<SUBMISSION>
<ACCESSION-NUMBER>0000950129-06-002218
<TYPE>DEF 14A
<PUBLIC-DOCUMENT-COUNT>2
<PERIOD>20060427
<FILING-DATE>20060303
<DATE-OF-FILING-DATE-CHANGE>20060303
<EFFECTIVENESS-DATE>20060303
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>BAKER HUGHES INC
<CIK>0000808362
<ASSIGNED-SIC>3533
<IRS-NUMBER>760207995
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>DEF 14A
<ACT>34
<FILE-NUMBER>001-09397
<FILM-NUMBER>06662285
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>3900 ESSEX LANE
<CITY>HOUSTON
<STATE>TX
<ZIP>77027
<PHONE>7134398600
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>3900 ESSEX LAND
<CITY>HOUSTON
<STATE>TX
<ZIP>77210
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>DEF 14A
<SEQUENCE>1
<FILENAME>h33535pdef14a.htm
<DESCRIPTION>BAKER HUGHES INCORPORATED - 4/27/2006
<TEXT>
<HTML>
<HEAD>
<TITLE>def14a</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<CENTER>
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="70%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="13%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="15%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3" nowrap align="center">OMB APPROVAL</TD>
</TR>
<TR valign="bottom">
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="3" nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD valign="top">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="left" valign="top">
OMB Number:
</TD>
        <TD>&nbsp;</TD>
        <TD align="right" valign="top">3235-0059</TD>
</TR>

<TR valign="bottom">
        <TD valign="top">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD align="left" valign="top">
Expires:
</TD>
        <TD>&nbsp;</TD>

<TD nowrap align="right" valign="top">February&nbsp;28, 2006</TD>
</TR>

<TR valign="bottom">
        <TD valign="top">&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD colspan="2" nowrap align="left" valign="top">Estimated average burden<br>hours per

response</TD>

        <TD align="right" valign="bottom">12.75</TD>
</TR>

</TABLE>
</CENTER>

<P style="font-size: 10pt" align="center"><B>UNITED STATES<BR>SECURITIES AND EXCHANGE COMMISSION<BR>
Washington, D.C. 20549</B>


<P style="font-size: 10pt" align="center"><B>SCHEDULE 14A</B>



<P style="font-size: 10pt" align="center">Proxy Statement Pursuant to Section 14(a) of the Securities<BR>
Exchange Act of 1934 (Amendment No.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;)


<P>
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD>Filed by the Registrant
&nbsp;&nbsp;<FONT face="wingdings">&#254;</FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD>Filed by a Party other than the Registrant
&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD>Check the appropriate box:</TD>
</TR>
</TABLE>
<P style="font-size: 10pt">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT face="wingdings">&#111;</font>&nbsp;&nbsp; Preliminary Proxy Statement</TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT face="wingdings">&#111;</font>&nbsp;&nbsp;
<B>Confidential, for Use of the Commission Only (as permitted by
Rule&nbsp;14a-6(e)(2))</B></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT face="wingdings">&#254;</font>&nbsp;&nbsp; Definitive Proxy Statement</TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT face="wingdings">&#111;</font>&nbsp;&nbsp; Definitive Additional Materials</TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT face="wingdings">&#111;</font>&nbsp;&nbsp;
Soliciting Material Pursuant to &#167;240.14a-12</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 14pt"><B>Baker Hughes Incorporated</B>
<DIV align="center" style="font-size: 10pt"></DIV><HR size="1" noshade><DIV align="center" style="font-size: 10pt">(Name
of Registrant as Specified In Its Charter)</DIV>
<P align="center" style="font-size: 10pt"><HR size="1" noshade><DIV align="center" style="font-size: 10pt">(Name
of Person(s) Filing Proxy Statement, if other than the
Registrant)</DIV>

<P style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payment of Filing Fee (Check the appropriate box):


<P style="font-size: 10pt">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT face="wingdings">&#254;</FONT>&nbsp;&nbsp; No fee required.</TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp;
Fee computed on table below per Exchange Act Rules&nbsp;14a-6(i)(4) and
0-11.</TD>
</TR>
</TABLE>
<P style="font-size: 10pt">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1)&nbsp;Title of each class of securities to which transaction applies:</TD>
</TR>
</TABLE>
<HR size="1" noshade>

<P style="font-size: 10pt">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2)&nbsp;Aggregate number of securities to which transaction applies:</TD>
</TR>
</TABLE>
<HR size="1" noshade>

<P style="font-size: 10pt">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3)&nbsp;Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule&nbsp;0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):</TD>
</TR>
</TABLE>
<HR size="1" noshade>

<P style="font-size: 10pt">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4)&nbsp;Proposed maximum aggregate value of transaction:</TD>
</TR>
</TABLE>
<HR size="1" noshade>

<P style="font-size: 10pt">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5)&nbsp;Total fee paid:</TD>
</TR>
</TABLE>
<HR size="1" noshade>

<P style="font-size: 10pt">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp; Fee paid previously with preliminary materials.</TD>
</TR>
</TABLE>
<HR size="1" noshade>

<P style="font-size: 10pt">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp; Check box if any part of the fee is offset as provided by Exchange Act
Rule&nbsp;0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.</TD>
</TR>
</TABLE>
<P style="font-size: 10pt">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1)&nbsp;Amount Previously Paid:</TD>
</TR>
</TABLE>
<HR size="1" noshade>


<P style="font-size: 10pt">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2)&nbsp;Form, Schedule or Registration Statement No.:</TD>
</TR>
</TABLE>
<HR size="1" noshade>

<P style="font-size: 10pt">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3)&nbsp;Filing Party:</TD>
</TR>
</TABLE>
<HR size="1" noshade>

<P style="font-size: 10pt">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4)&nbsp;Date Filed:</TD>
</TR>
</TABLE>
<HR size="1" noshade>

<P style="font-size: 10pt">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<TR>
        <TD width="20%"></TD>
        <TD width="80%"></TD>
</TR>
<TR valign="top">
        <TD valign="bottom">SEC 1913 (02-02)</TD>
        <TD><b>Persons who are to respond to the collection of information
contained in this form are not required to respond unless the form displays a currently valid
OMB control number.</b></TD>
</TR>
</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BAKER HUGHES INCORPORATED</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>NOTICE OF ANNUAL MEETING OF STOCKHOLDERS</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>April&nbsp;27, 2006</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">To the Stockholders of Baker Hughes Incorporated:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Annual Meeting of the Stockholders of Baker Hughes Incorporated (&#147;Company&#148; or &#147;Baker
Hughes&#148;) will be held at the offices of the Company, 3900 Essex Lane, Suite&nbsp;210, Houston, Texas on
Thursday, April&nbsp;27, 2006, at 9:00 a.m., Central Daylight Time, for the purpose of considering and
voting on:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Election of eleven directors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Ratification of Deloitte &#038; Touche LLP as the Company&#146;s Independent Auditor for Fiscal
Year 2006;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Approval of the Performance Criteria for Awards under the Annual Incentive Compensation
Plan;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Stockholder Proposal No.&nbsp;1 regarding voting under the Company&#146;s Delaware Charter; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Such other business as may properly come before the meeting and any reconvened meeting
after an adjournment thereof.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors has fixed March&nbsp;1, 2006 as the record date for determining the
stockholders of the Company entitled to notice of, and to vote at, the meeting and any reconvened
meeting after an adjournment thereof, and only holders of Common Stock of the Company of record at
the close of business on that date will be entitled to notice of, and to vote at, that meeting or a
reconvened meeting after an adjournment.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You are invited to attend the meeting in person. Whether or not you plan to attend the
meeting personally, please complete, sign and date the enclosed proxy, and return it as soon as
possible in the enclosed postage prepaid envelope. You may revoke your proxy any time prior to its
exercise, and you may attend the meeting and vote in person, even if you have previously returned
your proxy. In some cases, you may be able to exercise your proxy by telephone or by the Internet.
Please refer to the Proxy Statement for further information on telephone and Internet voting.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By order of the Board of Directors,</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sandra E. Alford<BR>
<I>Corporate Secretary</I></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Houston, Texas<BR>
March&nbsp;15, 2006
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN YOUR PROXY AS
PROMPTLY AS POSSIBLE. AN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS
ENCLOSED FOR THIS PURPOSE.</B>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PROXY STATEMENT<BR>
TABLE OF CONTENTS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#101">Proxy Statement</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">Voting Securities</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#103">Proposal No.&nbsp;1, Election of Directors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#104">Corporate Governance</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">Security Ownership of Management</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">Charitable Contributions</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">Compliance with Section&nbsp;16(a) of the Securities Exchange Act of 1934</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">Executive Compensation</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#109">Summary Compensation Table</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#110">Stock Options Granted During 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#111">Aggregated Option Exercises During 2005 and Option Values at December&nbsp;31, 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#112">Long-Term Incentive Plan</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#113">Pension Plan Table</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#114">Employment, Change in Control and Indemnification Agreements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#115">Compensation Committee Report</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#116">Compensation Committee Interlocks and Insider Participation</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#117">Corporate Performance Graph</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#118">Audit/Ethics Committee Report</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#119">Proposal No.&nbsp;2, Ratification of Independent Auditor</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#120">Fees Paid to Deloitte &#038; Touche LLP</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#121">Proposal No.&nbsp;3, Approval of the Performance Criteria for Awards under the Annual Incentive Compensation Plan</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#122">Stockholder Proposal No.&nbsp;1</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#123">Annual Report</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#124">Incorporation by Reference</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#125">Stockholder Proposals</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#126">Other Matters</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#127">Annex A, Policy for Director Independence, Audit/Ethics Committee Members and Audit Committee Financial Expert</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#128">Annex B, Charter of the Audit/Ethics Committee</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#129">Annex C, Guidelines for Membership on the Board of Directors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#130">Annex D, Selection Process for New Board of Directors Candidates</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#131">Annex E, Stockholder Communications with the Board of Directors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#132">Annex F, Baker Hughes Incorporated Annual Incentive Compensation Plan</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#133">Annex G, Guidelines for Pre-Approval of Audit and Non-Audit Fees of Independent Auditor</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">61</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>



<P align="center" style="font-size: 10pt">i&nbsp;
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PROXY STATEMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Proxy Statement is furnished in connection with the solicitation of proxies by the Board
of Directors of Baker Hughes Incorporated, a Delaware corporation (&#147;Company,&#148; &#147;Baker Hughes,&#148; &#147;we,&#148;
&#147;us&#148; and &#147;our&#148;), to be voted at the Annual Meeting of Stockholders scheduled to be held on
Thursday, April&nbsp;27, 2006 and at any and all reconvened meetings after adjournments thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Solicitation of proxies by mail is expected to commence on or about March&nbsp;15, 2006 (the
approximate date this Proxy Statement and accompanying proxy were first sent to security holders).
The Company will bear the cost of the solicitation. In addition to solicitation by mail, certain of
the directors, officers and regular employees of the Company may, without extra compensation,
solicit proxies by telephone, facsimile and personal interview. The Company will make arrangements
with brokerage houses, custodians, nominees and other fiduciaries to send proxy material to their
principals, and the Company will reimburse them for postage and clerical expenses. The Company has
retained Mellon Investor Services LLC, Baker Hughes&#146; transfer agent and registrar, to assist in the
solicitation of proxies from stockholders of the Company for an anticipated fee of $9,500, plus
out-of-pocket expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stockholders with shares registered in their names with Mellon Investor Services LLC may
authorize a proxy by the Internet at the following Internet address: http://www.eproxy.com/bhi, or
telephonically by calling Mellon Investor Services LLC at 1-800-435-6710. Proxies submitted
through Mellon Investor Services LLC by the Internet or telephone must be received by 11:59&nbsp;p.m.
Eastern time (10:59&nbsp;p.m. Central time) on April&nbsp;26, 2006. The giving of a proxy will not affect
your right to vote in person if you decide to attend the meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A number of banks and brokerage firms participate in a program that also permits stockholders
to direct their vote by the Internet or telephone. This option is separate from that offered by
Mellon Investor Services LLC and will be reflected on the voting form from a bank or brokerage firm
that accompanies this Proxy Statement. If your shares are held in an account at a bank or
brokerage firm that participates in such a program, you may direct the vote of these shares by the
Internet or telephone by following the instructions on the voting form enclosed with the proxy from
the bank or brokerage firm. Votes directed by the Internet or telephone through such a program must
be received by Mellon Investor Services LLC by 11:59&nbsp;p.m. Eastern time (10:59&nbsp;p.m. Central time) on
April&nbsp;26, 2006. Directing the voting of your shares will not affect your right to vote in person
if you decide to attend the meeting; however, you must first request a proxy either on the Internet
or the voting form that accompanies this Proxy Statement. Requesting a proxy prior to the
deadlines described above will automatically cancel any voting directions you have previously given
by the Internet or by telephone with respect to your shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Internet and telephone proxy procedures are designed to authenticate stockholders&#146;
identities, to allow stockholders to give their proxy instructions and to confirm that those
instructions have been properly recorded. Stockholders authorizing proxies or directing the voting
of shares by the Internet should understand that there may be costs associated with electronic
access, such as usage charges from access providers and telephone companies, and those costs must
be borne by the stockholder.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;<B>Shares for which proxies have been executed will be voted as specified in the proxies. If no
specification is made, the shares will be voted FOR the election of nominees listed herein as
directors, FOR ratification of Deloitte &#038; Touche LLP as the Company&#146;s Independent Auditor for
fiscal year 2006, FOR approval of the performance criteria for awards under the Annual Incentive
Compensation Plan and AGAINST Stockholder Proposal No.&nbsp;1.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proxies may be revoked at any time prior to the exercise thereof by filing with the Corporate
Secretary, at the Company&#146;s executive offices, a written revocation or a duly executed proxy
bearing a later date. The executive offices of the Company are located at 3900 Essex Lane, Houston,
Texas 77027-5177. For a period of at least ten days prior to the Annual Meeting of Stockholders, a
complete list of stockholders entitled to vote at the Annual Meeting will be available for
inspection during ordinary business hours at the Company&#146;s executive offices by stockholders of
record for proper purposes.
</DIV>

