notice is given as herein provided. At any time
during its term of office, and for any reason, any member of a Committee or any individual serving
as Plan Administrator may be removed by the Board.

     11.02 Records and Procedures. The Plan Administrator shall keep appropriate records of its
proceedings and the administration of the Plan and shall make available for examination during
business hours to any Participant, former Participant or the beneficiary of any Participant or
former Participant such records as pertain to that individual’s interest in the Plan. If a
Committee is performing duties as the Plan Administrator, the Committee shall designate the
individual or individuals who shall be authorized to sign for the Plan Administrator and, upon such
designation, the signature of such individual or individuals shall bind the Plan Administrator.

     11.03 Self-Interest of Plan Administrator. Neither the members of a Committee nor any
individual Plan Administrator shall have any right to vote or decide upon any matter relating
solely 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. In any case in which any Committee member or
individual Plan Administrator is so disqualified to act, the other members of the Committee shall
decide the matter in which the Committee member or individual Plan Administrator is disqualified.

     11.04 Compensation and Bonding. Neither the members of a Committee nor any individual Plan
Administrator shall receive compensation with respect to their services on the Committee or as Plan
Administrator. To the extent permitted by applicable law, neither the members of a Committee nor
any individual Plan Administrator shall furnish bond or security for the performance of their
duties hereunder.

     11.05 Plan Administrator Powers and Duties. The Plan Administrator shall supervise the
administration and enforcement of the Plan according to the terms and provisions hereof and shall
have all powers necessary to accomplish these purposes, including, but not by way of limitation,
the right, power, and authority:

     (a) to make rules, regulations, and bylaws for the administration of the Plan that are
not inconsistent with the terms and provisions hereof, and to enforce the terms of the Plan
and the rules and regulations promulgated thereunder by the Plan Administrator;

     (b) to construe in its discretion all terms, provisions, conditions, and limitations of
the Plan;

     (c) to correct any defect or to supply any omission or to reconcile any inconsistency
that may appear in the Plan in such manner and to such extent as it shall deem in its
discretion expedient to effectuate the purposes of the Plan;

     (d) to employ and compensate such accountants, attorneys, investment advisors, and
other agents, employees, and independent contractors as the Plan

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Administrator may deem necessary or advisable for the proper and efficient
administration of the Plan;

     (e) to determine in its discretion all questions relating to eligibility;

     (f) to determine whether and when a Participant has incurred a Separation From Service,
and the reason for such termination; and

     (g) to make a determination in its discretion as to the right of any individual to a
benefit under the Plan and to prescribe procedures to be followed by distributees in
obtaining benefits hereunder.

     11.06 Reliance on Documents, Instruments, etc. The Plan Administrator may rely on any
certificate, statement or other representation made on behalf of the Company or any Participant,
which the Plan Administrator in good faith believes to be genuine, and on any certificate,
statement, report or other representation made to it by any agent or any attorney, accountant or
other expert retained by it or Baker Hughes in connection with the operation and administration of
the Plan.

     11.07 Claims Review Procedures; Claims Appeals Procedures.

     (a) Claims Review Procedures. When a benefit is due, the Participant, or the
person entitled to benefits under the Plan, should submit a claim to the office designated
by the Plan Administrator to receive claims. Under normal circumstances, the Plan
Administrator will make a final decision as to a claim within 90 days after receipt of the
claim. If the Plan Administrator notifies the claimant in writing during the initial 90-day
period, it may extend the period up to 180 days after the initial receipt of the claim. The
written notice must contain the circumstances necessitating the extension and the
anticipated date for the final decision. If a claim is denied during the claims period, the
Plan Administrator must notify the claimant in writing, and the written notice must set
forth in a manner calculated to be understood by the claimant:

(1) the specific reason or reasons for the denial;

(2) specific reference to the Plan provisions on which the denial is based; and

(3) a description of any additional material or information necessary for the
claimant to perfect the claim and an explanation of why such material or information
is necessary.

