
<PAGE>

                                                                    Exhibit 10.1

                              EMPLOYMENT AGREEMENT
                                      FOR
                                   J.D. WOODS


                           BAKER HUGHES INCORPORATED


                                December 7, 1994
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                           BAKER HUGHES INCORPORATED

                              EMPLOYMENT AGREEMENT

      This EMPLOYMENT AGREEMENT (hereinafter referred to as the "Agreement") is
made, entered into, and is effective as of this 7th day of December, 1994, by
and between Baker Hughes Incorporated, (hereinafter referred to as the
"Company"), a Delaware corporation having its principal offices at 3900 Essex
Lane, Houston, Texas and J.D. Woods (hereinafter referred to as the "Employee").

      WHEREAS, Employee is presently employed by the Company in the capacity of
President and Chief Executive Officer and also serves as Chairman of the Board
of Directors of the Company (hereinafter referred to as the "Board"); and

      WHEREAS, Employee possesses considerable experience and an intimate
knowledge of the business and affairs of the Company, its policies, methods,
personnel and operations; and

      WHEREAS, the Company recognizes that Employee's contribution has been
substantial and meritorious and, as such, the Employee has demonstrated unique
qualifications to act in an executive capacity for the Company; and

      WHEREAS, the Company is desirous of assuring the continued employment of
the Employee in the above stated capacity, and Employee is desirous of having
such assurance; and

      WHEREAS, the Company is desirous of assuring the Employee of certain
benefits of employment at the time of retirement from the Company.

      NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements of the parties set forth in this Agreement, and of
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:

                         SECTION 1. TERM OF EMPLOYMENT

      The Company hereby agrees to employ Employee and Employee hereby agrees to
continue to serve the Company, in accordance with the terms and conditions set
forth herein, for a term commencing as of the date hereof. The term of
employment shall be until the later of January 31, 1997 or the retirement from
employment of the Company by the Employee; provided, however Employee agrees not
to retire on the last day of any fiscal year of the Company.

      The Agreement shall automatically begin again for successive one year
terms if the Employee does not enter retirement on January 31, 1997. No
additional salary or benefits shall be owed to the Employee beyond the term
except for normal retirement benefits and the payment for consulting services
set forth below. As used herein, the "term of this Agreement" shall mean the
term of employment as described above.

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                    SECTION 2. POSITION AND RESPONSIBILITIES

      During the term of this Agreement, Employee agrees to be employed as
President and Chief Executive Officer of the Company and to further serve as
Chairman of the Board if so elected. In the capacity of President and Chief
Executive Officer, Employee shall be the highest ranking officer of the Company
and shall have full authority and responsibility for formulating and
administering the plans and policies of the Company. Employee shall have,
subject to the sole discretion of the Board, the same status and
responsibilities normally inherent in such capacity in U.S. publicly held
corporations of similar size and character. Employee agrees and acknowledges
that, in connection with his employment relationship with the Company, Employee
owes fiduciary duties to the Company and will act accordingly. Employee also
agrees that the Board may request that he relinquish the title of President at
any time without there being considered any diminution in stature or position in
the Company.

                          SECTION 3. STANDARD OF CARE

      During the term of this Agreement, Employee agrees to devote substantially
his full time, attention and energies to the Company's business and agrees to
faithfully and diligently endeavor to the best of his ability to further the
best interests of the Company. Employee shall not engage in any other business
activity, whether or not such business activity is pursued for gain, profit or
other pecuniary advantage. Subject to the covenants of Section 9 herein, this
shall not be construed as preventing the Employee from investing his own assets
in such form or manner as will not require his services in the daily operations
of the affairs of the companies in which such investments are made. Further,
subject to Section 9.1 herein, Employee may serve as a director of other
companies so long as such service is not injurious to the Company and so long as
such service does not present Employee with a conflict of interest.

      In keeping with Employee's fiduciary duties to the Company, and after the
term of this Agreement but during the term of the Consulting Agreement, Employee
agrees that he shall not, directly or indirectly, become involved in any
conflict of interest, or upon discovery thereof, allow such a conflict to
continue. Moreover, Employee agrees that he shall promptly disclose to the Board
any facts which might involve any reasonable possibility of a conflict of
interest.

      Circumstances in which a conflict of interest on the part of Employee
would or might arise, and which should be reported immediately by Employee to
the Board, include the following: (a) ownership of a material interest in,
acting in any capacity for, or accepting directly or indirectly any payments,
services or loans from a supplier, contractor, subcontractor, customer or other
entity with which the Company does business; (b) misuse of information or
facilities to which Employee has access in a manner which will be detrimental to
Company's interest; (c) disclosure or other misuse of confidential information
of any kind obtained through the Employee's connection with the Company; (d)
acquiring or trading in, directly or indirectly, other properties or interests
connected with the design, manufacture or marketing of products designed,
manufactured or marketed by the Company; (e) the appropriation to the Employee
or the diversion to others, directly or indirectly, of any opportunity in which
it is known or could reasonably be anticipated that the Company would be
interested; and (f) the ownership, directly or indirectly, of a material
interest in an enterprise in competition with the Company or its dealers and
distributors or acting as a director, officer, partner, consultant, employee or
agent of any enterprise which is in competition with the Company or its dealers
or distributors.