<P align="center" style="font-size: 10pt">1
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>VOTING SECURITIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The securities of the Company entitled to be voted at the Annual Meeting consist of shares of
its Common Stock, par value $1 per share (&#147;Common Stock&#148;),
of which 342,449,488&nbsp;shares were issued
and outstanding at the close of business on March&nbsp;1, 2006. Only stockholders of record at the
close of business on that date will be entitled to vote at the meeting. Each share of Common Stock
entitles the holder thereof to one vote on each matter to be considered at the meeting.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assuming a quorum is present at the Annual Meeting, either in person or represented by proxy,
(i)&nbsp;the eleven nominees receiving the greatest number of votes cast by the holders of the Common
Stock entitled to vote on the matter will be elected as directors; and (ii)&nbsp;the affirmative vote of
the holders of a majority of the shares of Common Stock present in person or represented by proxy
at the Annual Meeting and entitled to vote on the matter is required for the approval of the
ratification of Deloitte &#038; Touche LLP as the Company&#146;s Independent Auditor for fiscal year 2006,
the approval of the performance criteria for awards under the Annual Incentive Compensation Plan,
and for the approval of Stockholder Proposal No.&nbsp;1. There will be no cumulative voting in the
election of directors. Under Delaware law, abstentions are treated as present and entitled to vote
and thus, will be counted in determining whether a quorum is present and will have the effect of a
vote against a matter, except for the election of directors in which case an abstention will have
no effect. Shares held by brokers or nominees for which instructions have not been received from
the beneficial owners or persons entitled to vote and for which the broker or nominee does not have
discretionary power to vote on a particular matter (called &#147;broker non-votes&#148;), will be considered
present for quorum purposes but not considered entitled to vote on that matter. Accordingly, broker
non-votes will not have any impact on the vote on a matter.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the rules of the New York Stock Exchange (&#147;NYSE&#148;) in effect at the time this Proxy
Statement was issued, if you hold your shares through a broker, your broker is permitted to vote
your shares on the election of directors, the ratification of the Independent Auditor and the
approval of the performance criteria for awards under the Annual Incentive Compensation Plan even
if the broker does not receive instructions from you. Your shares will only be voted with respect
to Stockholder Proposal No.&nbsp;1 if you have provided specific voting instructions to your broker.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information about the holders of the Common Stock known to the
Company on February&nbsp;28, 2006 to own beneficially 5% or more of the Common Stock, based on filings
by the holders with the Securities and Exchange Commission (&#147;SEC&#148;). For the purposes of this Proxy
Statement, beneficial ownership of securities is defined in accordance with the rules of the SEC to
mean generally the power to vote or dispose of securities regardless of any economic interest
therein.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Name and Address</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Percent</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">1.</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital Research and Management Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,307,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">12.7</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">333 South Hope Street</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Los Angeles, California 90071</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">2.</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">FMR Corp.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,415,890</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7.8</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">82 Devonshire Street</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Boston, Massachusetts 02109</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">3.</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dodge &#038; Cox</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,210,112</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.6</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">One Sansome Street, 35<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Floor</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">San Francisco, California 94104</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">4.</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Barclays Global Investors, NA.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,916,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.3</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">45 Fremont Street</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">San Francisco, California 94105</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PROPOSAL NO. 1<BR>
ELECTION OF DIRECTORS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;Eleven directors will be elected at the Annual Meeting of Stockholders to serve for one-year
terms expiring at the Annual Meeting of Stockholders expected to be held in April&nbsp;2007.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth each nominee director&#146;s name, all positions with the Company
held by the nominee, the nominee&#146;s principal occupation, age and year in which the nominee first
became a director of the Company. Each nominee director has agreed to serve if elected.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Director</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Nominees</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Principal Occupation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Age</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Since</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Larry D. Brady
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of the Board and Chief Executive
Officer of Intermec, Inc. (industrial
technologies). Mr.&nbsp;Brady has served as
Chairman of Intermec since 2001 and as
Chief Executive Officer since 2000. He
served as President of Intermec, Inc. from
1999 to 2001 and as Chief Operating Officer
from 1999 to 2000. Mr.&nbsp;Brady served as
President of FMC Corporation from 1993 to
1999. He served as a Vice President of FMC
from 1984 to 1989, as Executive Vice
President from 1989 to 1999 and was a
director from 1989 to 1999. Mr.&nbsp;Brady is a
director of Pactiv Corporation and a member
of the Advisory Board of Northwestern
University&#146;s Kellogg School of Management.
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">63</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2004</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Clarence P. Cazalot, Jr.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President and Chief Executive Officer and
Director since 2002 of Marathon Oil
Corporation, formerly known as USX
Corporation (diversified petroleum), and he
is also a member of the Board of Managers
of Marathon Ashland Petroleum LLC. He
served as Vice Chairman of USX Corporation
and President of Marathon Oil Company from
2000 to 2001. Mr.&nbsp;Cazalot was with Texaco
Inc. from 1972 to 2000, and while at Texaco
served in the following executive
positions: President of Worldwide
Production Operations of Texaco Inc. from
1999 to 2000; President of International
Production and Chairman of London-based
Texaco Ltd. from 1998 to 1999; President of
International Marketing and Manufacturing
from 1997 to 1998; President of Texaco
Exploration and Production Inc. from 1994
to 1996; and President of Texaco&#146;s Latin
America/West Africa Division from 1992 to
1994. In 1992, he was named Vice President,
Texaco Inc. He is a director and Executive
Committee member of both the U.S. Saudi
Arabian Business Council and the American
Petroleum Institute.
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">55</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2002</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Chad C. Deaton
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of the Board and Chief Executive
Officer of Baker Hughes since October&nbsp;2004.
Mr.&nbsp;Deaton was President and Chief
Executive Officer of Hanover Compressor
Company (compression services) from 2002
through October&nbsp;2004. He was a Senior
Advisor to Schlumberger Oilfield Services
(oilfield services) from 1999 to September
2001 and was an Executive Vice President
from 1998 to 1999. Mr.&nbsp;Deaton is a director
of CARBO Ceramics, Inc. and Ariel
Corporation. He is also a director of
Junior Achievement of Southeast Texas,
Houston Achievement Place and Greater
Houston Partnership.
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">53</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2004</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Director</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Nominees (cont&#146;d.)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Principal Occupation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Age</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Since</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Edward P. Djerejian
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director of the James A. Baker III
Institute for Public Policy at Rice
University since 1994. Ambassador Djerejian
served as U.S. Ambassador to Israel from
1993 to 1994. He served as Assistant
Secretary of State for Near Eastern Affairs
from 1991 to 1993. Ambassador Djerejian
also served as U.S. Ambassador to the
Syrian Arab Republic from 1988 to 1991, as
Deputy Assistant Secretary of Near Eastern
and South Asian Affairs from 1986 to 1988
and as Special Assistant to the President
and Deputy Press Secretary for Foreign
Affairs from 1985 to 1986. He is a director
of Global Industries, Ltd. and Occidental
Petroleum.
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">66</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2001</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Anthony G. Fernandes
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Former Chairman, President and Chief
Executive Officer of Phillip Services
Corporation (diversified industrial
services provider) from August&nbsp;1999 to
April&nbsp;2002. He was Executive Vice
President of ARCO (Atlantic Richfield
Company) from 1994 to 1999, President of
ARCO Coal, a subsidiary of ARCO, from 1990
to 1994 and Corporate Controller of ARCO
from 1987 to 1990. Mr.&nbsp;Fernandes serves on
the Boards of Black &#038; Veatch, Cytec
Industries and Tower Automotive.
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">60</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2001</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Claire W. Gargalli
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Former Vice Chairman, Diversified Search
and Diversified Health Search Companies
(executive search consultants) from 1990 to
1998. Ms.&nbsp;Gargalli served as President and
Chief Operating Officer of Equimark from
1984 to 1990. During that period, she also
served as Chairman and Chief Executive
Officer of Equimark&#146;s two principal
subsidiaries, Equibank and Liberty Bank.
Ms.&nbsp;Gargalli is a director of Praxair,
Inc., Intermec, Inc. and Virginia National
Bank. She is also a trustee emeritus of
Carnegie Mellon University and Middlebury
College.
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">63</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1998</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">James A. Lash
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">First Selectman, Greenwich, Connecticut
(city government) since 2003 and Chairman
of Manchester Principal LLC and its
predecessor company (high technology
venture capital firm) since 1982. Mr.&nbsp;Lash
also served as Chairman and Chief Executive
Officer of Reading Tube Corporation from
1982 to 1996. Mr.&nbsp;Lash is a director of Ivy
Animal Health, Inc., City Center 55th
Street Foundation, Inc. and the East West
Institute.
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">61</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2002</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Director</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Nominees (cont&#146;d.)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Principal Occupation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Age</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Since</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">James F. McCall
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Former Executive Director of the American
Society of Military Comptrollers from
1991 to 2004. He was Lieutenant General and
Comptroller of the U.S. Army from 1988
until 1991, when he retired. General
McCall was commissioned as 2<SUP style="font-size: 85%; vertical-align: text-top">nd</SUP>
Lieutenant of Infantry in 1958 and was
selected into the Army&#146;s Comptroller/Financial
Management career field in 1970.
General McCall is Chairman of the Board of
Enterprise Bancorp Inc. and former Vice
Chairman of the Board of Directors of the
American Refugee Committee.
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">71</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1996</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">J. Larry Nichols
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of the Board and Chief Executive
Officer of Devon Energy Corporation
(independent energy company). Mr.&nbsp;Nichols
has served as Chairman of Devon Energy
Corporation since 2000, as Chief Executive
Officer since 1980 and was President from
1976 until May&nbsp;2003. Mr.&nbsp;Nichols serves as
a director of several trade associations
relevant to the oil and gas exploration and
production business.
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">63</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2001</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">H. John Riley, Jr.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Former Chairman of the Board of Cooper
Industries, Ltd. (diversified manufacturer)
from May&nbsp;1996 to February&nbsp;2006. He was
Chief Executive Officer of Cooper
Industries from 1995 to 2005. He was
Executive Vice President, Operations of
Cooper Industries from 1982 to 1992, Chief
Operating Officer from 1992 to 1995 and
President from 1992 to 2004. Mr.&nbsp;Riley is a
director of The Allstate Corporation. Mr.
Riley also serves as a director of Junior
Achievement of Southeast Texas, Central
Houston, Inc. and as a trustee of the
Museum of Fine Arts, Houston and Syracuse
University.
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">65</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1997</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Charles L. Watson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of Eagle Energy Partners (energy
marketing), Chairman of Wincrest Ventures,
L.P. (private investments) since January
1998 and Founding Partner of Caldwell
Watson Real Estate Group, Inc. since 1994.
Former Chairman and Chief Executive Officer
of Dynegy Inc. (diversified energy) from
1989 to 2002. Mr.&nbsp;Watson was elected
Chairman and Chief Executive Officer of NGC
Corporation, the predecessor of Dynegy, in
1989. Mr.&nbsp;Watson serves on the National
Petroleum Council and the Governor&#146;s
Business Council. He is a founding member
of the Natural Gas Council. Mr.&nbsp;Watson is
also a board member of Theatre Under the
Stars, Hobby Center for the Performing
Arts, Central Houston, Inc., Baylor College
of Medicine and Angeleno Investors, L.P.
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">56</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1998</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any nominee for director who receives a &#147;withhold&#148; vote representing a majority of the
votes cast for his or her election would be required to submit a letter of resignation to the
Board&#146;s Governance Committee. The Governance Committee would recommend to the Board whether or not
the resignation should be accepted. Pursuant to the Company&#146;s Bylaws, in case of a vacancy on the
Board of Directors, a majority of the remaining directors will appoint a successor, and the
director so appointed will hold office until the next annual meeting or until his or her successor is
elected and qualified or until his or her earlier death, retirement, resignation or removal.
</DIV>


<P align="center" style="font-size: 10pt">5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CORPORATE GOVERNANCE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s Board of Directors believes the purpose of corporate governance is to maximize
stockholder value in a manner consistent with legal requirements and the highest standards of
integrity. The Board has adopted and adheres to corporate governance practices, which practices
the Board and management believe promote this purpose, are sound and represent best practices. The
Board continually reviews these governance practices, Delaware law (the state in which the Company
is incorporated), the rules and listing standards of the NYSE and SEC regulations, as well as best
practices suggested by recognized governance authorities. The Board has established the Company&#146;s
Corporate Governance Guidelines (&#147;Governance Guidelines&#148;) as the principles of conduct of the
Company&#146;s business affairs to benefit its stockholders, which guidelines conform to the NYSE
corporate governance listing standards and SEC rules. The Governance Guidelines are posted under
the &#147;About Baker Hughes&#148; section of the Company&#146;s website at www.bakerhughes.com and are also
available upon request to the Company&#146;s Corporate Secretary.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Board of Directors</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the fiscal year ended December&nbsp;31, 2005 the Board of Directors held ten meetings, and
each director attended at least 75% of the total number of meetings of the Company&#146;s Board of
Directors and respective Committees on which he or she served. During fiscal year 2005, each
non-employee director was paid an annual retainer of $60,000. The Audit/Ethics Committee Chairman
received an additional annual retainer of $20,000. Each of the other non-employee Committee
Chairmen received an additional annual retainer of $15,000. Each of the members of the
Audit/Ethics Committee, excluding the Chairman, received an additional annual retainer of $10,000.
Each of the members, excluding the Chairmen, of the Compensation, Finance and Governance Committees
received an additional annual retainer of $5,000. Each non-employee director also received annual
non-retainer equity in a total amount of $70,000, in the form of restricted shares of the Company&#146;s
Common Stock with $35,000 issued in each of January and July of 2005. The restricted stock vested
on February&nbsp;24, 2006. The Company previously provided benefits under a Directors Retirement Plan,
which plan remains in effect until all benefits accrued thereunder are paid in accordance with the
current terms and conditions of that Plan. No additional benefits have been accrued under the Plan
since December&nbsp;31, 2001.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective as of January&nbsp;1, 2006 each non-employee director is paid an annual retainer of
$60,000. The Audit/Ethics Committee Chairman receives an additional annual retainer of $20,000.
Each of the other non-employee Committee Chairmen receives an additional annual retainer of
$15,000. Each of the members of the Audit/Ethics Committee, excluding the Chairman, receives an
additional annual retainer of $10,000. Each of the members, excluding the Chairmen, of the
Compensation, Finance and Governance Committees receives an additional annual retainer of $5,000.
Each non-employee director also receives annual non-retainer equity in a total amount of $150,000,
in the form of (i)&nbsp;restricted shares of the Company&#146;s Common Stock with a value of $100,000 issued
in January of each year that will generally vest one-third on each of January&nbsp;25, 2007, 2008 and
2009, respectively (however, the restricted shares will become fully vested on the annual meeting
of stockholders next following the date the non-employee director attains the age of 72); and (ii)
options to acquire the Company&#146;s Common Stock with a value of $25,000 issued in each of January and
July. The options will vest one-third each year beginning on the first anniversary date of the
grant of the option.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Director Independence</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All members of the Board of Directors, other than the Chairman and Chief Executive Officer,
Mr.&nbsp;Deaton, satisfy the independence requirements of the NYSE. In addition, the Board has adopted
a &#147;Policy for Director Independence, Audit/Ethics Committee Members and Audit Committee Financial
Expert&#148; included as Exhibit&nbsp;C to the Governance Guidelines and attached as Annex A to this Proxy
Statement. Such Policy supplements the NYSE independence requirements. Directors who meet these
standards are considered to be &#147;independent.&#148; The Board has determined that all the nominees for
election at this Annual Meeting, other than Mr.&nbsp;Deaton, meet these standards.
</DIV>