If a decision is not given to the Participant within the claims review period, the claim is treated
as if it were denied on the last day of the claims review period.

     (b) Claims Appeals Procedures. For purposes of this Section 11.07 the
Participant or the person entitled to benefits under the Plan is referred to as the
“claimant.” If a claimant’s claim made pursuant to Section 11.07(a) is denied and he wants
a review, he must apply to the Plan Administrator in writing. That application can include
any arguments, written comments, documents, records, and other information

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relating to the claim for benefits. In addition, the claimant is entitled to receive
on request and free of charge reasonable access to and copies of all information relevant to
the claim. For this purpose, “relevant” means information that was relied on in making the
benefit determination or that was submitted, considered or generated in the course of making
the determination, without regard to whether it was relied on, and information that
demonstrates compliance with the Plan’s administrative procedures and safeguards for
assuring and verifying that Plan provisions are applied consistently in making benefit
determinations. The Plan Administrator must take into account all comments, documents,
records, and other information submitted by the claimant relating to the claim, without
regard to whether the information was submitted or considered in the initial benefit
determination. The claimant may either represent himself or appoint a representative,
either of whom has the right to inspect all documents pertaining to the claim and its
denial. The Plan Administrator can schedule any meeting with the claimant or his
representative that it finds necessary or appropriate to complete its review.

     The request for review must be filed within 90 days after the denial. If it is not, the
denial becomes final. If a timely request is made, the Plan Administrator must make its
decision, under normal circumstances, within 60 days of the receipt of the request for
review. However, if the Plan Administrator notifies the claimant prior to the expiration of
the initial review period, it may extend the period of review up to 120 days following the
initial receipt of the request for a review. All decisions of the Plan Administrator must be
in writing and must include the specific reasons for its action, the Plan provisions on
which its decision is based, and a statement that the claimant is entitled to receive, upon
request and free of charge, reasonable access to, and copies of, all documents, records, and
other information relevant to the claimant’s claim for benefits. If a decision is not given
to the claimant within the review period, the claim is treated as if it were denied on the
last day of the review period.

     Within 60 days of receipt by a claimant of a notice denying a claim under the preceding
paragraph, the claimant or his or her duly authorized representative may request in writing
a full and fair review of the claim by the Plan Administrator. The Plan Administrator may
extend the 60-day period where the nature of the benefit involved or other attendant
circumstances make such extension appropriate. In connection with such review, the claimant
or his or her duly authorized representative may review pertinent documents and may submit
issues and comments in writing. The Plan Administrator shall make a decision promptly, and
not later than 60 days after the Plan’s receipt of a request for review, unless special
circumstances (such as the need to hold a hearing) require an extension of time for
processing, in which case a decision shall be rendered as soon as possible, but not later
than 120 days after receipt of a request for review. The decision on review shall be in
writing and shall include specific reasons for the decision, written in a manner calculated
to be understood by the claimant, and specific references to the pertinent Plan provisions
on which the decision is based.

     11.08 Company to Supply Information. The Company shall supply full and timely information to
the Plan Administrator, including, but not limited to, information relating to each Participant’s
base salary, age, Retirement, death, or other cause of Separation From Service and such other
pertinent facts as the Plan Administrator may require. When making a determination

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in connection with the Plan, the Plan Administrator shall be entitled to rely upon the
aforesaid information furnished by the Company.

     11.09 Indemnity. To the extent permitted by applicable law, Baker Hughes shall indemnify and
save harmless the Board, each member of the Committee, each delegate of the Committee or the Board
and the Plan Administrator against any and all expenses, liabilities and claims (including legal
fees incurred to investigate or defend against such liabilities and claims) arising out of their
discharge in good faith of responsibilities under or incident to the Plan. Expenses and
liabilities arising out of willful misconduct shall not be covered under this indemnity. This
indemnity shall not preclude such further indemnities as may be available under insurance purchased
by Baker Hughes or provided by Baker Hughes under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, as such indemnities are permitted under applicable law.