                                      -2-
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      Further, Employee covenants, warrants and represents that he shall:

      (i) Devote his full and best efforts to the fulfillment of his employment
obligations;

      (ii) Exercise the highest degree of fiduciary loyalty and care and the
highest standards of conduct in the performance of his duties; and

      (iii) Endeavor to prevent any harm, in any way, to the business or
reputation of the Company.

                            SECTION 4. COMPENSATION

      As remuneration for all services to be rendered by Employee during the
term of this Agreement, and as further consideration for so contracting with the
Company, the Company shall pay Employee total compensation consisting of the
following:

      4.1. Base Salary. The Company shall pay Employee a Base Salary in an
amount which shall be established from time to time by the Board or the
Compensation Committee of the Board. This Base Salary shall be paid to Employee
in 26 equal installments throughout the year, consistent with the normal payroll
practices of the Company.

      The Base Salary shall be reviewed at least annually in December, the first
such review to occur in December 1995, while this Agreement is in force, to
ascertain whether, in the sole discretion and judgment of the Board or the
Compensation Committee of the Board, such Base Salary should be increased (but
not decreased), based on the performance of the Employee during the year. If so
increased, the Base Salary as stated above shall, likewise, be increased for all
purposes of this Agreement.

      4.2. Annual Bonus. The Company shall provide Employee the opportunity to
earn an annual cash bonus based on the achievement of performance goals
established, and communicated to the Employee, at the beginning of each bonus
plan year, by the Board or the Compensation Committee of the Board (the "Bonus
Plan"). The annual bonus opportunity shall be at a level as determined by the
Board or the Compensation Committee of the Board in their sole discretion, which
is commensurate with the opportunity normally offered to employees having the
same duties and responsibilities (as the Employee), at public companies similar
in size and character to the Company and which may vary from year to year with
the executive salary grade schedule for the Company and for the Employee.

      4.3. Long-Term Incentives. The Company shall provide as a long-term
incentive award a stock grant, pursuant to the 1995 Stock Award Plan and subject
to its approval by the stockholders of the Company, of 50,000 shares of Common
Stock, $1.00 par value, of the Company. Such stock grant shall vest and be
issued to the Employee in its entirety upon the retirement of the Employee. The
award shall also vest and be issued in its entirety upon the death or total
disability of the Employee. Pending vesting and issuance, the Company shall pay
to the Employee a cash payment equal to the dividend paid on such shares as
though they were issued and outstanding from the date hereof.

      In addition to the foregoing, the Company has granted to Employee stock
options pursuant to the 1993 Stock Option Plan which shall remain in effect
subject to the vesting schedule set forth by the Compensation Committee and
remain outstanding for the term of this

                                      -3-
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Agreement. Such options shall also fully vest and remain outstanding upon the
retirement of the Employee for the term of the lesser of (a) the original term
set forth in such options or (b) three years subsequent to the end of the
consulting arrangement set forth in Section 7.3.

      4.4. Employee Benefits. During the term of this Agreement, the Company
shall provide to the Employee the fringe benefits to which other officers and
employees of the Company are entitled to receive, as determined by the Board or
the Compensation Committee of the Board in their sole discretion, commensurate
with the Employee's position. Such fringe benefits shall include, but not be
limited to, group term life insurance, comprehensive health and major medical
insurance, short-term and long-term disability and participation in all
retirement plans.

      Employee shall be entitled each year to paid vacation in accordance with
the standard written policy of the Company with regard to vacations of
employees. In applying this policy, Employee shall be given credit for prior
service.

      Employee shall likewise have the benefit of any additional fringe benefit
established during the term of this Agreement, by standard written policy of the
Company.

      4.5. Perquisites. During the term of this Agreement, the Company shall
provide to Employee, at the Company's cost, the perquisites to which other
officers of the Company are entitled, as determined by the Board or the
Compensation Committee of the Board in their sole discretion, including, but not
limited to, executive life insurance, club memberships, financial planning
(including tax return preparation), and an annual physical examination. The
Company also shall provide such other perquisites which are suitable to the
character of Employee's position with the Company and adequate for the
performance of his duties hereunder, including, but not limited to, a furnished
executive office and a full-time secretary at a location mutually agreeable to
the Employee and the Company. However, by reason of Sections 4.4 and 4.5 herein,
the Company shall not be obligated to institute, maintain or refrain from
changing, amending or discontinuing any benefit plan, program or perquisite, so
long as such changes are similarly applicable to senior executive employees
generally.