<P align="center" style="font-size: 10pt">6
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Regularly Scheduled Executive Sessions of Non-Management Directors</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the Governance Guidelines, executive sessions of independent non-employee
directors are held at every regularly scheduled meeting of the Board of Directors. The Governance
Committee reviews and recommends to the Board a director to serve as Lead Director during executive
sessions. Currently, Mr.&nbsp;Riley serves as the Lead Director during the executive sessions of
independent non-employee directors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Committees of the Board</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors has, in addition to other committees, an Audit/Ethics Committee, a
Compensation Committee and a Governance Committee. The Audit/Ethics Committee, Compensation
Committee and Governance Committee are comprised solely of independent directors in accordance
with NYSE corporate governance listing standards. The Board of Directors adopted charters for the
Audit/Ethics, Compensation and Governance Committees that comply with the requirements of the NYSE
standards, applicable provisions of the Sarbanes-Oxley Act of 2002 (&#147;SOX&#148;) and SEC rules. Each of
the charters has been posted and is available for public viewing under the &#147;About Baker Hughes&#148;
section of the Company&#146;s website at www.bakerhughes.com and are also available upon request to the
Company&#146;s Corporate Secretary.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Audit/Ethics Committee. </B>The Audit/Ethics Committee, which is comprised of Messrs.&nbsp;McCall
(Chairman), Cazalot, Fernandes, Lash and Nichols, held eight meetings during fiscal year 2005. The
Board of Directors has determined that the Audit/Ethics Committee members meet the NYSE standards
for independence and the Company&#146;s &#147;Policy for Director Independence, Audit/Ethics Committee
Members and Audit Committee Financial Expert.&#148; The Audit/Ethics Committee Charter is attached as
Annex B to this Proxy Statement and can be accessed electronically under the &#147;About Baker Hughes&#148;
section of the Company&#146;s website at www.bakerhughes.com. The General Auditor and the Corporate
internal audit function report directly to the Audit/Ethics Committee. The Company&#146;s Corporate
Audit Department sends written reports quarterly to the Audit/Ethics Committee on its audit
findings and the status of its internal audit projects. The Audit/Ethics Committee provides
assistance to the Board of Directors in overseeing matters relating to the accounting and reporting
practices of the Company, the adequacy of the Company&#146;s disclosure controls and internal controls,
the quality and integrity of the quarterly and annual financial statements of the Company, the
performance of the Company&#146;s internal audit function, the review and pre-approval of the current
year audit and non-audit fees and the Company&#146;s risk analysis and risk management procedures. In
addition, the Audit/Ethics Committee oversees the Company&#146;s compliance programs relating to legal
and regulatory requirements. The Audit/Ethics Committee has developed &#147;Procedures for the Receipt,
Retention and Treatment of Complaints&#148; to address complaints received by the Company regarding
accounting, internal controls or auditing matters. Such procedures are included as Exhibit&nbsp;F to
the Governance Guidelines. The Governance Guidelines are posted under the &#147;About Baker Hughes&#148;
section of the Company&#146;s website at www.bakerhughes.com and are also available upon request to the
Company&#146;s Corporate Secretary.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit/Ethics Committee also is responsible for the selection and hiring of the Company&#146;s
independent auditor. To promote independence of the audit, the Committee consults separately and
jointly with the independent auditor, the internal auditors and management.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board has reviewed the experience of the members of the Audit/Ethics Committee and has
found that all five members of the Committee meet the qualifications to be an &#147;audit committee
financial expert&#148; under the SEC rules issued pursuant to SOX. In addition, the Board has
designated Anthony G. Fernandes as the member of the Committee who serves as the &#147;audit committee
financial expert&#148; of the Company&#146;s Audit/Ethics Committee.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Compensation Committee. </B>The Compensation Committee, which is comprised of Messrs.&nbsp;Riley
(Chairman), Brady, Djerejian, Watson and Ms.&nbsp;Gargalli, held six meetings during fiscal year 2005.
The Board of Directors has determined that the Compensation Committee members meet the NYSE
standards for independence as contained in the Company&#146;s &#147;Policy for Director Independence,
Audit/Ethics Committee Members and Audit Committee Financial Expert.&#148; The Compensation Committee
Charter can be accessed electronically under the &#147;About Baker Hughes&#148; section of the Company&#146;s
website at www.bakerhughes.com. The functions performed by the Compensation Committee include
reviewing and approving Baker Hughes&#146; executive salary and bonus structure; reviewing Baker Hughes&#146;
stock option plans (and making grants thereunder), employee retirement income plans, the employee
thrift plan and the employee stock purchase plan; setting bonus goals; approving salary and bonus
awards
</DIV>



<P align="center" style="font-size: 10pt">7
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">to key executives; recommending incentive compensation and stock award plans for approval by
stockholders; and reviewing management succession plans.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Governance Committee. </B>The Governance Committee, which is comprised of Messrs.&nbsp;Cazalot
(Chairman), Djerejian, McCall, Riley and Watson, held three meetings during fiscal year 2005. The
Board of Directors has determined that the Governance Committee members meet the NYSE standards for
independence as well as those contained in the Company&#146;s &#147;Policy for Director Independence,
Audit/Ethics Committee Members and Audit Committee Financial Expert.&#148; A current copy of the
Governance Committee Charter can be accessed electronically under the &#147;About Baker Hughes&#148; section
of the Company&#146;s website at www.bakerhughes.com. The functions performed by the Governance
Committee include overseeing the Company&#146;s corporate governance affairs and monitoring compliance
with the Governance Guidelines. In addition, the Governance Committee nominates candidates for the
Board of Directors, selects candidates to fill vacancies on the Board, reviews the structure and
composition of the Board, considers the qualifications required for continuing Board service and
recommends directors&#146; fees.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Governance Committee has implemented policies regarding Board membership. The Governance
Committee will consider candidates based upon the size and existing composition of the Board, the
number and qualifications of candidates, the benefit of continuity on the Board and the relevance
of the candidate&#146;s background and experience to issues facing the Company. The criteria used for
selecting directors are described in the Company&#146;s &#147;Guidelines for Membership on the Board of
Directors,&#148; included as Exhibit&nbsp;A to the Governance Guidelines, which are attached as Annex C to
this Proxy Statement. In addition, the Company has established a formal process for the selection
of candidates, as described in the Company&#146;s &#147;Selection Process for New Board of Directors
Candidates&#148; included as Exhibit&nbsp;B to the Governance Guidelines which are attached as Annex D to
this Proxy Statement, and candidates are evaluated based on their background, experience and other
relevant factors as described in the Guidelines for Membership on the Board of Directors. The
Board or the Governance Committee will evaluate candidates properly proposed by stockholders in the
same manner as all other candidates.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Governance Committee has established, in accordance with the Company&#146;s Bylaws regarding
stockholder nominees, a policy that it will consider director candidates recommended by
stockholders. Recommendations that stockholders desire to make should be submitted between October
16, 2006 and November&nbsp;15, 2006 in accordance with the Company&#146;s Bylaws and &#147;Policy and Submission
Procedures for Stockholder Recommended Director Candidates&#148; included as Exhibit&nbsp;D to the Governance
Guidelines, which are posted under the &#147;About Baker Hughes&#148; section of the Company&#146;s website at
www.bakerhughes.com and are also available upon request to: Chairman, Governance Committee of the
Board of Directors, P.O. Box 4740, Houston, Texas 77210-4740, or to the Corporate Secretary c/o
Baker Hughes Incorporated, 3900 Essex Lane, Suite&nbsp;1200, Houston, Texas 77027-5177 and should be
accompanied by substantially the same types of information as are required under the Company&#146;s
Bylaws for stockholder nominees.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of the current nominees for director listed under the caption &#147;Election of Directors&#148; is
an existing director standing for re-election. The Company has not paid any fee to a third party
to identify or evaluate or to assist in identifying or evaluating such nominees. In connection
with the 2006 Annual Meeting, the Governance Committee did not receive any recommendation for a
nominee proposed from any stockholder or group of stockholders.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Stockholder Communications with the Board of Directors</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s Annual Meeting provides an opportunity each year for stockholders to ask
questions of or otherwise communicate directly with members of the Company&#146;s Board of Directors on
matters relevant to the Company. In accordance with the Company&#146;s &#147;Annual Meeting Director
Attendance Policy,&#148; which has been incorporated into the Governance Guidelines, all directors and
nominees for election as directors are requested and encouraged to personally attend the Company&#146;s
Annual Meeting. Ten of the Company&#146;s director nominees attended the Company&#146;s 2005 Annual Meeting.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To provide the Company&#146;s stockholders and other interested parties with a direct and open line
of communication to the Company&#146;s Board of Directors, a process has been established for
communications with any member of the Board of Directors, including the Company&#146;s Lead Director,
any of the Chairmen of the Company&#146;s Governance Committee, Audit/Ethics Committee, Compensation
Committee, Finance Committee or with the non-
</DIV>



<P align="center" style="font-size: 10pt">8
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">employee directors as a group. Stockholders may communicate with any member of the Board,
including the Company&#146;s Lead Director, the Chairman of any of the Company&#146;s Governance Committee,
Audit/Ethics Committee, Compensation Committee, Finance Committee or with the non-employee
directors of the Company as a group, by sending such written communication to the Corporate
Secretary, c/o Baker Hughes Incorporated, 3900 Essex Lane, Suite&nbsp;1200, Houston, TX 77027-5177. The
procedures for &#147;Stockholder Communications with the Board of Directors&#148; (attached as Annex E to
this Proxy Statement) are also included as Exhibit&nbsp;E to the Governance Guidelines and can be
accessed electronically under the &#147;About Baker Hughes&#148; section of the Company&#146;s website at
www.bakerhughes.com and are also available upon request to the Company&#146;s Corporate Secretary.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Business Code of Conduct</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has a Business Code of Conduct that applies to all officers, directors and
employees, which includes the code of ethics for the Company&#146;s principal executive officer,
principal financial officer, principal accounting officer or controller and all other persons
performing similar functions within the meaning of the securities laws and regulations. Each of
the Company&#146;s officers has certified compliance with the Company&#146;s Business Code of Conduct and the
applicable NYSE and SOX provisions. The Company&#146;s Business Code of Conduct and Code of Ethical
Conduct Certification are posted under the &#147;About Baker Hughes&#148; section of the Company&#146;s website at
www.bakerhughes.com and are also available upon request to the Company&#146;s Corporate Secretary.
</DIV>

<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SECURITY OWNERSHIP OF MANAGEMENT</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Set forth below is certain information with respect to beneficial ownership of the Common
Stock as of March&nbsp;1, 2006 by each director nominee, the persons named in the Summary Compensation
Table below and the directors and executive officers as a group. The table includes transactions
effected prior to the close of business on March&nbsp;1, 2006.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Shares Beneficially Owned</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares Subject to Options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Which Are or Will Become</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficial</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>as of 3/01/06</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Exercisable Prior to 5/01/06</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Ownership</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Class(1)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Larry D. Brady</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4,158</TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,412</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Clarence P. Cazalot, Jr.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5,749</TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Edward P. Djerejian</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5,749</TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Anthony G. Fernandes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7,749</TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,358</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,107</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Claire W. Gargalli</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15,283</TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,664</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">James A. Lash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5,749</TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">James F. McCall</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">8,749</TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">J. Larry Nichols</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5,749</TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">H. John Riley, Jr.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">16,749</TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Charles L. Watson</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">13,589</TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,146</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chad C. Deaton</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">152,001</TD>
    <TD nowrap>(3)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">207,001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">James R. Clark</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100,593</TD>
    <TD nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">169,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">G. Stephen Finley</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">132,479</TD>
    <TD nowrap>(5)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132,479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Alan R. Crain, Jr.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">32,547</TD>
    <TD nowrap>(6)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Douglas J. Wall</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">50,987</TD>
    <TD nowrap>(7)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">All directors and
executive officers as a
group (26 persons)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">726,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">471,793</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,198,724</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>No percent of class is shown for holdings of less than 1%.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes 1,332 shares issued as a restricted stock award on January&nbsp;25, 2006, which
award will vest one-third on each of January&nbsp;25, 2007, 2008 and 2009, or, if earlier, on
the date of the annual meeting of stockholders next following the date the non-employee
director attains age 72.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes 80,000, 33,900, and 25,395 shares issued as restricted stock awards on
October&nbsp;25, 2004, January&nbsp;26, 2005 and January&nbsp;25, 2006, respectively, which awards will
vest 25&nbsp;percent on each of October&nbsp;25, 2006, 2007, 2008, and 2009, one-half on each of
January&nbsp;26, 2007 and 2008, respectively,</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">9
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>and one-third on each of January&nbsp;25, 2007, 2008 and 2009, respectively.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes 40,000, 13,567, and 11,000 shares issued as restricted stock awards on
October&nbsp;27, 2004, January&nbsp;26, 2005 and January&nbsp;25, 2006, respectively, which awards will
vest 25&nbsp;percent on each of October&nbsp;27, 2007 and October&nbsp;27, 2008, with the remaining 50
percent vesting on October&nbsp;27, 2009, one-half on each of January&nbsp;26, 2007 and 2008,
respectively, and one-third on each of January&nbsp;25, 2007, 2008 and 2009, respectively.
Also includes a one-time, stock-matching award of 25,000 shares of restricted stock
issued on September&nbsp;2, 2002, which award will vest on March&nbsp;7, 2006.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(5)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes 20,000 and 9,600 shares issued as restricted stock awards on October&nbsp;23,
2002 and January&nbsp;26, 2005, respectively, which awards are scheduled to vest on June&nbsp;30,
2006, one-half on each of January&nbsp;26, 2007 and 2008, respectively. However, Mr.&nbsp;Finley
has announced his retirement from the Company effective March&nbsp;31, 2006. In connection
with his retirement, the Company has indicated that it will accelerate the vesting of Mr.
Finley&#146;s 20,000 share restricted stock award to March&nbsp;31, 2006, which was originally
scheduled to vest on June&nbsp;30, 2006 and the vesting of the remaining 9,600 shares of the
14,400 share restricted stock award to March&nbsp;31, 2006, which was originally scheduled to
vest on January&nbsp;26, 2007 and 2008.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(6)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes 10,000, 6,217, and 6,000 shares issued as restricted stock awards on April
28, 2004, January&nbsp;26, 2005 and January&nbsp;25, 2006, respectively, which awards will vest on
April&nbsp;28, 2008, one-half on each of January&nbsp;26, 2007 and 2008, respectively, and
one-third on each of January&nbsp;25, 2007, 2008 and 2009, respectively.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(7)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes 10,000, 3,167, and 4,356 shares issued as restricted stock awards on March
2, 2004, January&nbsp;26, 2005 and January&nbsp;25, 2006, respectively, which awards will vest on
March&nbsp;2, 2008, one-half on each of January&nbsp;26, 2007 and 2008, respectively, and one-third
on each of January&nbsp;25, 2007, 2008 and 2009, respectively. Also includes 16,000 shares
issued as a restricted stock award on February&nbsp;28, 2005, which award will vest 25&nbsp;percent
on February&nbsp;28, 2007 and 2008, with the remaining 50&nbsp;percent vesting on February&nbsp;28,
2009.</TD>
</TR>