ARTICLE XII

PARTICIPATION IN THE PLAN BY AFFILIATES

     12.01 Adoption Procedure.

     (a) Except to the extent that an Affiliate specifically determines otherwise by
appropriate action of its board of directors or noncorporate counterpart, as evidenced by a
written instrument executed by an authorized officer of such entity (approved by the board
of directors or noncorporate counterpart of the Affiliate), each Affiliate shall participate
in the Plan and shall be bound by all the terms, conditions and limitations of the Plan.
The Plan Administrator and the Affiliate may agree to incorporate specific provisions
relating to the operation of the Plan that apply to the Affiliate.

     (b) The provisions of the Plan may be modified so as to increase the obligations of an
adopting Affiliate only with the consent of such Affiliate, which consent shall be
conclusively presumed to have been given by such Affiliate unless the Affiliate gives Baker
Hughes written notice of its rejection of the amendment within 30 days after the adoption of
the amendment.

     (c) The provisions of the Plan shall apply separately and equally to each adopting
Affiliate and its employees in the same manner as is expressly provided for Baker Hughes and
its employees, except that the power to appoint or otherwise affect the Plan Administrator
and the power to amend or terminate the Plan shall be exercised by Baker Hughes. The Plan
Administrator shall act as the agent for each Affiliate that adopts the Plan for all
purposes of administration thereof.

     (d) Any Affiliate may, by appropriate action of its board of directors or noncorporate
counterpart, terminate its participation in the Plan. Moreover, the Plan Administrator may,
in its discretion, terminate an Affiliate’s participation in the Plan at any time.

-20-

 

     (e) The Plan will terminate with respect to any Affiliate if the Affiliate ceases to be
an Affiliate or revokes its adoption of the Plan by resolution of its board of directors or
noncorporate counterpart evidenced by a written instrument executed by an authorized officer
of the Affiliate. If the Plan terminates with respect to any Affiliate, the employees of
that Affiliate will no longer be eligible to be Participants in the Plan.

     (f) The Plan as maintained by the Affiliates shall constitute a single plan rather than
a separate plan of each Affiliate.

     12.02 No Joint Venture Implied. The document which evidences the adoption of the Plan by an
Affiliate shall become a part of the Plan. However, neither the adoption of the Plan by an
Affiliate nor any act performed by it in relation to the Plan shall ever create a joint venture or
partnership relation between it and any other Affiliate.

ARTICLE XIII

MISCELLANEOUS

     13.01 Plan Not Contract of Employment. The adoption and maintenance of the Plan shall not be
deemed to be a contract between the Company and any individual or to be consideration for the
employment of any individual. Nothing herein contained shall be deemed to (a) give any individual
the right to be retained in the employ of the Company, (b) restrict the right of the Company to
discharge any individual at any time, (c) give the Company the right to require any individual to
remain in the employ of the Company, or (d) restrict any individual’s right to terminate his
employment at any time.

     13.02 Funding. Plan benefits are a contractual obligation of the Company which shall be paid
out of the Company’s general assets. The Plan is unfunded and Participants are merely unsecured
creditors of the Company with respect to their benefits under the Plan.

     13.03 Alienation of Interest Forbidden. The interest of a Participant, former Participant or
his beneficiary or beneficiaries hereunder may not be sold, transferred, assigned, or encumbered in
any manner, either voluntarily or involuntarily, and any attempt so to anticipate, alienate, sell,
transfer, assign, pledge, encumber, or charge the same shall be null and void; neither shall the
benefits hereunder be liable for or subject to the debts, contracts, liabilities, engagements or
torts of any individual to whom such benefits or funds are payable, nor shall they be an asset in
bankruptcy or subject to garnishment, attachment or other legal or equitable proceedings. The
provisions of this Section 13.03 shall not apply to a Domestic Relations Order.

     13.04 Withholding. All credits to a Participant’s or former Participant’s Accounts and
payments provided for hereunder shall be subject to applicable withholding and other deductions as
shall be required of the Company under any applicable local, state or federal law.