                              SECTION 5. EXPENSES

      The Company shall pay, or reimburse Employee, for all ordinary, reasonable
and necessary expenses which Employee incurs in performing his duties under this
Agreement including, but not limited to, travel, entertainment, professional
dues and subscriptions, and all dues, fees and expenses associated with
membership in various professional, business and civic associations and
societies of which Employee's participation is in the best interest of the
Company.

                      SECTION 6. TERMINATION OF EMPLOYMENT

      6.1. Termination Due to Disability. In the event of the Disability (as
hereafter defined) of Employee during the term of this Agreement for a period of
more than 90 days in the aggregate during any period of 12 consecutive months,
or of the reasonable expectation that Employee's Disability will exist for more
than such a period of time, upon termination of Employee's employment by the
Company due to such Disability following 30 days prior written notice, the
Company shall pay to Employee, in lieu of the Base Salary provided for in
Section 4.1 hereof the Retirement Compensation (as defined in Section 7.3).

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      Notwithstanding any provision to the contrary contained in such plans,
the above payments will be in lieu of any short-term or long-term disability
provided to Employee under the terms of any broad-based plans maintained by the
Company. However, Employee shall receive those benefits specified in Section 7.1
herein.

      It is expressly understood that the Disability of Employee for a period of
90 days or less in the aggregate during any period of 12 consecutive months, in
the absence of any reasonable expectation that his Disability will exist for
more than such a period of time, shall not constitute a failure by him to
perform his duties hereunder and shall not be deemed a breach or default and
Employee shall receive full compensation for any such period of Disability or
for any other temporary illness or incapacity during the term of this Agreement.

      The term "Disability" shall mean, for all purposes of this Agreement, the
incapacity of Employee due to injury, illness, disease, or bodily or mental
infirmity to engage in the performance of substantially all of the usual duties
of his employment with the Company, such incapacity to be determined by and in
the sole discretion of the Board upon competent medical advice.

      6.2. Termination Due to Death. In the event of the death of Employee
during the term of this Agreement, or during any period of Disability during
which he is receiving compensation pursuant to Section 6.1 herein, the Company
shall pay Employee's designated beneficiary, the Retirement Compensation.
Employee's beneficiaries also shall receive those benefits specified in Section
7.1 herein.

      6.3. Termination for Good Reason. Employee may terminate this Agreement
for Good Reason by giving the Board 30 days prior written notice of his intent
to terminate for Good Reason. Such written notice must set forth in reasonable
detail the facts and circumstances claimed to provide a basis for such Good
Reason termination. "Good Reason" shall mean the occurrence of any one or more
of the following without Employee's express written consent:

      (i) The assignment to the Employee of any duties inconsistent with the
Employee's position (including status, offices, titles and reporting
requirements), authorities, duties or other responsibilities as contemplated by
Section 2 of this Agreement, or any other action of the Company which results in
an unreasonable or material diminishment in such position, authority, duties or
responsibilities, other than a non-material, insubstantial or inadvertent action
which is remedied by the Company after receipt of written notice thereof given
by the Employee;

      (ii) The Company's requiring the Employee to be based more than 50 miles
from the location of his agreed upon principal office;

      (iii) A reduction or elimination not otherwise in accordance with the
terms of this Agreement of any component of Employee's compensation as provided
for in Section 4 herein; or

      (iv) A material breach by the Company of any provision of this Agreement
which is not remedied by the Company after receipt of written notice thereof
given by the Employee.

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      Subject to the consulting requirements of Section 7.3 herein, upon
lapse of the 30-day period following notice of termination for Good Reason, the
Employee's obligation to serve the Company, and the Company's obligation to
employ Employee, under the terms of this Agreement, shall terminate, and the
Employee shall receive the compensation and benefits specified in Section 7.2
herein.

      6.4. Termination by Notice. Either the Company or Employee may terminate
this Agreement without Cause by delivering proper written notice to the other
party.

      (i) Notice by Employee. Employee may terminate this Agreement at any time
by giving the Board 90 days prior written notice of his intent to terminate or
retire. In the case of termination, the Company shall pay Employee his full Base
Salary and benefits through the effective date of termination and Employee shall
immediately thereafter forfeit all rights and benefits (other than vested
benefits under any agreement or plan) he would otherwise have been entitled to
receive under this Agreement (including the Employee's annual bonus for the then
current fiscal year). In the case of retirement, the Company shall pay the
Employee the Retirement Compensation. The Company shall have the right to offset
against the aforementioned sums any monies owed by Employee to the Company.
Subject to the consulting requirements of Section 7.2 herein, Employee
thereafter shall have no further employment obligations under this Agreement.