</TABLE>


<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CHARITABLE CONTRIBUTIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the fiscal year ended December&nbsp;31, 2005, the Company did not make any contributions to
any charitable organization in which an independent director served as an executive officer, that
exceeded the greater of $1&nbsp;million or 2% of the charitable organization&#146;s consolidated gross
revenues.
</DIV>

<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>COMPLIANCE WITH SECTION 16(</B>a<B>) OF THE SECURITIES EXCHANGE ACT OF 1934</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;16(a) of the Securities Exchange Act of 1934, as amended (&#147;Exchange Act&#148;), requires
executive officers, directors and persons who beneficially own more than 10% of the Common Stock to
file initial reports of ownership and reports of changes in ownership with the SEC and the NYSE.
SEC regulations require executive officers, directors and greater than 10% beneficial owners to
furnish the Company with copies of all Section 16(a) forms they file.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based solely on a review of the copies of those forms furnished to the Company and written
representations from the executive officers and directors, the Company believes its executive
officers and directors complied with all applicable Section 16(a) filing requirements during the
fiscal year ended December&nbsp;31, 2005.
</DIV>

<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>EXECUTIVE COMPENSATION</B>
</DIV>
<DIV align="left">
<A name="109"></A>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>SUMMARY COMPENSATION TABLE</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the compensation earned by the Chief Executive Officer and the
four most highly compensated executive officers of the Company for services rendered to the Company
and its subsidiaries for the fiscal years ended December&nbsp;31, 2005, 2004 and 2003. Bonuses are paid
under the Company&#146;s applicable
</DIV>


<P align="center" style="font-size: 10pt">10
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">incentive compensation guidelines and are generally paid in the year following the year in
which the bonus is earned.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Annual Compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Long-Term Compensation</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Awards</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Securities</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Restricted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Underlying</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Annual</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name and Principal Position</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Year</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Salary</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Bonus</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Compensation(1)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Awards</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(# Shares)(2)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chad C. Deaton, Chairman of</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">878,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">2,036,576</TD>
    <TD nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">212,326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">50,850</TD>
    <TD nowrap>(5)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">180,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">the Board and Chief</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">126,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">600,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">80,000</TD>
    <TD nowrap>(6)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Executive Officer(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">James R. Clark, President and</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">635,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1,178,630</TD>
    <TD nowrap>(7)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">190,754</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">20,350</TD>
    <TD nowrap>(5)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Chief Operating Officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">720,261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">40,000</TD>
    <TD nowrap>(8)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">98,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">321,270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">245,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,890</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">G. Stephen Finley, Senior Vice</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">528,077</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">795,423</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">14,400</TD>
    <TD nowrap>(5)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">President &#150; Finance and</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">507,257</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">624,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111,794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Administration and</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">483,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">289,098</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Chief Financial Officer(9)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Alan R. Crain, Jr., Vice President</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">418,077</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">581,293</TD>
    <TD nowrap>(10)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">128,639</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">9,325</TD>
    <TD nowrap>(5)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">and General Counsel</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">402,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">419,164</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90,269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD nowrap>(11)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">386,346</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,212</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Douglas J. Wall, Vice President</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">367,260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">507,685</TD>
    <TD nowrap>(12)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105,765</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">20,750</TD>
    <TD nowrap>(5)(13)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,150</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">and Group President,</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">330,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">374,834</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD nowrap>(14)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Completion and</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">311,812</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198,411</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,844</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Production</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Other Annual Compensation includes Company contributions to the Baker Hughes Thrift
Plan, the Baker Hughes Supplemental Retirement Plan, the Baker Hughes Pension Plan, life
insurance premiums, perquisites and other compensation for the named executive officers.
Amounts for fiscal year 2005 for the persons named above are as follows:</TD>
</TR>

</TABLE>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Thrift</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>SRP_</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Pension</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Life</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Perquisites</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chad C. Deaton</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15,531</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">153,792</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,603</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">212,326</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">James R. Clark</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,246</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">144,288</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">190,754</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">G. Stephen Finley</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,907</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,053</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,160</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Alan R. Crain, Jr.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,531</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">128,639</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Douglas J. Wall</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,899</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,165</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105,765</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 3pt; width: 18%; border-top: 0px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>See Footnote (1)&nbsp;to table in &#147;Stock Options Granted During 2005&#148; below.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Mr.&nbsp;Deaton joined the Company on October&nbsp;25, 2004 as Chairman of the Board and
Chief Executive Officer.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>For 2005, Mr.&nbsp;Deaton earned a bonus of $1,000,000 under the Company&#146;s Annual
Incentive Compensation Plan, which will be paid in March&nbsp;2006. In February&nbsp;2006, he also
was awarded an additional discretionary bonus of $1,036,576, which will be paid in three
installments, with $757,692 paid in March&nbsp;2006 and $278,884 carried over and paid in two
installments of $139,442 in March&nbsp;2007 and 2008, respectively, together with interest at
an annual rate equal to the ten-year Treasury rate plus 25 basis points. Interest will
be calculated as of January&nbsp;15 of each year. The carryover or &#147;banked&#148;
bonus will be paid only if Mr.&nbsp;Deaton is actively employed by the Company as of the date
the bonus is paid.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">11
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(5)</TD>
    <TD>&nbsp;</TD>
    <TD>On January&nbsp;26, 2005, Messrs.&nbsp;Deaton, Clark, Finley, Crain and Wall were awarded
50,850, 20,350, 14,400, 9,325 and 4,750 shares of restricted Common Stock valued at
$3,710,016, $1,484,736, $1,050,624, $680,352, and $346,560, respectively. See Footnotes
(3-7) to the table under the caption &#147;Security Ownership of Management&#148; above. After
January&nbsp;26, 2005, Messrs.&nbsp;Deaton, Clark, Finley, Crain and Wall received the Company&#146;s
ordinary dividend payment on the award on a quarterly basis. All of these awards vest
one-third on each of January&nbsp;26, 2006, 2007 and 2008. Upon his
retirement, Mr.&nbsp;Finley will vest two-thirds
of these shares and all of his previously awarded 20,000 shares.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(6)</TD>
    <TD>&nbsp;</TD>
    <TD>On October&nbsp;25, 2004, Mr.&nbsp;Deaton was awarded 80,000 shares of restricted Common
Stock valued at $3,471,200. See Footnote (3)&nbsp;to the table under the caption
&#147;Security Ownership of Management&#148; above. After October&nbsp;25, 2004, Mr.&nbsp;Deaton
received the Company&#146;s ordinary dividend payment on the award on a quarterly basis.
The 80,000-share award vests 25&nbsp;percent on each of October&nbsp;25, 2006, 2007, 2008 and
2009. At December&nbsp;31, 2005, Mr.&nbsp;Deaton held 80,000 shares of restricted stock,
valued at $4,862,400, based upon the closing stock price of $60.78 per share of
Common Stock on the NYSE on December&nbsp;30, 2005</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(7)</TD>
    <TD>&nbsp;</TD>
    <TD>For 2005, Mr.&nbsp;Clark earned a bonus of $1,000,000 under the Company&#146;s Annual
Incentive Compensation Plan, which will be paid in March&nbsp;2006. In February&nbsp;2006, he also
was awarded an additional discretionary bonus of $178,630, which will be paid in three
installments, with $17,231 paid in March&nbsp;2006 and $80,700 and $80,699 paid in March&nbsp;2007
and 2008, respectively, together with interest at an annual rate equal to the ten-year
Treasury rate plus 25 basis points. Interest will be calculated as of January
15 of each year. The carryover or &#147;banked&#148; bonus will be paid only if Mr.
Clark is actively employed by the Company as of the date the bonus is paid.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(8)</TD>
    <TD>&nbsp;</TD>
    <TD>On October&nbsp;27, 2004, Mr.&nbsp;Clark was awarded 40,000 shares of restricted Common
Stock valued at $1,768,000. See Footnote (4)&nbsp;to the table under the caption
&#147;Security Ownership of Management&#148; above. After October&nbsp;27, 2004, Mr.&nbsp;Clark received
the Company&#146;s ordinary dividend payment on the award on a quarterly basis. The
40,000-share award vests 25&nbsp;percent on each of October&nbsp;27, 2007 and 2008 with the
remaining 50&nbsp;percent vesting on October&nbsp;27, 2009. At December&nbsp;31, 2005, Mr.&nbsp;Clark
held 40,000 shares of restricted stock, valued at $2,431,200 based upon the closing
stock price of $60.78 per share of Common Stock on the NYSE on December&nbsp;30, 2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(9)</TD>
    <TD>&nbsp;</TD>
    <TD>Mr.&nbsp;Finley has announced that he will retire from the Company on March&nbsp;31,
2006. The Company has entered into an agreement with Mr.&nbsp;Finley regarding his
retirement benefits and agreement to provide consulting services. See &#147;Employment
Change in Control and Indemnification Agreements&#148; below.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(10)</TD>
    <TD>&nbsp;</TD>
    <TD>For 2005, Mr.&nbsp;Crain earned a bonus of $581,293, which will be paid in three
installments, with $501,692 paid in March&nbsp;2006 and $39,801 and $39,800 carried over and
paid in March&nbsp;2007 and 2008, respectively, together with interest at an annual rate equal
to the ten-year Treasury rate plus 25 basis points. Interest will be calculated as of
January&nbsp;15 of each year. Under the Company&#146;s incentive compensation
guidelines, a carryover or &#147;banked&#148; bonus is paid to an employee if the employee is
actively employed by the Company as of the date the bonus is paid and the employee
remains eligible to participate in the plan that generated the bonus.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(11)</TD>
    <TD>&nbsp;</TD>
    <TD>On April&nbsp;28, 2004, Mr.&nbsp;Crain was awarded 10,000 shares of restricted Common Stock
valued at $382,700. See Footnote (6)&nbsp;to the table under the caption &#147;Security Ownership
of Management&#148; above. After April&nbsp;28, 2004, Mr.&nbsp;Crain received the Company&#146;s ordinary
dividend payment on the award on a quarterly basis. The 10,000-share award vests on
April&nbsp;28, 2008. At December&nbsp;31, 2005, Mr.&nbsp;Crain held 10,000 shares of restricted stock,
valued at $607,800, based upon the closing stock price of $60.78 per share of Common
Stock on the NYSE on December&nbsp;30, 2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(12)</TD>
    <TD>&nbsp;</TD>
    <TD>For 2005, Mr.&nbsp;Wall earned a bonus of $507,685, which will be paid in three
installments, with $427,837 paid in March&nbsp;2006 and $79,848 carried over and paid in two
installments of $39,924 in March&nbsp;2007 and 2008. For 2004, Mr.&nbsp;Wall earned a bonus of
$374,834, which will be paid in three installments, with $330,250 paid in March&nbsp;2005 and
$44,584 carried over and paid in two installments of $22,292 in March&nbsp;2006 and 2007,
respectively, together with interest at an annual rate equal to the ten-year Treasury
rate</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">12
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>plus 25 basis points. Interest will be calculated as of January&nbsp;15 of each
year. Under the Company&#146;s incentive compensation guidelines, a carryover or &#147;banked&#148;
bonus is paid to an employee if the employee is actively employed by the Company as of the
date the bonus is paid and the employee remains eligible to participate in the plan that
generated the bonus.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(13)</TD>
    <TD>&nbsp;</TD>
    <TD>On February&nbsp;28, 2005, Mr.&nbsp;Wall was awarded 16,000 shares of restricted Common
Stock valued at $763,200. See Footnote (7)&nbsp;to the table under the caption &#147;Security
Ownership of Management&#148; above. After February&nbsp;28, 2005, Mr.&nbsp;Wall received the
Company&#146;s ordinary dividend payment on the award on a quarterly basis. The
16,000-share award will vest 25&nbsp;percent on February&nbsp;28, 2007 and 2008, with the
remaining 50&nbsp;percent vesting on February&nbsp;28, 2009. At December&nbsp;30, 2005, Mr.&nbsp;Wall
held 16,000 shares of restricted stock, valued at $972,480, based
upon the closing stock
price of $60.78 per share of Common Stock on the NYSE on December&nbsp;30, 2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(14)</TD>
    <TD>&nbsp;</TD>
    <TD>On March&nbsp;2, 2004, Mr.&nbsp;Wall was awarded 10,000 shares of restricted Common Stock
valued at $384,200. See Footnote (7)&nbsp;to the table under the caption &#147;Security Ownership
of Management&#148; above. After March&nbsp;2, 2004, Mr.&nbsp;Wall received the Company&#146;s ordinary
dividend payment on the award on a quarterly basis. The 10,000-share award vests on
March&nbsp;2, 2008. At December&nbsp;31, 2005, Mr.&nbsp;Wall held 10,000 shares of restricted stock,
valued at $607,800, based upon the closing stock price of $60.78 per share of Common
Stock on the NYSE on December&nbsp;30, 2005.</TD>
</TR>

