BAKER HUGHES INCORPORATED PERFORMANCE UNIT AWARD AGREEMENT AWARD OF PERFORMANCE UNITS PAYABLE IN SHARES

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 Participant, effective as of the Grant Date set forth above (the “Grant Date”), that number of Performance Units set forth above (each, a “Performance Unit”, and collectively, the “Performance Units”), on the terms and conditions set forth in this Performance Unit Award Agreement (this “Agreement”).

Each Performance Unit provides you an opportunity to earn a payment in shares of the Company’s Common Stock, $1.00 par value per share (the “Common Stock”) based upon the achievement of certain performance goals established by the Committee (the “Performance Goals”) for the three-year period beginning January 1 of the year of the Grant Date and ending December 31 of the year containing the third anniversary of the Grant Date (the “Performance Period”). The Performance Goals and the formulas for determining the amounts payable under this Agreement established by the Compensation Committee are available for your review on the Baker Hughes Direct website at www.bakerhughesdirect.com. The Committee may not increase the amount payable under this Agreement.

If the Performance Goals are not achieved at a minimum level of performance and a Change in Control of the Company has not occurred on or before the last day of the Performance Period, then the award pursuant to this Agreement will lapse and be forfeited as of the end of the Performance Period.

The Committee’s determination of whether the Performance Goals applicable to this Agreement are achieved will be binding upon all persons.

If during the period you hold any Performance 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 Performance 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 Performance 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 Performance Units”). Each Stock Dividend Performance Unit will be subject to same forfeiture restrictions, performance conditions and other restrictions, limitations and conditions applicable to the Performance Unit for which such Stock Dividend Performance Unit was awarded and will be exchanged for shares of the Common Stock at the same time and on the same basis as such Performance Unit.

Any amount payable to you in shares of Common Stock pursuant to this Agreement will be transferred to you on March 15, after the end of the Performance Period (the “Scheduled Payment Date”), unless otherwise provided under the attached Terms and Conditions of Performance Unit Award Agreements (the “Terms and Conditions”). Such payment will be made to you in exchange for the Performance Units and thereafter you will have no further rights with respect to such Performance Units or this Agreement.

If a Change in Control of the Company occurs or your employment with the Company and Affiliates terminates (a “Termination of Employment”) on or before the last day of the Performance Period, your rights to the Performance Units and a payment under this Agreement will be determined as provided in the Terms and Conditions.

The Performance Units that are awarded hereby to you will be subject to the prohibitions and restrictions set forth herein with respect to the sale or other disposition of such Performance Units and the obligation to forfeit and surrender such Performance Units.

The Performance Units and your rights under this Agreement 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 will be void and the Company Group will not be bound thereby.

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

In accepting the award of Performance 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.

Any shares of the Common Stock issued to you in exchange for the Performance 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 (the “shares”) that may be issued under the Plan are registered with the Securities and Exchange Commission (“SEC”) under a Registration Statement on Form S-8.  A Prospectus describing the Plan and the shares and the Terms and Conditions can be found on the Baker Hughes Direct website at www.bakerhughesdirect.com. You may obtain a copy of the Plan Prospectus by requesting it from the Company.

These Terms and Conditions are applicable to a performance unit granted pursuant to the Baker Hughes Incorporated 2002 Director & Officer Long-Term Incentive Plan (the “Plan”) and are incorporated as part of the Performance Unit Agreement setting forth the terms of such performance unit (the “Agreement”).

1.1    Termination Generally. If you incur a Termination of Employment on or before the last day of the Performance Period for any reason other than one of the reasons described in Sections 1.2 through 1.5 below, all of your rights in the Agreement, including all rights to the Performance Units granted to you, will lapse and be completely forfeited on the date of your Termination of Employment.

1.2    Change in Control. If a Change in Control of the Company occurs on or before the last day of the Performance Period and you do not incur a Termination of Employment before the date the Change in Control of the Company occurs, then the Company will pay to you in shares of Common Stock such number of Shares of Common Stock determined under the following formula in lieu of any other amounts under the Agreement:

where (1) is the number of Performance Units that were awarded to you under the Agreement, (2) is the number of days from (and including) the first day of the Performance Period to (and including) the date the Change in Control of the Company occurs, and (3) is the number of days during the Performance Period. Any amount payable to you pursuant to this Section 1.2 will be paid by the Company to you (a) ten (10) business days after 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 of the Internal Revenue Code of 1986, as amended and the Department of Treasury rules and regulations issued thereunder, or (b) on the Scheduled Payment Date if the Change in Control of the Company does not so qualify. Such payment will be made to you in exchange for the Performance Units and thereafter you will have no further rights with respect to such Performance Units or the Agreement and the Company Group will have no further obligations to you pursuant to the Performance Units or the Agreement.