      (ii) Notice by the Company. The Company may terminate this Agreement at
any time by the Board giving Employee 30 days prior written notice of the
Company's intent to terminate. Subject to the consulting requirements of Section
7.2 herein, upon the lapse of the 30 days, Employee's employment obligation to
the Company, and the obligation to employ Employee, under the terms of this
Agreement shall terminate, and the Employee shall receive the compensation and
benefits specified in Section 7.2 herein. The Company shall have the right to
offset against the aforementioned sums any monies owed by Employee to the
Company.

      6.5. Termination for Cause. Nothing in this Agreement shall be construed
to prevent the Company from terminating Employee's employment under this
Agreement for Cause.

      "Cause" shall be defined as including the commission of an act of fraud,
embezzlement, theft or other criminal act constituting a felony; the material
breach of the Company's Code of Ethical Conduct attached hereto; a material
breach of any provision of this Agreement which is not remedied by the Employee
after receipt of written notice thereof given by the Company or the failure of
Employee to perform any and all material covenants under this Agreement, for any
reason other than Employee's death, Disability or as the result of a termination
for Good Reason as defined in Section 6.3 herein.

      In the event this Agreement is terminated by the Company for Cause, the
Company shall pay Employee his full Base Salary, benefits and a portion of
Employee's most recently ascertainable incentive bonus (as provided under the
provisions of the annual incentive bonus plan) up through and including the date
on which the termination becomes effective as computed in accordance with the
provisions of the Company's Bonus Plan, and Employee shall immediately
thereafter forfeit all other rights and benefits (other than vested benefits
under any agreement or plan) he would otherwise have been entitled to receive
under this Agreement (including the remainder of Employee's annual bonus for the
then current plan year). The

                                      -6-
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Company shall have the right to offset against the aforementioned sums any
monies owed by Employee to the Company.

                    SECTION 7. COMPENSATION UPON TERMINATION

      7.1. Disability or Death. In the event Employee's employment is terminated
by reason of Disability (as provided in Section 6.1 herein), or by reason of
Death (as provided in Section 6.2 herein), in addition to the payments specified
in Sections 6.1 and 6.2, the Company shall pay Employee, or Employee's
beneficiary, in a lump sum a portion of Employee's most recently ascertainable
incentive bonus (as provided under the provisions of the annual incentive bonus
plan), up through and including the date on which the termination becomes
effective as computed in accordance with the provisions of the Bonus Plan.

      7.2. For Good Reason or by Notice by the Company. In the event Employee's
employment is terminated for Good Reason (as provided in Section 6.3 herein), or
by Notice by the Company (as provided in Section 6.4(ii) herein) in addition to
the payments specified in Sections 6.3 and 6.4(ii), the Company shall pay
Employee the following amounts upon the effective date of such termination, or
as otherwise specified subject to the Company's right to offset against any such
amounts any monies owed by Employee to the Company:

      (i) Employee's annual Base Salary (as stated in Section 4.1 and as
previously adjusted by the Board from time to time) continued for the remaining
term of this Agreement, paid to Employee in equal biweekly installments
consistent with the normal payroll practices of the Company, subject to the
Company's right of offset as provided in Section 8; and

      (ii) Once a year, the greater of (a) one-half of Employee's expected value
incentive bonus (as provided under the provisions of the Bonus Plan) to be
computed for the current fiscal year at the time of termination or (b)
Employee's expected value incentive bonus multiplied by the percentage amount of
expected value incentive bonus a successor chief executive officer receives for
such fiscal year, and in both (a) and (b) prorated for the months applicable.
Such amounts are to be paid to Employee in an annual installment for each
year or part thereof for the remaining term of this Agreement consistent with
the normal payroll practices of the Company. To the extent Employee is
terminated in the middle of a fiscal year, he is to receive the proportionate
incentive bonus for the completed term of the year as computed in accordance
with the Bonus Plan; and

      (iii) An immediate vesting of all outstanding long-term incentive awards
held by the Employee; and

      (iv) A cash lump sum payment, within thirty (30) days of termination, of
the present value of all Employee's accrued benefits, vested or otherwise, under
the Company's supplemental retirement plan; and

      (v) A continuation, at the same or greater benefit level, of all Employee
Benefits and Perquisites, as provided in Sections 4.4 and 4.5 herein, for the
remaining term of this Agreement; provided, however, that to the extent that any
such Employee Benefit or Perquisite cannot be continued during a period when
Employee is not an employee of the Company or cannot be continued with similar
tax effects to Employee when Employee is not an employee of the Company, the
Company shall pay Employee an amount in cash equal to the economic value of such
Employee Benefit or Perquisite.