</TABLE>


<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>STOCK OPTIONS GRANTED DURING 2005</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information regarding stock options granted during
fiscal year 2005 to the persons named in the Summary Compensation Table above. The theoretical
values on the date of the grant of stock options granted in 2005 shown below are presented pursuant
to SEC rules and are calculated using the Black-Scholes Model for pricing options. The theoretical
values of options trading in the stock markets do not necessarily bear a relationship to the
compensation cost to the Company or potential gain realized by an executive. The actual amount, if
any, realized upon exercise of stock options will depend upon the market price of the Common Stock
relative to the exercise price per share of the stock option at the time the stock option is
exercised. There is no assurance that the theoretical values of stock options reflected in this
table actually will be realized.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% of Total</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Grant Date</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Name and</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Granted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Expiration</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Theoretical</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Date of Option Grant</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Granted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>to Employees</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Date</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Value(1)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chad C. Deaton</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">01/26/2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">01/26/2015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,074,375</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">07/27/2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">07/27/2015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,540,602</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">James R. Clark</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">01/26/2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">01/26/2015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">429,750</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">07/27/2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">07/27/2015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">616,241</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">G. Stephen Finley(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">01/26/2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">01/26/2015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">304,406</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">07/27/2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">07/27/2015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">436,504</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Alan R. Crain, Jr.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">01/26/2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">01/26/2015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">196,969</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">07/27/2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">07/27/2015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">282,444</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Douglas J. Wall</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">01/26/2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">01/26/2015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">100,275</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">07/27/2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">07/27/2015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">252,488</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">13
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>The theoretical values on the grant date are calculated under the Black-Scholes
Model. The Black-Scholes Model is a mathematical formula used to value options traded on
stock exchanges. This formula considers a number of factors to estimate the option&#146;s
theoretical value, including the stock&#146;s historical volatility, the dividend rate, the
expected life of the option and risk-free interest rates. The grant date theoretical
value assumes a volatility of 35.04%, a dividend yield of 0.95%, a risk-free rate of
return of 3.72% and an expected option life of 3.71&nbsp;years.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Upon Mr.&nbsp;Finley&#146;s retirement, all of his options will vest with a five-year
exercise period from his retirement date.</TD>
</TR>

</TABLE>


<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>AGGREGATED OPTION EXERCISES DURING 2005<BR>
AND OPTION VALUES AT DECEMBER 31, 2005</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information regarding options the persons named in the
Summary Compensation Table above exercised during 2005 and the options those persons held at
December&nbsp;31, 2005. The values of unexercised in-the-money stock options at December&nbsp;31, 2005, shown
below, are presented pursuant to SEC rules. The actual amount, if any, realized upon exercise of
stock options will depend upon the market price of the Common Stock relative to the exercise price
per share of the stock option at the time the stock option is exercised.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Option Exercises</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000"><B>Unexercised Options at December 31, 2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Number of Securities</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Value of Unexercised</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Underlying Unexercised Options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>In-the-Money Options ($) (1)</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares Acquired</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Value</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>on Exercise (#)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Realized ($)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Exercisable</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Unexercisable</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Exercisable</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Unexercisable</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chad C. Deaton</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">230,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">434,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,917,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">James R. Clark</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,832</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">918,101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">185,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,220,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,581,750</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">G. Stephen Finley(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">204,163</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,603,055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">130,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,591,121</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Alan R. Crain, Jr.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">151,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,999,233</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,775,451</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Douglas J. Wall</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">548,851</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,941</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,660,032</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">901,380</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Based on the closing price of the Common Stock of $60.78 on December&nbsp;30, 2005, the
last trading day of 2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Upon Mr.&nbsp;Finley&#146;s retirement, all of his options will vest.</TD>
</TR>

</TABLE>


<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>LONG-TERM INCENTIVE PLAN<BR>
AWARDS GRANTED IN 2006<BR>
PERFORMANCE UNITS FOR 2006-2008</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Estimated Future Payouts under Non-Stock Price-Based</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Plans</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of Units</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Performance</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Threshold</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Target</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Maximum</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Awarded (1)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Period Payout</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>($ or #)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>($ or #)</B></TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>($ or #)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Chad C. Deaton
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">24,050</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" nowrap>December&nbsp;31, 2008
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom">601,250</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom">2,405,000</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom">4,810,000</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">James R. Clark
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">10,000</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;31, 2008
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom">250,000</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom">1,000,000</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom">2,000,000</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">G. Stephen Finley(2)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&#151;</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;31, 2008
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&#151;</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&#151;</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&#151;</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Alan R. Crain, Jr.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">5,500</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;31, 2008
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom">137,500</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom">550,000</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom">1,100,000</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Douglas J. Wall
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">4,125</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;31, 2008
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom">103,125</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom">412,500</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom">825,000</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Under the 2002 Director &#038; Officer Long-Term Incentive Plan, each Performance Unit
provides the individual an opportunity to earn a cash payment based upon the cumulative
Baker Value Added (as that term has been defined by the Performance Unit Agreement)
achieved by the Company for the three-year period beginning January&nbsp;1, 2006 and ending
December&nbsp;31, 2008. Each unit awarded under the Performance Unit Agreement has a target
value of $100. However, the actual award payment will be</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">14
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>within a range of $25 per unit if a minimum cumulative BVA level is reached for the
Performance Period up to $200 per unit if a maximum cumulative BVA is met or exceeded for
the Performance Period. If the minimum cumulative BVA level is not reached for the
Performance Period, then the award pursuant to the Performance Unit Agreement shall lapse
and be forfeited as of December&nbsp;31, 2008. The Company will pay any amount payable to an
individual pursuant to the Performance Unit Agreement to such individual on March&nbsp;13,
2009, unless otherwise provided under the Terms and Conditions of the Performance Unit
Agreement.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Upon Mr.&nbsp;Finley&#146;s retirement, all of his awards will terminate without payment.</TD>
</TR>

</TABLE>



<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>LONG-TERM INCENTIVE PLAN<BR>
AWARDS GRANTED IN 2005 AND 2004<BR>
PERFORMANCE PLAN FOR 2005-2007 AND 2004-2006</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5" style="border-bottom: 1px solid #000000"><B>For 2005-2007 Performance Period</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5" style="border-bottom: 1px solid #000000"><B>For 2004-2006 Performance Period</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Performance</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Performance</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Target Shares(1)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Period Payout</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Target Shares(1)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Period Payout</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chad C. Deaton</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" nowrap>December 31, 2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" nowrap>December 31, 2006</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">James R. Clark</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December 31, 2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,993</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December 31, 2006</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">G.&nbsp; Stephen Finley(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December 31, 2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December 31, 2006</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Alan R. Crain, Jr.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December 31, 2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,664</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December 31, 2006</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Douglas J. Wall</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December 31, 2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December 31, 2006</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Under the Company&#146;s 2002 Director &#038; Officer Long-Term Incentive Plan, individuals
may be awarded target shares that subject to the terms and conditions of the plan may
entitle the individual to receive shares of Common Stock. If (a)&nbsp;the Company&#146;s total
shareholder return for the three-year period ending December&nbsp;31, 2006 or December&nbsp;31,
2007 (the &#147;Performance Period&#148;), equals or exceeds the median of the total shareholder
returns of the Morgan Stanley Oil Services Index companies for the Performance Period,
(b)&nbsp;a Change in Control of the Company has not occurred on or before December&nbsp;31, 2006,
or December&nbsp;31, 2007 and (c)&nbsp;the executive remains in the active employ of the Company
and/or one or more wholly-owned subsidiaries of the Company through the last day of the
Performance Period, then the Company will issue to the executive that number of shares
of Common Stock equal to (x)&nbsp;the number of shares of Common Stock set forth above as the
&#147;Number of Target Shares&#148; for the executive&#146;s performance award, multiplied by (y)&nbsp;the
applicable &#147;Percentage Target Earned&#148; factor specified in the table below. If (a)&nbsp;the
Company&#146;s total shareholder return for the Performance Period is less than the median of
the total shareholder returns of the Morgan Stanley Oil Services
Index companies for the
Performance Period, and (b)&nbsp;a Change in Control of the Company has not occurred on or
before December&nbsp;31, 2006, or December&nbsp;31, 2007 then the award will lapse and be
forfeited as of December&nbsp;31, 2006 or December&nbsp;31, 2007.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Upon Mr.&nbsp;Finley&#146;s retirement, all of his awards will terminate without payment.</TD>
</TR>

</TABLE>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Percentile Rank of the Company&#146;s Total Shareholder Return for the</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2005-2007</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Performance Period as Compared to the Total Shareholder Returns of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percentage Target</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>All Morgan Stanley Oil Services Index Companies</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Earned</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:45px; text-indent:-15px">96<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile or more</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">200</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">88<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile or more, but less than 95<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">150</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">81<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile or more, but less than 87<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">125</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">74<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile or more, but less than 80<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">66<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile or more, but less than 73<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">75</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">58<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile or more, but less than 65<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">50</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">50<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile or more, but less than 57<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">25</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:30px; text-indent:-15px">Less than 50<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">0</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">15
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Percentile Rank of the Company&#146;s Total Shareholder Return for the</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>2004-2006</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Performance Period as Compared to the Total Shareholder Returns of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Percentage Target</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>All Morgan Stanley Oil Services Index Companies</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Earned</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:45px; text-indent:-15px">95<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile or more</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">200%</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">85<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile or more, but less than 95<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">150%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">80<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile or more, but less than 85<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">125%</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">70<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile or more, but less than 80<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">100%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">65<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile or more, but less than 70<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">75%</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">55<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile or more, but less than 65<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">50%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">50<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile or more, but less than 55<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">25%</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:30px; text-indent:-15px">Less than 50<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Percentile</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">0%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PENSION PLAN TABLE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Baker Hughes adopted the Baker Hughes Incorporated Pension Plan, effective January&nbsp;1, 2002, to
provide benefits to its U.S. employees. (Employees outside the U.S. are covered under different
retirement plans.) Employees who are officers of the Company participate on the same basis as
other eligible employees. The Pension Plan is a tax-qualified, defined benefit plan funded
entirely by the Company. Under the provisions of the Pension Plan, a cash balance account is
established for each participant. Company contributions are made quarterly to the accounts, and
the contribution percentage is determined by the employee&#146;s age on the last day of the quarter and
is applied to quarterly eligible compensation. In addition to the Company contributions, the cash
balance accounts are credited with interest credits based on the balance in the account on the last
day of the quarter, using the applicable interest rate provided under section 417(e)(3)(A)(ii)(II)
of the Internal Revenue Code of 1986, as amended. The following are the quarterly contribution
rates under the Pension Plan:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="38%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Age at End of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percentage</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Quarter</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Contribution</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Under age 35</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">35 &#150; 39</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.5</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">40 &#150; 44</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">45 &#150; 49</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.5</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">50 and older</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.0</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An employee is fully vested in his or her Pension Plan account after five years of service.
However, regardless of the number of years of service, an employee is fully vested if the employee
retires from Baker Hughes at age 65 or later, or upon the employee&#146;s termination of employment due
to the death of the employee. In addition, employees of Baker Hughes who were 55&nbsp;years or older on
January&nbsp;1, 2002, had their prior years of service with Baker Hughes counted in the number of years
of service. Employees who are fully vested are eligible for early retirement benefits starting at
age 55. Pension Plan benefits in excess of $1,000 may be paid in the form of a single lump sum, a
single life annuity, or if an employee is married, a joint and 50% survivor annuity.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Estimated annual benefits payable upon retirement at normal retirement age (i.e., age 65)
under the Baker Hughes Pension Plan to each executive named in this Proxy Statement are reflected
in the following table. The retirement benefits in the table are calculated based on the
assumptions that each executive officer named in the Summary Compensation Table will remain an
employee until age 65 at the base salary shown in the Summary Compensation Table, with no pay
increases, cash balances are credited at the rate of 4% per quarter, interest is credited quarterly
using the applicable rate at August 1 of the preceding plan year, and the terms of the Pension Plan
remain unchanged.
</DIV>



<P align="center" style="font-size: 10pt">16
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Approximate Years of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Estimated Annual</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Credited Service at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Benefits Payable at</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Named Officer</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Anticipated Retirement</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Anticipated Retirement</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chad C. Deaton</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16,345.76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">James R. Clark</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,491.97</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">G. Stephen Finley(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,367.64</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Alan R. Crain, Jr.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,036.93</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Douglas J. Wall</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,652.89</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Mr.&nbsp;Finley will not be fully vested upon his retirement and will not receive any
benefit under the Pension Plan, but will receive his cash balance account under the prior
pension plan and the pension portion of the Supplemental Retirement Plan.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition to the Pension Plan, the Company has a Supplemental Retirement Plan to provide
covered executives with the total amount of retirement benefit they would have otherwise received
under the Pension Plan but for legislated compensation ceilings in compliance with certain sections
of the Internal Revenue Code, which limit retirement benefits payable under qualified plans. In
accordance with these legislated ceilings, eligible compensation under the Pension Plan was limited
to $210,000 in 2005. The compensation limit is assumed, for purposes of determining estimated
benefits shown in the above table, to increase in future years, based on estimated cost-of-living
increases applicable to such limit. The ceiling may be adjusted in the future by regulations
issued under the Internal Revenue Code. See Footnote (1)&nbsp;to the table under the caption &#147;Summary
Compensation Table.&#148;
</DIV>