     13.05 Amendment and Termination. The Board, may from time to time, in its discretion, amend,
in whole or in part, any or all of the provisions of the Plan on behalf of any Company; provided,
however, that no amendment may be made that would impair the rights of a Participant or former
Participant with respect to amounts already credited to his Accounts. The

-21-

 

Board may terminate the Plan at any time. If the Plan is terminated, the amounts credited to
a Participant’s or former Participant’s Account shall be paid to such Participant, or former
Participant, or his designated beneficiary at the time(s) specified in Articles VII, IX and X, as
applicable.

     13.06 Severability. If any provision of the Plan shall be held illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining provisions hereof; instead,
each provision shall be fully severable and the Plan shall be construed and enforced as if said
illegal or invalid provision had never been included herein.

     13.07 Arbitration. Any controversy arising out of or relating to the Plan, including without
limitation, any and all disputes, claims (whether in tort, contract, statutory or otherwise) or
disagreements concerning the interpretation or application of the provisions of the Plan, the
Company’s employment of the Participant, or former Participant, and the termination of that
employment, shall be resolved by arbitration in accordance with the Employee Benefit Plan Claims
Arbitration Rules of the American Arbitration Association (the “AAA”) then in effect. No
arbitration proceeding relating to the Plan may be initiated by either the Company or the
Participant, or former Participant, unless the claims review and appeals procedures specified in
Section 11.07 have been exhausted. Within ten business days of the initiation of an arbitration
hereunder, the Company and the Participant, or former Participant, will each separately designate
an arbitrator, and within 20 business days of selection, the appointed arbitrators will appoint a
neutral arbitrator from the panel of AAA National Panel of Employee Benefit Plan Claims
Arbitrators. The arbitrators shall issue their written decision (including a statement of finding
of facts) within 30 days from the date of the close of the arbitration hearing. The decision of
the arbitrators selected hereunder will be final and binding on both parties. This arbitration
provision is expressly made pursuant to and shall be governed by the Federal Arbitration Act, 9
U.S.C. Sections 1-16 (or replacement or successor statute). Pursuant to Section 9 of the Federal
Arbitration Act, the Company and any Participant agrees that any judgment of the United States
District Court for the District in which the headquarters of Baker Hughes is located at the time of
initiation of an arbitration hereunder shall be entered upon the award made pursuant to the
arbitration. Nothing in this Section 13.07 shall be construed to, in any way, limit the scope and
effect of Article XI. In any arbitration proceeding full effect shall be given to the rights,
powers, and authorities of the Plan Administrator under Article XI.

     13.08 Compliance With Section 409A. To the extent applicable, the Plan shall be operated in
compliance with Section 409A and the provisions of shall be interpreted by the Plan Administrator
in a manner that is consistent with this intention.

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

-22-exv10w37

 

Exhibit 10.37

BAKER HUGHES INCORPORATED

RESTRICTED STOCK UNIT AWARD AGREEMENT

Name

Awardee

          Date of Award:

          Number of Restricted Stock Units:

AWARD OF RESTRICTED STOCK UNITS

     The Compensation Committee (the “Committee”) of the Board of Directors of Baker Hughes
Incorporated, a Delaware corporation (the “Company”), pursuant to the Baker Hughes Incorporated
2002 Director & Officer Long-Term Incentive Plan (the “Plan”), hereby awards to you, the
above-named awardee, effective as of the Date of Award set forth above (the “Date of Award”), that
number of restricted stock units set forth above (the “Restricted Stock Units”), on the following
terms and conditions:

     The Restricted Stock Units that are awarded hereby to you shall be subject to the prohibitions
and restrictions set forth herein with respect to the sale or other disposition of such Restricted
Stock Units and the obligation to forfeit and surrender such Restricted Stock Units to the Company
(the “Forfeiture Restrictions”). The Forfeiture Restrictions shall lapse as to the Restricted
Stock Units that are awarded hereby in accordance with the following schedule provided that your
employment with the Company and its Affiliates has not terminated prior to the applicable lapse
date:

	 	(a)	 	on the first anniversary of the Date of Award, the Forfeiture Restrictions
shall lapse as to one-third of the Restricted Stock Units subject to this Agreement;
and
	 
	 	(b)	 	on each succeeding anniversary of the Date of Award, the Forfeiture
Restrictions shall lapse as to an additional one-third of the Restricted Stock Units
subject to this Agreement, so that on the third anniversary of the Date of Award the
Forfeiture Restrictions shall lapse as to all of the Restricted Stock Units subject to
this Agreement.