                                      -7-
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      As consideration for the continuation of the above stated benefits,
Employee agrees to make himself available during the remaining term of the
Agreement, at reasonable times and locations, to the Company and/or to the
successor to his position at the Company, to provide consulting advice (as
requested) including, but not limited to, strategic planning, management
development, market trend analysis, product development, acquisition planning
and industry trend analysis. The Company agrees not to require more than 10
business days a month as long as the Employee is not otherwise fully employed
nor more than four business days a month once the Employee is otherwise fully
employed.

      Notwithstanding the previous provisions of this Section 4.1 the amounts in
Sections 7.2(i) and (ii) shall be adjusted automatically upward or downward (in
the nearest increment of $1,000), effective on each December 1, by the GNP price
deflator ad published by the Federal government for the previous twelve months,
as determined by the then public accounting firm of record of the Company (that
performs the annual audit). Upon such adjustment, the Base Salary as stated
above shall, likewise, be increased or decreased for all purposes of this
Agreement.

      7.3. Consulting Arrangement Upon Retirement. Upon designation by Employee
of his desire to retire from the Company upon completion of the term of this
Agreement or otherwise, the Company shall pay Employee for five years subsequent
to the date of retirement an annual consulting fee of $400,000 (the "Retirement
Compensation"). The Retirement Compensation shall be paid to Employee on a bi-
weekly basis for the term of retirement. No Employment Benefits as set forth in
Section 4.4 or perquisites as set forth in Section 4.5 shall be paid to the
Employee, other than normal retirement benefits accruing to all retirees of the
Company generally; provided, however, that any club memberships will be
transferred into Employee's name upon retirement at no transfer cost to
Employee. The Company shall continue to be responsible for expenses as set forth
in Section 5 as they may be incurred on behalf of the Company. In addition, the
Company shall provide Employee with reasonable office space and secretarial
support in a location away from any principal office of the Company, but at a
site reasonably convenient to Employee. The Company shall no longer be
responsible for any incentive bonus pursuant to the Bonus Plan during the term
of retirement and subsequent to the term of this Agreement.

      Notwithstanding the foregoing, in addition to the compensation provided
pursuant to Section 7.2 in the event of termination of employment of Good Reason
or by Notice by the Company, Employee shall be entitled to the Retirement
Compensation set forth in this Section 7.3 subsequent to the payments made
pursuant to Section 7.2.

      SECTION 8. OFFSET FOR COMPENSATION EARNED SUBSEQUENT TO TERMINATION

      8.1. Right of Offset. In the event the Employee's employment is terminated
for Good Reason (as provided in Section 6.3 herein), or by Notice by the Company
(as provided in Section 6.4(ii) herein), the continuation of the Employee's Base
Salary (as provided in Section 7.2(i) herein) and incentive bonus (as provided
in Section 7.2(ii) herein), shall be offset by "Compensation" earned from a
subsequent employer during the remaining term of this Agreement. The percentage
of the offset shall be limited to 65% of the unpaid Base Salary and incentive
bonus provided under Sections 7.2(i) and 7.2(ii) herein. However, there shall be
no right of offset with respect to the Retirement Compensation.

                                      -8-
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          8.2. Definition of Compensation. For purposes of the offset provided
in Section 8.1 herein, "Compensation" shall be defined as all sums constituting
income, as that term is defined for federal income tax purposes, received by
Employee for his services as an employee, officer, partner, consultant or
otherwise, subsequent to the effective date of termination under this Agreement.

      8.3. Duty of Disclosure. For purposes of enforcing this Section 8,
Employee has a duty to keep the Company informed of the terms and conditions of
any subsequent employment and the corresponding "Compensation" earned from such
employment, and shall provide or cause to be provided to the Company in writing
true, correct, timely and complete information concerning the same on a
quarterly basis.

                              SECTION 9. COVENANTS

      9.1. Noncompetition. Employee and Company agree and acknowledge that the
Company has developed and owns valuable Confidential Information (as defined in
Section 9.2 of this Agreement) and that the Company has developed substantial
goodwill. Employee and Company further agree and acknowledge that the Company
has a substantial and legitimate interest in protecting the Company's
Confidential Information and goodwill. Employee and Company further agree and
acknowledge that the provisions of this Section 9 are reasonably necessary to
protect the Company's legitimate business interests and are designed to protect
the Company's Confidential Information and goodwill. During the term of this
Agreement, or any other period in which amounts are paid hereunder, the Employee
shall not, as a shareholder, employee, officer, partner, consultant or
otherwise, engage directly or indirectly in any business or enterprise which is
"in competition" with the Company or its successors or assigns. A business or
enterprise "in competition" with the Company includes only a business or
enterprise that is engaged in any business activity of the Company within a one
hundred (100) mile radius of any facility operated by the Company.

      However, the Employee shall be allowed to purchase and hold for investment
less than two percent (2%) of the shares of any corporation whose shares are
regularly traded on a national securities exchange or in the over-the-counter
market.