<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>EMPLOYMENT, CHANGE IN CONTROL AND<BR>
INDEMNIFICATION AGREEMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Employment
Agreements</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has an employment agreement with Mr.&nbsp;Chad C. Deaton, dated as of October&nbsp;25, 2004,
which provides for the employment of Mr.&nbsp;Deaton for an initial two-year period ending October&nbsp;25,
2006, with automatic one-year renewals unless either party provides a notice not to extend the
employment agreement at least thirteen months prior to the then current expiration date. During
the term of the employment agreement, Mr.&nbsp;Deaton is entitled to receive the following, all as
established from time to time by the Board of Directors or the Compensation Committee:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a base salary;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the opportunity to earn annual cash bonuses in amounts that may vary from year to
year and that are based upon achievement of performance goals;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>long-term incentives in the form of equity-based compensation no less favorable
than awards made to other senior executives of the Company and that are commensurate with
awards granted to CEOs of other public companies of a similar size to the Company; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>benefits and perquisites that other officers and employees of the Company are
entitled to receive.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Deaton&#146;s base salary is to be reviewed at least annually during the term of the employment
agreement and may be increased (but not decreased) based upon his performance during the year.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the termination of Mr.&nbsp;Deaton&#146;s employment due to his Disability (as defined in the
employment agreement) or his death, he or his beneficiary is to be paid a lump sum in cash equal to
one-half his then base salary for each year (prorated for partial years) during the remaining term
of the employment agreement and a lump sum in cash equal to his expected value incentive bonus for
the year of termination. Upon termination of Mr.&nbsp;Deaton&#146;s employment by him for Good Reason (as
defined in the employment agreement) or by the Company without Cause (as defined in the employment
agreement), he is entitled to:
</DIV>


<P align="center" style="font-size: 10pt">17
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) a lump sum cash payment in an amount equal to two times his then base salary;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) a lump sum cash payment equal to the expected value of his incentive bonus for the
year of termination, prorated to the date of termination;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) for the remainder of the term of the employment agreement, continuation of
certain executive perquisites and medical insurance benefits; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) for the remainder of the term of the employment agreement, continued employer
contributions to the Company&#146;s Supplemental Retirement Plan.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">However, the foregoing benefits are not payable if Mr.&nbsp;Deaton is entitled to benefits under his
2004 Change in Control Agreement discussed below.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If Mr.&nbsp;Deaton&#146;s employment is terminated by him for any reason other than a Good Reason (as
defined in the employment agreement) or by the Company for Cause (as defined in the employment
agreement), he is to receive only those vested benefits to which he is entitled under the terms of
the employee benefit plans in which he is a participant as of the date of termination and a lump
sum amount in cash equal to the sum of (i)&nbsp;his base salary through the date of termination; (ii)
any compensation previously deferred by him (together with any accrued interest or earnings
thereon) and any accrued vacation pay; and (iii)&nbsp;any other amounts due him as of the date of
termination, in each case to the extent not theretofore paid.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the term of the employment agreement and for a period of two years following
termination of the employment agreement, Mr.&nbsp;Deaton is prohibited from (i)&nbsp;engaging in Competition
(as defined in the employment agreement) with the Company and (ii)&nbsp;soliciting customers, employees
and consultants of the Company. To the extent any provision is covered by both the employment
agreement and the 2004 Change in Control Agreement described and defined below, the 2004 Change in
Control Agreement provision so covered will supersede the employment agreement provision.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;G. Stephen Finley has announced his retirement from the Company on March&nbsp;31, 2006. In
connection with Mr.&nbsp;Finley&#146;s retirement, Mr.&nbsp;Finley entered into a retirement and consulting
agreement with the Company pursuant to which Mr.&nbsp;Finley has agreed to assist the Company as a
consultant for twelve months commencing April&nbsp;1, 2006 for a consulting fee of $44,583.33 per month.
During the term of the agreement Mr.&nbsp;Finley has agreed to maintain confidentiality and not to
compete with the Company. In addition, effective March&nbsp;31, 2006, all of Mr.&nbsp;Finley&#146;s current and
outstanding stock options and shares of restricted stock will vest, and he will be entitled to a
bonus payment for years 2005 and 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Change in Control Agreements</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the employment agreements described above, the Company has entered into change
in control agreements (&#147;2004 Change in Control Agreements&#148;) with Messrs.&nbsp;Chad C. Deaton, G. Stephen
Finley, James R. Clark, Alan R. Crain, Jr. and Douglas J. Wall (&#147;Named Officers&#148;), as well as nine
other officers of the Company. The 2004 Change in Control Agreements provide for payment of
certain benefits to these officers as a result of termination of employment following, or in
connection with, a Change in Control of the Company. The initial term of the 2004 Change in
Control Agreement for Mr.&nbsp;Deaton expires on October&nbsp;25, 2007. The 2004 Change in Control
Agreements for the remaining Named Officers were effective as of January&nbsp;1, 2006, and the initial
term will expire December&nbsp;31, 2007. After the expiration of the initial term, the 2004 Change in
Control Agreements will be automatically extended for successive two-year periods beginning on the
day immediately following the expiration date, unless, not later than 18&nbsp;months prior to the
expiration date or applicable renewal date, the Company shall give notice to the Named Officer that
the term of the 2004 Change in Control Agreements will not be extended.
</DIV>


<P align="center" style="font-size: 10pt">18
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the 2004 Change in Control Agreements, the Company pays severance benefits to an
officer if the officer&#146;s employment is terminated following, or in connection with, a Change in
Control and during the term unless:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;the Named Officer resigns without Good Reason (as defined in the 2004 Change in Control
Agreements);
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;the Company terminates the employment of the Named Officer for Cause (as defined in the
2004 Change in Control Agreements); or
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;the employment of the Named Officer is terminated by reason of death or Disability (as
defined in the 2004 Change in Control Agreements).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the Named Officer meets the criteria for payment of severance benefits due to termination
of employment following a Change in Control during the term as described above, in addition to any
benefits he is due under the Company&#146;s employee benefit plans and equity and incentive compensation
plans, he will receive the following benefits:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) a lump sum payment equal to three (3)&nbsp;times the Named Officer&#146;s annual base salary
in effect immediately prior to (i)&nbsp;the first event or circumstance constituting Good Reason
for his resignation, (ii)&nbsp;the Change of Control, or (iii)&nbsp;the Named Officer&#146;s termination of
employment, whichever is greatest (his &#147;Highest Base Salary&#148;);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) a lump sum payment equal to the Named Officer&#146;s expected value target percentage
for his incentive bonus under the Company&#146;s Annual Incentive Plan for the year in which he
terminates employment multiplied by his Highest Base Salary, prorated based upon the number of
days of his service during the performance period (reduced by any payments received by the
Named Officer under the Company&#146;s Annual Incentive Compensation Plan, as
amended, in connection with the Change in Control if the Named Officer&#146;s termination of
employment occurs during the same calendar year in which the Change in Control occurs);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) a lump sum payment equal to Named Officer&#146;s expected value target percentage under
his bonus for the year in which he terminates employment multiplied by his Highest Base Salary
and multiplied by three (3);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) continuation of accident and health insurance benefits for an additional three (3)
years;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) a lump sum payment equal to the sum of (i)&nbsp;the cost of the Named Officer&#146;s
perquisites in effect prior to his termination of employment for the remainder of the calendar
year and (ii)&nbsp;the cost of the Named Officer&#146;s perquisites in effect prior to his termination
of employment for an additional three (3)&nbsp;years;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) a lump sum payment equal to the undiscounted value of the benefits the Named Officer
would have received had he continued to participate in the Company&#146;s thrift and supplemental
retirement and pension plans for an additional three (3)&nbsp;years, assuming for this purpose
that:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) the Named Officer&#146;s compensation during that three-year period remained at the
levels used for calculating the severance payment described in paragraphs (a)&nbsp;and (c)
above, and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) the Named Officer&#146;s contributions to and accruals under those plans remained at
the levels in effect as of the date of the Change in Control or the date of termination,
whichever is greater;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) eligibility for the Company&#146;s retiree medical program if the Named Officer would have
become entitled to participate in that program had he remained employed for an additional
three (3)&nbsp;years;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) a lump sum payment equivalent to thirty-six (36)&nbsp;multiplied by the monthly basic
life insurance premium applicable to the Named Officer&#146;s basic life insurance coverage on the
date of termination;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) outplacement services for a period of three (3)&nbsp;years or, if earlier, until the Named
Officer&#146;s
</DIV>

<P align="center" style="font-size: 10pt">19
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">acceptance of an offer of employment or in lieu of outplacement services, the Named
Officer may elect to receive a cash payment of $30,000; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) an additional amount (a &#147;gross-up&#148; payment) in respect of excise taxes that may be
imposed under the &#147;golden parachute&#148; rules on payments and benefits received in connection
with the Change in Control. The gross-up payment would make the officer whole for excise taxes
(and for all taxes on the gross-up payment) in respect of payments and benefits received
pursuant to all the Company&#146;s plans, agreements and arrangements (including for example,
acceleration of vesting of equity awards).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the above, the 2004 Change in Control Agreements provide for full vesting of
all stock options and other equity incentive awards upon the occurrence of a Change in Control.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the 2004 Change in Control Agreements, a &#147;Change in Control&#148; is deemed to occur
if:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the individuals who are Incumbent Directors (as defined in the 2004 Change in
Control Agreements) cease for any reason to constitute a majority of the members of the
Board;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) the consummation of a merger of the Company or an affiliate of the Company with
another entity, unless the individuals and entities who were the beneficial owners of the
voting securities of the Company outstanding immediately prior to such merger own,
directly or indirectly, at least 50&nbsp;percent of the combined voting power of the voting
securities of the Company, the surviving entity or the parent of the surviving entity
outstanding immediately after such merger;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) any person, other than a Specified Owner (as defined in the 2004 Change in
Control Agreements), becomes a beneficial owner, directly or indirectly, of securities of
the Company representing 30&nbsp;percent or more of the combined voting power of the Company&#146;s
then outstanding voting securities;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) a sale, transfer, lease or other disposition of all or substantially all of the
Company&#146;s Assets (as defined in the 2004 Change in Control Agreements) is consummated (an
&#147;Asset Sale&#148;), unless:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) the individuals and entities who were the beneficial owners of the voting
securities of the Company immediately prior to such Asset Sale own, directly or
indirectly, 50&nbsp;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 the Company&#146;s
voting securities immediately prior to such Asset Sale; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) 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
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) the stockholders of the Company approve a plan of complete liquidation or
dissolution of the Company.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I><B>Indemnification
Agreements</B></I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has entered into an indemnification agreement with each of its directors and
executive officers. These agreements provide for the Company to, among other things, indemnify
such persons against certain liabilities that may arise by reason of their status or service as
directors or officers, to advance their expenses incurred as a result of a proceeding as to which
they may be indemnified and to cover such person under any directors&#146; and officers&#146; liability
insurance policy the Company chooses, in its discretion, to maintain. These indemnification
agreements are intended to provide indemnification rights to the fullest extent permitted under
applicable indemnification rights statutes in the State of Delaware and shall be in addition to any
other rights the indemnitee may have under the Company&#146;s Restated Certificate of Incorporation,
Bylaws and applicable law.
</DIV>


<P align="center" style="font-size: 10pt">20
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="115"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>COMPENSATION COMMITTEE REPORT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>To Our Stockholders</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This report is provided in accordance with SEC rules to inform the Company&#146;s stockholders of
the Compensation Committee&#146;s compensation policies for executive officers and the rationale for
compensation paid to the Chief Executive Officer of the Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee consists of five non-employee, independent directors (as defined in
Annex A to this Proxy Statement) who have no &#147;interlocking&#148; relationships (as defined by the SEC).
The Compensation Committee&#146;s overall goal is to develop executive compensation policies that
support the Company&#146;s strategic business objectives and consider current competitive market
practices. The Compensation Committee reviews and approves the design of, assesses the
effectiveness of and oversees executive compensation programs and other matters. The Compensation
Committee also reviews and approves all compensation and incentive programs for senior executives
and evaluates CEO performance.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Compensation Philosophy</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s primary business objective is to maximize stockholder value over the long-term.
The Company has developed a comprehensive business strategy that emphasizes financial and
organizational performance and continuing market leadership and Best in Class products and
services.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following compensation policies are intended to facilitate the achievement of the
Company&#146;s business strategies:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Drive and reward strong business performance which supports the Company&#146;s core
values and creates value for stockholders and competitive compensation for executives.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Provide senior executives a significant percentage of total pay that is
at-risk compensation to ensure management is focused on the long-term interests of
stockholders while balancing short- and long-term business goals.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Encourage executives to maintain significant stock holdings to align interests
with those of stockholders and require senior executive officers to own from two to five
times their base salary in Company Common Stock.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Design competitive total compensation and rewards which enhance the Company&#146;s
ability to attract and retain knowledgeable and experienced executives.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Target compensation and incentive levels that reflect competitive market
practices.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An independent compensation consultant provides competitive market data which includes current
compensation and benefit trends. The consultant reviews and provides survey data to the Committee
to compare the Company&#146;s executive compensation with compensation levels at companies in peer and
general industry groups. The Compensation Committee reviews and approves the selection of companies
used for compensation comparison purposes.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The companies in the S&#038;P 500 Oil and Gas Equipment and Services Index in the Performance Graph
included in this Proxy Statement are included in the group of companies used by the Company for
compensation comparisons. The Committee believes the Company&#146;s market for both compensation
comparison and executive talent purposes consists of companies with national and international
business operations and similar sales volumes, employment levels and operations in comparable lines
of business.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The key components of the executive compensation program are base salary, annual and long-term
incentives and benefits. All executive officers are also entitled to participate in the Company&#146;s
executive benefit and perquisite plans.
</DIV>