If a Change in Control of the Company occurs or your employment with the Company and all Affiliates
terminates before the third anniversary of the Date of Award, your rights to the Restricted Stock
Units under this Agreement will be determined as provided in the attached Terms and Conditions of
Award Agreements (dated January 23, 2008) (the “Terms and Conditions”).

     Upon the lapse of the Forfeiture Restrictions applicable to a Restricted Stock Unit that is
awarded hereby, the Company shall issue to you one share of the Company’s Common Stock, $1.00 par
value per share (the “Common Stock”), in exchange for such Restricted Stock Unit and thereafter you
shall have no further rights with respect to such Restricted Stock Unit. The Company shall cause
to be delivered to you a stock certificate representing those shares of the Common Stock issued in exchange for Restricted Stock Units awarded hereby, and such shares of
the Common Stock shall be transferable by you (except to the extent that any proposed

 

 

transfer
would, in the opinion of counsel satisfactory to the Company, constitute a violation of applicable
federal or state securities law).

     If during the period you hold any Restricted Stock Units awarded hereby the Company pays a
dividend in cash with respect to the outstanding shares of the Common Stock (a “Cash Dividend”),
then the Company will credit to an account established for you by the Company under the Plan (the
“Account”) an amount equal to the product of (a) the Restricted Stock Units awarded hereby that
have not been forfeited to the Company or exchanged by the Company for shares of the Common Stock
and (b) the amount of the Cash Dividend paid per share of the Common Stock (the “Dividend
Equivalent Credit”). The Company shall pay to you, in cash, an amount equal to the Dividend
Equivalent Credits credited to the Account with respect to a Restricted Stock Unit on the date the
Forfeiture Restrictions applicable to that Restricted Stock Unit lapse (and in no case later than
the end of the calendar year in which the Forfeiture Restrictions applicable to that Restricted
Stock Unit lapse or, if later, the 15th day of the third month following the date the Forfeiture
Restrictions applicable to that Restricted Stock Unit lapse).

     If during the period you hold any Restricted Stock Units awarded hereby the Company pays a
dividend in shares of the Common Stock with respect to the outstanding shares of the Common Stock,
then the Company will increase the Restricted Stock Units awarded hereby that have not then been
exchanged by the Company for shares of the Common Stock by an amount equal to the product of (a)
the Restricted Stock Units awarded hereby that have not been forfeited to the Company or exchanged
by the Company for shares of the Common Stock and (b) the number of shares of the Common Stock paid
by the Company per share of the Common Stock (collectively, the “Stock Dividend Restricted Stock
Units”). Each Stock Dividend Restricted Stock Unit will be subject to same Forfeiture Restrictions
and other restrictions, limitations and conditions applicable to the Restricted Stock Unit for
which such Stock Dividend Restricted Stock Unit was awarded and will be exchanged for shares of the
Common Stock at the same time and on the same basis as such Restricted Stock Unit.

     The Restricted Stock Units may not be sold, assigned, pledged, exchanged, hypothecated or
otherwise transferred, encumbered or disposed of (other than by will or the applicable laws of
descent and distribution). Any such attempted sale, assignment, pledge, exchange, hypothecation,
transfer, encumbrance or disposition in violation of this Agreement shall be void and the Company
Group shall not be bound thereby.