      Employee further agrees that, (a) during the two (2) years following his
termination if such termination occurs pursuant to Section 6.4(i), or 6.5 or (b)
during the term of the Agreement if termination is pursuant to Section 6.1, 6.3
or 6.4(ii) or (c) during the term the Employee is receiving Retirement
Compensation, Employee will not solicit, contact, canvass, or attempt to
solicit, contact or canvass any of the customers of Company with whom Employee
had direct or indirect contact while Employee was performing services for the
Company.

      Employee and Company further agree and acknowledge that a part of
Employee's compensation under this Agreement constitutes independent valuable
consideration for this Section 9.1. Employee further agrees that the existence
of any claim or cause of action of Employee against Company, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Company of any or all of this Section 9. Employee agrees that the
scope of the restrictions as to time, geographic area, and scope of activity in
this Section 9.1 are reasonably necessary for the protection of the Company's
legitimate business interests and are not oppressive or injurious to the public
interest.

                                      -9-
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      Employee agrees that in the event of a breach or threatened breach of
any of the provisions of this Section 9.1 the Company shall be entitled to
injunctive relief against Employee's activities to the extent allowed by law.
Employee further agrees that any breach or threatened breach of any of the
provisions of Section 9.1 would cause irreparable injury to the Company for
which it would have no adequate remedy at law. Nothing herein shall be construed
as prohibiting the Company from pursuing any other remedies available to it for
any breach or threatened breach, including the recovery of damages.

      9.2 Confidential Information. Employee recognizes and acknowledges that he
will have access to certain information of the Company that is confidential and
proprietary and constitutes valuable and unique property of the Company.
Employee agrees that he will not at any time, either during or subsequent to the
employment, disclose to others, use, copy or permit to be copied, except in
pursuance of his duties on behalf of the Company, its successors, assigns or
nominees, any secret or confidential information or know-how of the Company
(whether or not developed by the Employee) without the Company's prior written
consent. The term "secret or confidential information or know-how of the
Company" (referred to collectively as "Confidential Information") shall include,
without limitation, the Company's plans, strategies, costs, prices, uses,
applications of products and services, results of investigations or experiments,
and all apparatus, products, processes, compositions, samples, formulas,
computer programs, pricing policy, financial information, methods of doing
business, policy and/or procedure manuals, training and recruiting procedures,
accounting procedures, the status and content of the Company's contracts with
its customers, the Company's business philosophy, and servicing methods and
techniques at any time used, developed, or investigated by the Company, before
or during the Employee's tenure of employment which are not generally available
to the public or which are maintained as confidential information of third
parties received as a result of his employment with Company.

      Employee further agrees to deliver to the Company at the termination of
his employment all correspondence, memoranda, notes, records, drawings,
sketches, plans, customer lists, product compositions, or other documents and
all copies thereof (all of which are hereafter referred to as the "Documents"),
made, composed or received by Employee, solely or jointly with others, and which
are in Employee's possession, custody, or control at such date and which are
related in any manner to the past, present, or anticipated business of the
Company. In this regard, Employee hereby grants and conveys to Company all
right, title and interest in and to, including without limitation, the right to
possess, print, copy, and sell or otherwise dispose of, any reports, records,
papers, summaries, photographs, drawings or other documents, and writings,
copies, abstracts or summaries thereof, which may be prepared by Employee or
under his direction or which may come into his possession in any way during his
employment with the Company which relate in any manner to the past, present or
anticipated business of the Company.

      In the event of a breach or threatened breach of any of the provisions of
this Section 9.2, the Company shall be entitled to an injunction ordering the
return of such Documents and any and all copies thereof and restraining Employee
from using or disclosing, for his benefit or the benefit of others, in whole or
in part, any Confidential Information, including but not limited to the
Confidential Information which such Documents contain, constitute, or embody.
Employee further agrees that any breach or threatened breach of any of the
provisions of Section 9.2 would cause irreparable injury to the Company for
which it would have no adequate remedy at law. Nothing herein shall be construed
as prohibiting the Company from

                                     -10-
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pursuing any other remedies available to it for any such beach or threatened
breach, including the recovery of damages.

      9.3 Publicity. Employee agrees that Company may use, and hereby grants the
Company the nonexclusive and worldwide right to use, Employee's name, picture,
likeness, photograph, signature or any other attribute of Employee's persona
(all of such attributes are hereafter collectively referred to as "Persona") in
any media for any advertising, publicity or other purpose at any time, either
during or subsequent to his employment by the Company. Employee agrees that such
use of his Persona will not result in any invasion or violation of any privacy
or property rights Employee may have; and Employee agrees that he will receive
no additional compensation for the use of his Persona. Employee further agrees
that any negatives, prints or other material for printing or reproduction
purposes prepared in connection with the use of his Persona by the Company shall
be and are the sole property of the Company.