<P align="center" style="font-size: 10pt">21
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee regularly reviews all elements of an executive&#146;s total compensation
package. Total compensation opportunity is targeted between the 50th and 75th percentile based on
performance. Executives can be rewarded at the upper end of the range based on individual or
company performance, as well as the executive&#146;s experience and expertise.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;162(m) of the Internal Revenue Code of 1986, as amended (the &#147;Code&#148;) places a limit of
$1,000,000 on the amount of compensation that may be deducted by the Company in any year with
respect to the Company&#146;s Chief Executive Officer and its four other highest paid executive
officers, unless the compensation is performance-based compensation as described in Section 162(m)
and the related regulations. The Company has qualified certain compensation paid to executive
officers for deductibility under Section&nbsp;162(m), including certain compensation expense related to
options granted pursuant to the Company&#146;s 1993 Stock Option Plan, and certain options and other
long-term performance-based stock or cash awards granted pursuant to the Company&#146;s Long-Term
Incentive Plan and the Baker Hughes Incorporated 2002 Director &#038; Officer Long-Term Incentive Plan.
The Company may from time to time pay compensation to its executive officers that may not be
deductible including discretionary bonuses, or other types of compensation, outside of the Baker
Hughes Incorporated Annual Incentive Compensation Plan as amended and restated.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Base Salaries</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Executive base salaries are targeted at median levels of the peer and general industry group.
Base salaries are determined by evaluating an executive&#146;s level of responsibility and experience,
company-wide performance and internal and external equity.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After evaluating the competitive market data, increases to base salaries, if any, are driven
primarily by individual performance. Individual performance considers the executive&#146;s efforts in
achieving business results; promoting the Company&#146;s core values and keys to success; continuing
educational and management training; improving product quality; developing relationships with
customers, suppliers and employees; and demonstrating leadership abilities among co-workers.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In setting the base salary of Mr.&nbsp;Deaton for fiscal year 2005, the Compensation Committee
reviewed the compensation of chief executive officers from a group of comparator companies and with
comparable levels of experience. Based on this evaluation and analysis by outside advisors, the
Compensation Committee established a base salary of $925,000 for Mr.&nbsp;Deaton. Mr.&nbsp;Deaton&#146;s salary
will be reviewed on an ongoing basis using comparable data. In the future, the Compensation
Committee expects to also consider a review of Mr.&nbsp;Deaton&#146;s performance, including a review of the
Company&#146;s financial performance during the previous fiscal year with respect to revenue growth,
expense control, net income and earnings per share in setting Mr.&nbsp;Deaton&#146;s salary. Members of the
Board of Directors that are not part of the Compensation Committee will also be given the
opportunity to review Mr.&nbsp;Deaton&#146;s performance each year and provide input to the Compensation
Committee with respect to both past performance and performance goals and objectives for the
upcoming year.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Annual Incentives</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 1995 Employee Annual Incentive Compensation Plan, as amended and restated (the &#147;Restated
Plan&#148;), provides executives with the opportunity to earn cash bonuses based on the achievement of
specific Company-wide, business unit and individual performance goals.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each year, the Compensation Committee establishes specific goals relating to each executive&#146;s
bonus opportunity. Executives are assigned threshold, target and overachievement bonus levels based
on a percentage of their base salary. The percentages have been established based on competitive
practices of the comparator group. Executives earn bonuses based on achievements of the extent to
which pre-established goals are achieved. Bonus awards may be adjusted to differentiate
performance among executives. However, no bonus is paid unless predetermined threshold performance
levels are reached. If overachievement status is reached and surpassed, bonus awards earned over
this level are paid to the executive over a two-year period.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Performance goals are approved each year by the Compensation Committee and are based upon
financial and/or strategic objectives of the Company. During fiscal year 2005, the corporate
objective was based on (i)&nbsp;earnings per share and (ii)&nbsp;Baker Value Added, a Company metric that
measures our operating profit after tax less
</DIV>


<P align="center" style="font-size: 10pt">22
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">the cost of capital employed as a measure of the value we create for our stockholders. Baker Value
Added integrates the profit and loss results and balance sheet investments of the Company by
assuring that the cost of any capital used to earn those profits is fully taken into account.
Where executives have business unit responsibilities, a portion of the goal may be based on
financial performance measures that support business unit performance. This portion varies with the
position of each individual and the particular objectives of the Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Performance targets are established by the Compensation Committee at levels that are
achievable, but require above-average performance from each executive. Target bonus awards range
from 45% to 100% of base salary.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of the named executive officers received an annual bonus based on their contribution to
the 2005 financial performance.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Restated Plan was amended and restated in January&nbsp;2006. Under the Restated Plan, the
maximum annual award is increased from $1,000,000 to $4,000,000, specific provisions are included
to provide for the deferral of payment of any award earned over the overachievement level set by
the Committee and other amendments made to comply with the American Jobs Creation Act. The
performance criteria under the Restated Plan is being submitted to the stockholders for approval in
order to continue the qualification of the Restated Plan as generally providing for qualified
performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as
amended. A copy of the Restated Plan is attached as Annex F to this Proxy Statement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the bonus of $1,000,000 each earned under the Restated Plan for fiscal year
2005 performance, in February&nbsp;2006 Mr.&nbsp;Deaton and Mr.&nbsp;Clark each were awarded an additional
discretionary bonus of $1,036,576 and $178,630, respectively, outside of the Restated Plan. The
additional discretionary bonus was paid in recognition of the efforts of Mr.&nbsp;Deaton and Mr.&nbsp;Clark
during fiscal year 2005 and their contributions to the financial results of the Company during that
period. A portion of the additional discretionary bonus paid to Mr.&nbsp;Deaton and Mr.&nbsp;Clark will be
paid in 2007 and 2008.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Long-Term Incentives</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term incentives comprise the largest portion of an executive&#146;s total compensation
package, supporting the Company&#146;s commitment to provide a total compensation package that favors
at-risk pay. The Compensation Committee&#146;s objective is to provide executives with long-term
incentive award opportunities that are consistent with grants made within the comparator groups.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term incentive award guidelines are determined using competitive market references for
each executive position and the individual performance of each executive. Long-term incentives are
provided pursuant to the Company&#146;s long-term incentive plans.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Committee determined that, beginning in 2005, equity awards would be made in shares of
restricted stock (or restricted stock units in some jurisdictions) in addition to fixed-price stock
options. Restricted stock awards or units (collectively, &#147;restricted stock&#148;) generally vest pro
rata over three years after the date of the award.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock options are granted at an option price equal to the fair market value of the Common
Stock on the date prior to the date of grant. Vesting for stock options is generally pro rata over
three years after the date of grant. Stock options have value if the stock price appreciates after
the date the options are granted.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee determines the total stock options and restricted stock that will
be made available to the Company&#146;s executives, as well as the size of individual grants for each
senior executive. The amounts vary each year and are based upon what the Compensation Committee
believes is appropriate after consideration of the data provided by the independent compensation
consultant as well as the executive&#146;s total compensation package.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In fiscal year 2005, the Compensation Committee awarded grants of stock options and restricted
stock to certain of the Company&#146;s senior executives, including Messrs.&nbsp;Deaton, Clark, Finley, Crain
and Wall to furnish an incentive for top performance for the mutual benefit of the employees, the
Company and stockholders. In addition, in 2005 Mr.&nbsp;Wall received an award of 16,000 restricted
shares of Common Stock. Mr.&nbsp;Wall&#146;s award vests 25&nbsp;percent on each of February&nbsp;28, 2007 and 2008
with the remaining 50&nbsp;percent vesting on February&nbsp;28, 2009.
</DIV>


<P align="center" style="font-size: 10pt">23
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, the Compensation Committee and the Company&#146;s Board of Directors approved, subject to
stockholder approval, the Baker Hughes Incorporated 2002 Director &#038; Officer Long-Term Incentive
Plan (the &#147;2002 D&#038;O Plan&#148;) for performance-related awards for senior executives in order to
maintain a strong link to stockholders and to provide a more balanced long-term incentive program.
The Company&#146;s stockholders approved this plan in April&nbsp;2002.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, the Compensation Committee approved performance-related awards for senior executives
under the 2002 D&#038;O Plan. If the Company&#146;s total shareholder return for the three-year period
ending December&nbsp;31, 2007 equals or exceeds the median of the total shareholder returns of the
Morgan Stanley Oil Services Index companies (28 comparators) for the period, the Company will issue
shares of Common Stock equal to the participant&#146;s number of target shares of Common Stock for the
performance award multiplied by the applicable percentage target earned factor for the Morgan
Stanley Oil Services Index companies<I>.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2005, the Committee entered into an engagement with a separate independent executive
compensation consultant for the purpose of reviewing the Company&#146;s long-term incentive compensation
program. The Committee received and reviewed the recommendations from the consultant in December
2005, which the Committee has taken into consideration in its overall compensation program. Based
upon the advice of the consultant, the mix of long-term incentives to award executives in 2006 will
include stock options, restricted stock and performance units. Performance units will be paid in
cash and are based on a cumulative Baker Value Added target over a
three-year period.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Performance
unit targets for Baker Value Added were established by the Compensation Committee
with assistance from an independent consultant. Executives were assigned entry level, expected
value and overachievement levels of the Baker Value Added metric. No payout shall be made unless
predetermined threshold performance levels are reached. If the overachievement level is surpassed,
resulting payouts will be capped at the amount payable for the overachievement level.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Summary</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee believes the executive compensation program provides a competitive
total compensation opportunity with a significant performance orientation. The annual incentive
plan is designed to evaluate and reward achievement of specific objectives that drive the success
of the Company. The long-term incentive awards link executives directly to stockholders and reward
the Company&#146;s executives for continuing positive stock performance on an absolute and relative
basis.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">H. John Riley, Jr. (Chairman)<BR>
Larry D. Brady<BR>
Edward P. Djerejian<BR>
Claire W. Gargalli<BR>
Charles L. Watson

</DIV>
<DIV align="left">
<A name="116"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s Compensation Committee consists of Messrs.&nbsp;Riley, Brady, Djerejian and Watson
and Ms.&nbsp;Gargalli, all of whom are non-employee directors. None of the Compensation Committee
members has served as an officer of the Company, and none of the Company&#146;s executive officers has
served as a member of a compensation committee or board of directors of any other entity, which has
an executive officer serving as a member of the Company&#146;s Board of Directors.
</DIV>
<DIV align="left">
<A name="117"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>CORPORATE PERFORMANCE GRAPH</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following graph compares the yearly percentage change in the Company&#146;s cumulative total
stockholder return on its Common Stock (assuming reinvestment of dividends into Common Stock at the
date of payment) with
</DIV>


<P align="center" style="font-size: 10pt">24
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">the cumulative total return on the published Standard &#038; Poor&#146;s 500 Stock Index and the cumulative
total return on Standard &#038; Poor&#146;s 500 Oil and Gas Equipment and Services Index over the preceding
five-year period. The following graph is presented pursuant to SEC rules. The Company believes
that while total stockholder return is an important corporate performance indicator, it is subject
to the vagaries of the market. In addition to the creation of stockholder value, the Company&#146;s
executive compensation program is based on financial and strategic results and the other factors
set forth and discussed above in the &#147;Compensation Committee Report.&#148;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Comparison
of Five-Year Cumulative Total Return*</B><BR><BR>
<B>Baker Hughes Incorporated; S&#038;P 500 Index and S&#038;P 500 Oil and Gas Equipment and Services Index</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><IMG src="h33535ph3353501.gif" alt="(PERFORMANCE GRAPH)">
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Baker Hughes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">88.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">79.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">80.77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">108.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">155.94</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">S&#038;P 500</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68.64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88.33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102.75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">S&#038;P Oil and Gas Drilling and Equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96.91</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">143.98</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Total return assumes reinvestment of dividends on a quarterly basis.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The comparison of total return on investment (change in year-end stock price plus reinvested
dividends) assumes that $100 was invested on December&nbsp;31, 1999 in Baker Hughes Common Stock, the
S&#038;P 500 Index and the S&#038;P 500 Oil and Gas Equipment and Services Index.
</DIV>

<DIV align="left">
<A name="118"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>AUDIT/ETHICS COMMITTEE REPORT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit/Ethics Committee is comprised of five members, each of whom is independent, as
defined by the standards of the NYSE, the rules of the SEC, and under the Company&#146;s Policy for
Director Independence (attached as Annex A to this Proxy Statement). Under the Charter of the
Audit/Ethics Committee (attached as Annex B to this Proxy Statement), the Audit/Ethics Committee
assists the Board of Directors in overseeing matters relating to the accounting and reporting
practices of the Company, the adequacy of the Company&#146;s disclosure controls and internal controls,
the quality and integrity of the quarterly and annual financial statements of the Company, the
performance of the Company&#146;s internal audit function and the review and pre-approval of the current
year audit and non-audit fees with the Company&#146;s independent auditor. The Audit/Ethics Committee
also oversees the Company&#146;s policies with respect to risk assessment and risk management and
compliance programs relating to legal and regulatory requirements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2005, the Audit/Ethics Committee held eight meetings and
otherwise met and communicated with management and with Deloitte &#038; Touche LLP, the Company&#146;s
Independent Auditor for
</DIV>



<P align="center" style="font-size: 10pt">25
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2005. Deloitte &#038; Touche discussed with the Audit/Ethics Committee various
matters under applicable auditing standards, including information regarding the scope and results
of the audit and other matters required to be discussed by the Statement on Auditing Standards No.
61, as amended, &#147;Communication with Audit Committees.&#148; The Audit/Ethics Committee also discussed
with Deloitte &#038; Touche its independence from the Company and received the written disclosures and
the letter from Deloitte &#038; Touche concerning independence as required by the Independence Standards
Board Standard No.&nbsp;1, &#147;Independence Discussions with Audit Committees.&#148; The Audit/Ethics Committee
also reviewed the provision of services by Deloitte &#038; Touche not related to the audit of the
Company&#146;s financial statements and not related to the review of the Company&#146;s interim financial
statements as it pertains to the independence of Deloitte &#038; Touche. Deloitte &#038; Touche also
periodically reported the progress of its audit of management&#146;s assessment of the Company&#146;s
internal control over financial reporting.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit/Ethics Committee reviewed and discussed with management the Company&#146;s financial
results prior to the release of earnings. In addition, the Audit/Ethics Committee reviewed and
discussed with management, the Company&#146;s internal auditors and Deloitte &#038; Touche the interim
financial information included in the March&nbsp;31, 2005, June&nbsp;30, 2005 and September&nbsp;30, 2005 Form
10-Qs prior to their being filed with the SEC. The Audit/Ethics Committee also reviewed and
discussed the Company&#146;s audited financial statements for the year ended December&nbsp;31, 2005 with
management, the Company&#146;s internal auditors and Deloitte &#038; Touche. Deloitte &#038; Touche informed the
Audit/Ethics Committee that the Company&#146;s audited financial statements are presented fairly in
conformity with generally accepted accounting principles. The Audit/Ethics Committee also
monitored and
reviewed the Company&#146;s procedures and policies relating to the requirements of Section&nbsp;404 of the
Sarbanes-Oxley Act and related regulations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on the review and discussions referred to above, and such other matters deemed relevant
and appropriate by the Audit/Ethics Committee, the Audit/Ethics Committee recommended to the Board
of Directors, and the Board has approved, that the financial statements be included in the
Company&#146;s Annual Report on
Form 10-K for the year ended December&nbsp;31, 2005.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">James F. McCall (Chairman)<BR>
Clarence P. Cazalot, Jr.<BR>
Anthony G. Fernandes<BR>
James A. Lash<BR>
J. Larry Nichols