     Any shares of the Common Stock issued to you in exchange for Restricted Stock Units awarded
hereby may not be sold or otherwise disposed of in any manner that would constitute a violation of
any applicable federal or state securities laws. You also agree that (a) the Company may refuse to
cause the transfer of any such shares of the Common Stock to be registered on the stock register of
the Company if such proposed transfer would in the opinion of counsel satisfactory to the Company
constitute a violation of any applicable federal or state securities law and (b) the Company may
give related instructions to the transfer agent, if any, to stop registration of the transfer of
such shares of the Common Stock.

     The shares of Common Stock that may be issued under the Plan are registered with the
Securities and Exchange Commission under a Registration Statement on Form S-8. A Prospectus describing the Plan and the shares of Common Stock can be found on the Baker Hughes
Interchange at http://interchange/legal/Benefit%20Plans/benefit.htm.

 

 

     Capitalized terms that are not defined herein shall have the meaning ascribed to such terms in
the Plan or the Terms and Conditions.

     In accepting the award of Restricted Stock Units set forth in this Agreement you accept and
agree to be bound by all the terms and conditions of the Plan, this Agreement and the Terms and
Conditions.

	 	 	 	 	 
	 	BAKER HUGHES INCORPORATED

 	 
	 	 	 
	 	Chad C. Deaton — Chairman & CEO 	 
	 	 	 

 

 

	 	 	 	 	 

BAKER HUGHES INCORPORATED

TERMS AND CONDITIONS

OF

RESTRICTED STOCK UNIT AWARD AGREEMENTS

(January 23, 2008)

	1.	 	TERMINATION OF EMPLOYMENT/CHANGE IN CONTROL. The following provisions will apply in the
event your employment with the Company and all Affiliates (collectively, the “Company Group”)
terminates, or a Change in Control of the Company occurs, before the third anniversary of the
Date of Award (the “Third Anniversary Date”) under the Restricted Stock Unit Award Agreement
awarded to you (the “Agreement”):

1.1 Termination Generally. If your employment with the Company Group terminates on
or before the Third Anniversary Date for any reason other than one of the reasons described
in Sections 1.2 through 1.5 below, the Forfeiture Restrictions then applicable to the
Restricted Stock Units shall not lapse and the number of Restricted Stock Units then
subject to the Forfeiture Restrictions shall be forfeited to the Company on the date your
employment terminates.

1.2 Potential or Actual Change in Control.

(i) Termination Without Cause or for Good Reason in Connection With a Potential
Change in Control on or Before the Third Anniversary Date. If (a) the Company
Group terminates your employment without Cause on or before the Third Anniversary
Date prior to a Change in Control of the Company (whether or not a Change in Control
ever occurs) and such termination is 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 of the Company or is otherwise in connection with or
in anticipation of a Change in Control of the Company (whether or not a Change in
Control ever occurs) or (b) you terminate your employment with the Company Group for
Good Reason on or before the Third Anniversary Date prior to a Change in Control of
the Company (whether or not a Change in Control ever occurs), and such termination
or the circumstance or event which constitutes Good Reason occurs at the request or
direction of a Person who has entered into an agreement with the Company the
consummation of which would constitute a Change in Control of the Company or is
otherwise in connection with or in anticipation of a Change in Control of the
Company (whether or not a Change in Control ever occurs), then all remaining
Forfeiture Restrictions shall immediately lapse on the date of your Separation From
Service if you are not a Specified Employee or on the date that is six months
following your Separation From Service if you are a Specified Employee. For
purposes of these Terms and Conditions, “Separation From Service” has the meaning
ascribed to that term in Section 409A and “Specified Employee” means a person who
is, as of the date of the person’s Separation From Service, a “specified employee”
within the meaning of Section 409A, taking into account the elections made and
procedures established in resolutions adopted by the Administrative Committee of
Baker Hughes. For purposes of these Terms and Conditions, “Section 409A” means
section 409A of the Internal Revenue Code of 1986, as amended and the Department of
Treasury rules and regulations issued thereunder.