      9.4. Covenants Regarding Other Employees. During the term of this
Agreement if termination is pursuant to Section 6.1, 6.3 or 6.4(ii), or during
the 24 months following termination if termination occurs pursuant to Section
6.4(i), or 6.5 or during the term Employee is receiving Retirement Compensation,
Employee agrees not to solicit or induce any employee of the Company to
terminate their employment, accept employment with anyone else, or to interfere
in a similar manner with the business of the Company.

                    SECTION 10. INDEMNIFICATION AND RELEASE

      10.1. Indemnification. The Company hereby covenants and agrees to
indemnify and hold harmless Employee fully, completely and absolutely against
and in respect to any and all actions, suits, proceedings, claims, demands,
judgments, costs, expenses (including attorney's fees), losses and damages
resulting from Employee's good faith performance of his duties and obligations
under the terms of this Agreement to the extent provided in the Bylaws of the
Company and the Indemnification Agreements for the benefit of the officers of
the Company.

      10.2. Release. In consideration of the benefits and compensation which may
be awarded to Employee under Sections 6 and 7 of this Agreement, Employee agrees
to execute and be bound by, as a condition precedent to receiving said benefits
and compensation, the Release attached hereto as Exhibit"A", said Release being
incorporated herein by this reference.

                             SECTION 11. ASSIGNMENT

      11.1. Assignment by Company. This Agreement may and shall be assigned or
transferred to, and shall be binding upon and shall inure to the benefit of, any
successor of the Company, and any such successor shall be deemed substituted for
all purposes for the "Company" under the terms of this Agreement. As used in
this Agreement, the term "successor" shall mean any person, firm, corporation or
business entity which at any time, whether by merger, purchase or otherwise,
acquires all or essentially all of the assets or business of the Company.
Notwithstanding such assignment, the Company shall remain, with such successor,
jointly and severally liable for all its obligations hereunder.

      Failure of the Company's successor to agree to the assignment of this
Agreement shall be a material breach of this Agreement. Except as herein
provided, this Agreement may not otherwise be assigned by the Company.

                                     -11-
<PAGE>
 
      11.2. Assignment by Employee. This Agreement shall inure to the
benefit of and be enforceable by Employee's personal or legal representatives,
executors and administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die while any amounts payable to Employee hereunder
remain outstanding, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to Employee's devisee,
legatee or other designee or, in the absence of such designee, to Employee's
estate.

      Other than a transfer by reason of death or incapacity, the rights and
duties of Employee hereunder are personal and may not be assigned or
transferred.

                       SECTION 12. INCOME AND EXCISE TAX

      12.1. Tax Withholding. The Company may withhold from any sums or benefits
payable under this Agreement all federal, state, city or other taxes as may be
required pursuant to any law or governmental regulation or ruling.

      12.2. Excise Tax Reimbursement. In addition to the compensation and
benefits to which Employee shall become entitled under the terms of this
Agreement, the Company shall reimburse the Employee in the amount of any excise
or other similar tax or any interest or penalties with respect to such tax that
is assessed against and paid by Employee and that is attributable to and
calculated with reference to the compensation and benefits to which Employee is
entitled under the Agreement. Any such reimbursement shall be payable to
Employee immediately following the date that Employee provides evidence
reasonably satisfactory to the Company that Employee has made any payment in
satisfaction of any such tax liability. The reimbursement provided for herein
shall not pertain to any tax liability attributable to such compensation and
benefits that are determined and calculated in the manner that pertains to other
income earned for personal services, but shall rather pertain only to liability
arising under excise and other similar tax provisions of federal and state tax
laws that specifically address employment termination or severance compensation
and benefits as contemplated by Section 280(g) of the Internal Revenue Code or
similar provisions. The reimbursements provided for in this Section 12.2 shall
be "grossed up." For this purpose, "grossed up" shall mean that Employee shall
be paid an amount which, after payment of taxes on such amount, shall insulate
Employee from the effect of taxes on such reimbursements (including the effects
of income tax assessed on the gross-up).

      12.3. Procedural Aspects. The Employee shall notify the Company in writing
of any claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of the grossed up payment. Such notification shall be
given as soon as practicable but no later than 10 business days after the
Employee knows of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Employee
shall not pay such claim prior to the expiration of the 30-day period following
the date on which the Employee gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Employee in writing prior to the expiration
of such period that it desires to contest such claim, the Employee shall:

      (i) give the Company any information reasonably requested by the Company
relating to such claim;

                                      -12
<PAGE>
 
      (ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time-to-time, including,
without limitation, accepting legal representation with respect to such claim by
any attorney reasonably selected by the Company;

      (iii) cooperate with the Company in good faith in order effectively to
contest such claim;

      (iv) permit the Company to participate in any proceedings relating to such
claim; provided, however, that the Company shall bear and pay directly all costs
and expenses (including attorneys fees and any additional interest and
penalties) incurred in connection with such contest and shall indemnify and hold
the Employee harmless, on an after-tax basis, for any excise tax or income tax,
including interest and penalties with respect thereto, imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 12.3, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Employee to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, the Employee agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Employee to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Employee, on an interest-free basis and shall
indemnify and hold the Employee harmless, on an after-tax basis, from any excise
tax or income tax, including interest or penalties with respect thereto, imposed
with respect to such advance or with respect to any imputed income with respect
to such advance.