1.3    Disability. Notwithstanding any other provision of the Agreement or these Terms and Conditions to the contrary, if you become permanently disabled before the last day of the Performance Period and while in the active employ of one or more members of the Company Group, then the number of Performance Units issued to you under the Agreement will automatically be reduced (without action by you and/or the Company) on the date of your Termination of Employment to that number of Performance Units determined under the following formula (the “Disability Adjusted Performance Units”):

where (1) is the number of Performance Units that were awarded to you under the Agreement, (2) is the number of days from (and including) the first day of the Performance Period to (and including) the day you become permanently disabled, and (3) is the number of days during the Performance Period. The excess of the Performance Units that were originally awarded to you under the Agreement over the Disability Adjusted Performance Units will be immediately forfeited on the date of your Termination of Employment due to your becoming permanently disabled. Any amount payable to you pursuant to this Section 1.3 will be paid on the Scheduled Payment Date.

For purposes of this Section 1.3, you will be “permanently disabled” if you (a) are 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.

1.4    Death. Notwithstanding any other provision of the Agreement or these Terms and Conditions to the contrary, if you die before the last day of the Performance Period and while in the active employ of one or more members of the Company Group, then the number of Performance Units issued to you under the Agreement will automatically be reduced (without action by you and/or the Company) on the date of your Termination of Employment to that number of Performance Units determined under the following formula (the “Deceased Adjusted Performance Units”):

where (1) is the number of Performance Units that were awarded to you under the Agreement, (2) is the number of days from (and including) the first day of the Performance Period to (and including) the date of your death, and (3) is the number of days during the Performance Period. The excess of the Performance Units that were originally awarded to you under the Agreement over the Deceased Adjusted Performance Units will be immediately forfeited on the date of your Termination of Employment due to death. Any amount payable to you pursuant to this Section 1.4 will be paid on the Scheduled Payment Date. Such payment will be made in exchange for the Performance Units and thereafter your estate and heirs, executors, administrators will have no further rights with respect to such Performance Units

or the Agreement and the Company Group will have no further obligations pursuant to the Performance Units or the Agreement.

1.5    Retirement. Notwithstanding any other provision of the Agreement or these Terms and Conditions to the contrary, if you incur a Termination of Employment due to Retirement before the last day of the Performance Period, then the number of Performance Units issued to you under the Agreement will automatically be reduced (without further action by you and/or the Company) on the date of your Termination of Employment to that number of Performance Units determined under the following formula (the “Retirement Adjusted Performance Units”):

where (1) is the number of Performance Units that were originally awarded to you under the Agreement, (2) is the number of days from (and including) the first day of the Performance Period to (and including) the date of your Termination of Employment due to Retirement, and (3) is the number of days during the Performance Period. The excess of the Performance Units that were originally awarded to you under the Agreement over the Retirement Adjusted Performance Units will be immediately forfeited on the date of your Termination of Employment due to Retirement. Any amount payable to you pursuant to this Section 1.5 will be paid on the Scheduled Payment Date. For purposes of this Section 1.5, the term “Retirement” means your Termination of Employment on or after the date on which you are at least 55 years of age (not rounded up) and you have completed at least ten whole Years of Service with the Company Group (not rounded up). For purposes of these Terms and Conditions, “Years of Service” means your years of service credited for vesting service purposes under either of the Baker Hughes Incorporated Thrift Plan or the Baker Hughes International Retirement Plan in which you are eligible to participate. If you are eligible to participate in neither of such retirement plans, Years of Service” means the years of service for which you would be credited for vesting purposes under the Baker Hughes Incorporated Thrift Plan if you were eligible to participate in that plan.

wherever from time to time conducted throughout the world, including situations where you solicit or participate in or assist in any way in the solicitation or recruitment, directly or indirectly, of any employees of any member of the Company Group.

as your employer (the “Employer”) is liable for the payment of any amounts that become due under the Agreement.

The data administered and maintained by the Company includes information that may be considered personal data, including the name of the awardee, the award granted and the number of performance units included in any award (“Employee Personal Data”). From time to time during the course of your employment in the Company Group, the Company may transfer certain of your Employee Personal Data to Affiliates as necessary for the purpose of implementation, administration and management of your participation in the Plan (the “Purposes”), and the Company and its Affiliates may each further transfer your Employee Personal Data to any third parties assisting the Company in the implementation, administration and management of the Plan (collectively, “Data Recipients”). The countries to which your Employee Personal Data may be transferred may have data protection standards that are different than those in your home country and that offer a level of data protection that is less than that in your home country.

In accepting the award of the Performance Units set forth in the Agreement, you hereby expressly acknowledge that you understand that from time to time during the course of your employment in the Company Group the Company may transfer your Employee Personal Data to Data Recipients for the Purposes. You further acknowledge that you understand that the countries to which your Employee Personal Data may be transferred may have data protection standards that are different than those in your home country and that offer a level of data protection that is less than that in your home country.

Further, in accepting the award of the Performance Units set forth in the Agreement, you hereby expressly affirm that you do not object, and you hereby expressly consent, to the transfer of your Employee Personal Data by the Company to Data Recipients for the Purposes from time to time during the course of your employment in the Company Group.