1

 

(ii) Employment Not Terminated Before a Change in Control on or Before the Third
Anniversary Date. If a Change in Control of the Company occurs on or before the
Third Anniversary Date and your employment with the Company Group does not terminate
before the date the Change in Control of the Company occurs, then all remaining
Forfeiture Restrictions shall lapse at the time specified below. All remaining
Forfeiture Restrictions shall lapse on the date the Change in Control of the Company
occurs if the Change in Control of the Company qualifies as a change in the
ownership or effective control of the corporation, or in the ownership of a
substantial portion of the assets of the corporation, within the meaning of Section
409A, or (b) on the Third Anniversary Date, if the Change in Control of the Company
does not so qualify.

1.3 Divestiture of Business Unit Notwithstanding any other provision of the
Agreement or these Terms and Conditions to the contrary, if the Company Group divests its
ownership of a business unit of the Company or one or more Affiliates (a “Unit”) and your
employment with the Company Group terminates in connection with such divestiture (other
than for Cause or death or due to your becoming permanently disabled within the meaning of
Section 1.4), the Forfeiture Restrictions shall lapse at the time specified below as to
that number of Restricted Stock Units that are then subject to Forfeiture Restrictions on
the date of the termination of your employment relationship with the Company Group equal
to:

(1) multiplied by (2) divided by (3)

where (1) is the number of Restricted Stock Units that are then subject to Forfeiture
Restrictions on the date of the termination of your employment relationship with the Company
Group, (2) is the number of days during the period commencing on the Date of Award and
ending on the date your employment relationship with the Company Group and all of its
Affiliates is terminated, and (3) is the number of days during the period commencing on the
Date of Award and ending on the Third Anniversary Date. Such Forfeiture Restrictions
specified in the preceding sentence shall lapse on the date the Change in Control of the
Company occurs if the Change in Control of the Company qualifies as a change in the
ownership or effective control of the corporation, or in the ownership of a substantial
portion of the assets of the corporation, within the meaning of Section 409A, or (b) on the
Third Anniversary Date, if the Change in Control of the Company does not so qualify. The
Forfeiture Restrictions then applicable to all the remaining Restricted Stock Units after
the application of the previous provisions of this Section 1.3 shall not lapse and such
Restricted Stock Units shall be immediately forfeited to the Company. A “Divestiture”
includes the disposition of a Unit to an entity that the Company does not consolidate in its
financial statements, whether the disposition is structured as a sale or transfer of stock
(or other ownership interest), a merger, a consolidation or a sale or transfer of assets, or
a combination thereof, provided that a “Divestiture” shall not include a disposition that
constitutes a Change in Control.

1.4 Disability. Notwithstanding any other provision of the Agreement or these
Terms and Conditions to the contrary, if you become permanently disabled before the Third
Anniversary Date and while in the active employ of one or more members of the Company
Group, all remaining Forfeiture Restrictions shall immediately lapse on the date of the
termination of your employment due to your becoming permanently disabled. For purposes of
this Section 1.4, you will be “permanently disabled” if you (a) are

2

 

unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in death or can
be expected to last for a continuous period of not less than 12 months, or (b) are, by
reason of any medically determinable physical or mental impairment which can be expected to
result in death or can be expected to last for a continuous period of not less than 12
months, receiving income replacement benefits for a period of not less than three (3)
months under an accident and health plan covering employees of the Company Group.

1.5 Death. Notwithstanding any other provision of the Agreement or these Terms and
Conditions to the contrary, if you die before the Third Anniversary Date and while in the
active employ of one or more members of the Company Group, all remaining Forfeiture
Restrictions shall immediately lapse on the date of the termination of your employment due
to death.