      If, after the receipt by the Employee of an amount advanced by the Company
pursuant to Section 12.3, the Employee becomes entitled to receive any refund
with respect to such claim, the Employee shall (subject to the Company's
complying with the requirements of Section 12.3) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 12.3, a determination is made that
the Employee shall not be entitled to any refund with respect to such claims and
the Company does not notify the Employee in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of grossed up payment required to be paid.

                       SECTION 13. ARBITRATION AND NOTICE

      13.1. Arbitration. Any claim, controversy or dispute arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The arbitration shall be conducted in Houston, Harris
County, Texas. Federal law other than state law shall govern the interpretation
of this Section 13.1. The decision of the arbitrator(s) shall be final and
binding and judgment upon the award rendered may be entered in any court having
jurisdiction thereof.

                                     -13-
<PAGE>
 
      The arbitrator(s) shall award the prevailing party in the arbitration
its costs and expenses, including attorney's fees, incurred in enforcing the
provisions of this Agreement, in arbitration.

      13.2. Notice. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to Employee at the last address he has filed in
writing with the Company or, in the case of the Company, at its principal
executive offices.

                           SECTION 14. MISCELLANEOUS

      14.1. Entire Agreement. This document contains the entire agreement of
the parties relating to the subject matter hereof. This Agreement supersedes,
replaces and merges any and all prior and contemporaneous understandings,
representations, agreements and discussions relating to the same or similar
subject matter as that of this Agreement between Employee and Company (including
the Employment Agreement dated December 6, 1989) and constitutes the sole and
entire agreement between the Employee and Company with respect to the subject
matter of this Agreement.

      14.2. Modifications. This Agreement shall not be varied, altered,
modified, cancelled, changed or in any way amended except by mutual agreement of
the parties in a written instrument executed by the parties hereto or their
legal representatives.

      14.3. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
portions held to be invalid or unenforceable shall be revised and reduced in
scope so as to be valid and enforceable, or, if such is not possible, then such
portions shall be deemed to have been wholly excluded with the same force and
effect as if it had never been included herein. The remaining provisions of this
Agreement shall be unaffected thereby and shall remain in full force and effect.
Should any one or more of the provisions of this Agreement be held to be
excessive or unreasonable as to duration, geographical scope or activity, then
that provision shall be construed by limiting and reducing it so as to be
reasonable and enforceable to the extent compatible with the applicable law. If
such reformation is not possible, then such portions shall be deemed to have
been wholly excluded with the same force and effect as if they had never been
included herein.

      14.4. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same agreement.

                           SECTION 15. GOVERNING LAW

      The laws of the State of Texas, excluding any conflicts of law rule or
principle that might otherwise refer to the substantive law of another
jurisdiction, will govern the interpretation, validity and effect of this
Agreement without regard to the place of execution or the place for performance
thereof, and Company and Employee agree that the state and federal courts in
Harris County, Texas, shall have personal jurisdiction and venue over the
Company and Employee to hear all disputes arising under this Agreement. This
Agreement is to be at least partially performed in Harris County, Texas.

                                     -14-
<PAGE>
 
      IN WITNESS WHEREOF, Employee has executed and the Company (pursuant to
a resolution adopted at a duly constituted meeting of its Board of Directors)
has executed this Agreement, as of the day and year first above written.

ATTEST:                                     BAKER HUGHES INCORPORATED

By: [Signature of Lawrence O'Donnell, III   By: [Signature of J.F. Maher 
     Appears Here]                               Appears Here] 
    ------------------------------           ------------------------------
    Corporate Secretary                      Chairman, Compensation
                                             Committee of the Board
                                             of Directors

                                   EMPLOYEE

                                   [Signature of James D. Woods Appears Here]
                                   ----------------------------------------

                                     -15-
<PAGE>
 
                                  EXHIBIT "A"

                                    RELEASE


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

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

      The Employee represents and agrees that he fully understands his right to
discuss all aspects of this Release with his private attorney, that to the
extent, if any, that he desires, he has availed himself of this right, that he
has carefully read and fully understands all of the provisions of this Release
and that he is voluntarily entering into this Release.

      AGREED AND ACCEPTED, on this       day of            , 19  .

                                   EMPLOYEE

                                   By:
                                       ---------------------------------
                                                  J.D. Woods