	2.	 	PROHIBITED ACTIVITY. Notwithstanding any other provision of these Terms and Conditions or
the Agreement, if you engage in a “Prohibited Activity,” as described below, while employed by
one or more members of the Company Group or within two years after the date your employment
with the Company Group terminates, then your right to receive the shares of the Common Stock,
to the extent still outstanding at that time, shall be completely forfeited. A “Prohibited
Activity” shall be deemed to have occurred, as determined by the Committee in its sole and
absolute discretion, if you divulge any non-public, confidential or proprietary information of
the Company or of its past, present or future affiliates (collectively, the “Baker Hughes
Group”), but excluding information that (a) becomes generally available to the public other
than as a result of your public use, disclosure, or fault, or (b) becomes available to you on
a non-confidential basis after your employment termination date from a source other than a
member of the Baker Hughes Group prior to the public use or disclosure by you, provided that
such source is not bound by a confidentiality agreement or otherwise prohibited from
transmitting the information by a contractual, legal or fiduciary obligation.

	3.	 	TAX WITHHOLDING. To the extent that the receipt of the Restricted Stock Units or the lapse
of any Forfeiture Restrictions results in income, wages or other compensation to you for any
income, employment or other tax purposes with respect to which the Company has a withholding
obligation, you shall deliver to the Company at the time of such receipt or lapse, as the case
may be, such amount of money as the Company may require to meet its obligation under
applicable tax laws or regulations, and, if you fail to do so, the Company is authorized to
withhold from any shares of Common Stock issued under the Agreement or from any cash or stock
remuneration or other payment then or thereafter payable to you any tax required to be
withheld by reason of such taxable income, wages or compensation including (without
limitation) shares of the Common Stock sufficient to satisfy the withholding obligation based
on the last per share sales price of the Common Stock for the trading day immediately
preceding the date that the withholding obligation arises, as reported in the New York Stock
Exchange Composite Transactions.

	4.	 	NONTRANSFERABILITY. The Agreement is not transferable by you otherwise than by will or by the
laws of descent and distribution.

3

 

	5.	 	CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The existence of the Restricted Stock Units shall
not affect in any way the right or power of the Company or any company the stock of which is
awarded pursuant to the Agreement to make or authorize any adjustment, recapitalization,
reorganization or other change in its capital structure or its business, engage in any merger
or consolidation, issue any debt or equity securities, dissolve or liquidate, or sell, lease,
exchange or otherwise dispose of all or any part of its assets or business, or engage in any
other corporate act or proceeding.

	6.	 	RESTRICTED STOCK UNITS DO NOT AWARD ANY RIGHTS OF A SHAREHOLDER. You shall not have the
voting rights or any of the other rights, powers or privileges of a holder of the Common Stock
with respect to the Restricted Stock Units that are awarded hereby. Only after a share of the
Common Stock is issued in exchange for a Restricted Stock Unit will you have all of the rights
of a shareholder with respect to such share of Common Stock issued in exchange for a
Restricted Stock Unit.

	7.	 	EMPLOYMENT RELATIONSHIP. For purposes of the Agreement, you shall be considered to be in the
employment of the Company Group as long as you have an employment relationship with the
Company Group. The Committee shall determine any questions as to whether and when there has
been a termination of such employment relationship, and the cause of such termination, under
the Plan and the Committee’s determination shall be final and binding on all persons.

	8.	 	NOT AN EMPLOYMENT AGREEMENT. The Agreement is not an employment agreement, and no provision
of the Agreement shall be construed or interpreted to create an employment relationship
between you and the Company or any Affiliate or guarantee the right to remain employed by the
Company or any Affiliate for any specified term.

	9.	 	SECURITIES ACT LEGEND. If you are an officer or affiliate of the Company under the
Securities Act of 1933, you consent to the placing on any certificate for shares of the Common
Stock issued under the Agreement an appropriate legend restricting resale or other transfer of
such shares except in accordance with such Act and all applicable rules thereunder.

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

	11.	 	MISCELLANEOUS. The Agreement is awarded pursuant to and is subject to all of the provisions
of the Plan, including amendments to the Plan, if any. In the event of a conflict between
these Terms and Conditions and the Plan provisions, the Plan provisions will control. The
term “you” and “your” refer to the Awardee named in the Agreement. Capitalized terms that are
not defined herein shall have the meanings ascribed to such terms in the Plan or the
Agreement.

4

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