</DIV>
<DIV align="left">
<A name="119"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PROPOSAL NO. 2<BR>
RATIFICATION OF INDEPENDENT AUDITOR</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit/Ethics Committee has selected the firm of Deloitte &#038; Touche LLP as our Independent
Auditor to audit the Company&#146;s books and accounts for the year ending December&nbsp;31, 2006. Deloitte
&#038; Touche served as our Independent Auditor for fiscal year 2005. While the Audit/Ethics Committee
is responsible for the appointment, compensation, retention, termination and oversight of the
independent auditor, we are requesting, as a matter of good corporate governance, that the
stockholders ratify the appointment of Deloitte &#038; Touche as our principal Independent Auditor. If
the stockholders fail to ratify the selection, the Audit/Ethics Committee will reconsider whether
to retain Deloitte &#038; Touche and may retain that firm or another without re-submitting the matter to
our stockholders. Even if the appointment is ratified, the Audit/Ethics Committee may, in its
discretion, direct the appointment of a different independent auditor at anytime during the year if
it determines that such change would be in the Company&#146;s best interests and in the best interests
of our stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deloitte &#038; Touche&#146;s representatives will be present at the Annual Meeting and will have an
opportunity to make a statement, if they so desire, as well as to respond to appropriate questions
asked by our stockholders.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Recommendation of the Board of Directors</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your
Board of Directors recommends a vote &#147;FOR&#148; ratification of the selection of Deloitte &#038;
Touche LLP as the Company&#146;s Independent Auditor for 2006.</B>
</DIV>



<P align="center" style="font-size: 10pt">26
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="120"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>FEES PAID TO DELOITTE &#038; TOUCHE LLP</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deloitte &#038; Touche LLP, the member firms of Deloitte Touche Tohmatsu and their respective
affiliates (collectively, &#147;Deloitte Entities&#148;) billed or will bill the Company or its subsidiaries
for the aggregate fees set forth in the table below for services provided during 2005 and 2004.
These amounts include fees paid or to be paid by the Company for (i)&nbsp;professional services rendered
for the audit of the Company&#146;s annual financial statements and review of quarterly financial
statements, audit services related to Management&#146;s Report on Internal Control over Financial
Reporting and audit services related to the effectiveness of the Company&#146;s internal control over
financial reporting, (ii)&nbsp;assurance and related services that are reasonably related to the
performance of the audit or review of the Company&#146;s financial statements, (iii)&nbsp;professional
services rendered for tax compliance, tax advice, and tax planning and (iv)&nbsp;products and services
provided by Deloitte Entities.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(in millions)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(in millions)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Audit fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Audit-related fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11.9</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Audit fees include fees related to the audit of the Company&#146;s annual financial statements, review
of quarterly financial statements, audit of Management&#146;s Report on Internal Controls as required by
Section&nbsp;404 of SOX and audit services related to the effectiveness of the Company&#146;s internal
control over financial reporting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Audit-related fees for 2004 relate primarily to non-audit assistance with regulatory filings and
related matters, assistance with an internal control assessment program, non-audit work related to
the implementation of Section&nbsp;404 of SOX, training services and miscellaneous other minor services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax fees are primarily for the preparation of income, payroll, value added and various other
miscellaneous tax returns in 29 of the more than 90 countries where the Company operates. The
Company also incurs local country tax advisory services in these countries. Examples of these
kinds of services are assistance with audits by the local country tax authorities, acquisition and
disposition advice, consultation regarding changes in legislation or rulings and advice on the tax
effect of other structuring and operational matters.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the above services and fees, Deloitte Entities provide audit and other services to
various Company sponsored employee benefit plans which fees are incurred by and paid by the
respective plans. Fees paid to Deloitte Entities for these services totaled approximately $0.3
million in 2005 and $0.2&nbsp;million in 2004.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Pre-Approval Policies and Procedures</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit/Ethics Committee has adopted guidelines for the pre-approval of audit and permitted
non-audit services by the Company&#146;s Independent Auditor. The Audit/Ethics Committee will consider
annually and, if appropriate, approve the provision of audit services by its Independent Auditor
and consider and, if appropriate, pre-approve the provision of certain defined audit and non-audit
services. The Audit/Ethics Committee will also consider on a case-by-case basis and, if
appropriate, approve specific engagements that are not otherwise pre-approved. The &#147;Guidelines for
Pre-Approval of Audit and Non-Audit Fees of the Independent Auditor&#148; adopted by the Audit/Ethics
Committee on January&nbsp;27, 2004 is attached as Annex G to this Proxy Statement. Any proposed
engagement with estimated non-audit fees of $15,000 or more that does not fit within the
definition of a pre-approved service are presented to the Chairman of the Audit/Ethics Committee
for pre-approval. The Chairman of the Audit/Ethics Committee will report any specific approval of
services at its next regular meeting. The Audit/Ethics Committee will review a summary report
detailing all services being provided to the Company by its Independent Auditor. All of the fees
and services described above under &#147;audit fees,&#148;
&#147;audit-related fees&#148; and &#147;tax fees&#148; were approved under the Guidelines for Pre-Approval of Audit and Non-Audit Fees of the
Independent Auditor and pursuant to Section&nbsp;202 of SOX.
</DIV>



<P align="center" style="font-size: 10pt">27
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="121"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PROPOSAL NO. 3<BR>
APPROVAL OF THE PERFORMANCE CRITERIA FOR AWARDS UNDER THE<BR>
BAKER HUGHES INCORPORATED ANNUAL INCENTIVE<BR>
COMPENSATION PLAN</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Background</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s stockholders are being asked to approve the performance criteria that may apply
to annual performance bonuses granted under the Baker Hughes Incorporated 1995 Employee Annual
Incentive Compensation Plan, as amended and restated in January&nbsp;2006 (the &#147;Restated Plan&#148;). This
approval is necessary to generally preserve the Company&#146;s federal income tax deduction for
performance-based compensation paid to certain executive officers under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the &#147;Code&#148;).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1995 the Board of Directors adopted, and the stockholders approved, the Restated Plan,
which prior to the current amendment and restatement provided for cash bonuses for key employees of
the Company and its affiliates based upon the achievement of performance goals for the year. The
performance criteria for bonuses under the Restated Plan were subsequently approved at the 2001
stockholders meeting in order to continue the qualification of the Restated Plan under Section
162(m) of the Code.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Restated Plan provides officers of the Company with performance incentives that are
designed to align the interests of the officers, currently approximately 25, with those of the
Company&#146;s stockholders.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Restated Plan is administered by the Compensation Committee of the Company&#146;s Board of
Directors (the &#147;Compensation Committee&#148;), which is composed of non-employee independent directors.
The Compensation Committee has exclusive authority to (i)&nbsp;select the participants each year, (ii)
establish award opportunities for each participant, (iii)&nbsp;establish the performance goals for each
participant, and (iv)&nbsp;determine the extent to which the performance goals have been attained.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Section&nbsp;162(m) of the Code</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;162(m) of the Code imposes an annual deduction limit of $1,000,000 on the amount of
compensation paid to each of the chief executive officer and the four other highest compensated
officers. The deduction limit does not apply to performance-based compensation that satisfies the
requirements of Section 162(m) of the Code. The requirements of Section 162(m) of the Code for
performance-based compensation include stockholder approval of the material terms of the
performance goals under which the compensation is paid. The material terms include (1)&nbsp;the
employees eligible to receive compensation upon attainment of a goal, (2)&nbsp;the business criteria on
which the goals may be based, and (3)&nbsp;the maximum amount payable to an employee upon attainment of
a goal. Although the Company&#146;s stockholders previously approved the performance criteria under the
Restated Plan, Section 162(m) requires that performance criteria under plans such as the Restated
Plan be approved by the Company&#146;s stockholders every five years in order to meet the
performance-based compensation exception to the limitation on deductions. The stockholder approval
of the performance criteria under the Restated Plan serves the purpose of ensuring the tax
deductibility of any awards under the Restated Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Performance Criteria</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summary of the material features of the performance criteria for awards under
the Restated Plan is qualified by reference to the copy of the Restated Plan which is attached as
Annex F to this Proxy Statement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Performance bonuses may be granted under the Restated Plan to key employees of the Company and
its affiliates who are in a position to significantly contribute to the growth and profitability of
the Company and/or its affiliates.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Restated Plan, performance bonuses are subject to the satisfaction of one or more
performance goals during the applicable calendar year performance period. Performance goals for
awards will be determined by the Compensation Committee and will be designed to support the
Company&#146;s business strategy and align participants&#146; interests with stockholder interests.
Performance goals will be based on one or more of the following business criteria: Profit After Tax
(as defined in the Restated Plan), Baker Value Added (as defined in the Restated
</DIV>


<P align="center" style="font-size: 10pt">28
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Plan), 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, and cost ratios. In the case of a
participant other than a covered employee (within the meaning of Section 162(m) of the Code), up to
25&nbsp;percent of his or her expected value bonus opportunity may be based on nonfinancial, subjective
performance goals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Achievement of the goals may be measured:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>individually, alternatively, or in any combination;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>with respect to the Company, one or more business units, or any combination of the foregoing;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>on an absolute basis, or relative to a target, to a designated comparison group, to
results in other periods, or to other external measures; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>including or excluding items 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, in each case based on Opinion No.&nbsp;30 of the Accounting Principles Board (APB
Opinion No.&nbsp;30), or other applicable accounting rules, or consistent with the Company&#146;s
policies and practices for measuring the achievement of performance goals on the date
the Committee establishes the goals.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee may, in its discretion, decrease the amount payable under any
award. The Compensation Committee may, in its discretion, increase the amount payable under an
award to a participant who is not a covered employee (as defined in Section 162(m) of the Code).
The Compensation Committee may not increase the amount payable under an award to a participant who
is a covered employee (as defined in Section 162(m) of the Code).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Restated Plan, effective with the 2006 annual performance period, the maximum annual
performance bonus that may be granted under the Restated Plan is $4,000,000.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No performance bonuses will be paid under the Restated Plan for the 2006 performance period or
subsequent annual performance periods unless the Company&#146;s
stockholders approve this Proposal No.&nbsp;3.
For further information regarding compensation to executive officers and this Restated Plan see
&#147;Compensation Committee Report.&#148;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For equity compensation plan information, see Pages 70 through 72 in the Form 10-K attached to
this Proxy Statement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Recommendation
of the Board of Directors</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Your Board of Directors recommends a vote &#147;FOR&#148; approval of the performance criteria for
performance bonuses under the Restated Plan. </B>If you do not vote against or abstain from voting on
the proposal, your proxy will be voted &#147;FOR&#148; approval of the proposal. Abstentions will be counted
as shares entitled to vote on the proposal and will have the same effect as a vote &#147;AGAINST&#148; the
proposal. A broker non-vote will be counted for purposes of establishing a quorum, but will not be
treated as a share entitled to vote on the proposal. This will have the effect of reducing the
absolute number of shares necessary to approve the proposal.
</DIV>



<P align="center" style="font-size: 10pt">29
</DIV>

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<DIV align="left">
<A name="122"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>STOCKHOLDER PROPOSAL NO. 1<BR>
REGARDING VOTING UNDER THE COMPANY&#146;S DELAWARE CHARTER</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>The Board of Directors Unanimously Recommends<BR>
a Vote AGAINST This Proposal</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following proposal was submitted to Baker Hughes by Nick Rossi (with an address of P.O.
Box 249, Boonville, California 95415 and a legal proxy to Mr.&nbsp;John Chevedden and/or his designee,
with an address of 2215 Nelson Ave., No.&nbsp;205, Redondo Beach, CA 90278) who is the owner of 1,000
shares of the Company&#146;s Common Stock, and is included in this Proxy Statement in compliance with
SEC rules and regulations. The proposed resolution and supporting statement, for which the Board
of Directors and the Company accept no responsibility, are set forth below.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>SHAREHOLDER PROPOSAL AND SUPPORTING STATEMENT:</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>1 &#150; Adopt Simple Majority Vote</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">RESOLVED: Shareholders recommend that our Board of Directors take each step necessary for a simple
majority vote to apply on each issue that can be subject to shareholder vote to the greatest extent
possible.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Nick Rossi, P.O. Box 249, Boonville, Calif. 95415 submitted this proposal.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>75% yes-vote</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This topic won a 75% yes-vote average at 7 major companies in 2004. The Council of Institutional
Investors www.cii.org formally recommends adoption of this proposal topic.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>End Potential Frustration of the Shareholder Majority</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our current rule allows a small minority to frustrate the will of our shareholder majority. For
example, in requiring a 75% vote to make key governance changes, if 74% vote yes and only 1% vote
no &#150; only 1% could force their will on the overwhelming 74% majority.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This proposal does not address a majority vote standard in director elections which is gaining
increased support as a separate topic.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Progress Begins with One Step</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">It is important to take a step forward in corporate governance and adopt the above RESOLVED
statement since our 2005 governance standards were not impeccable. For instance in 2005 it was
reported (and certain corresponding concerns are noted):
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%"><B>&#149;</B> We had no Independent Chairman &#150; Independent oversight concern.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%"><B>&#149;</B> An awesome 75% shareholder vote was required to make certain key changes &#150;
Entrenchment concern.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%"><B>&#149;</B> Cumulative voting was not permitted.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%"><B>&#149;</B> Poison Pill: In response to a 2003 shareholder proposal, Baker Hughes adopted a
policy requiring poison pill shareholder approval, but allowing the board to override the
policy and adopt a pill anyway without shareholder approval. According to The Corporate
Library, an independent investment research firm in Portland, Maine, this &#147;override&#148;
provision undermines the shareholder approval requirement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%"><B>&#149;</B> In May&nbsp;2005 our Board made it more difficult for shareholders to fill vacancies on
the board.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>One Step Forward</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The above practices reinforce the reason to take one step forward and adopt simple majority vote.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Adopt Simple Majority Vote<BR>
Yes on 1</B>
</DIV>

<DIV align="center">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<P align="center" style="font-size: 10pt">30
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>STATEMENT OF THE BOARD OF DIRECTORS AND MANAGEMENT IN OPPOSITION TO STOCKHOLDER PROPOSAL NO. 1</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your Board of Directors is committed to the long-term best interests of all stockholders. A
simple majority vote requirement already applies to most corporate matters involving the Company.
The Board believes the Company&#146;s existing use of a higher voting requirement in specific situations
is prudent and appropriately limited in scope. Our Restated Certificate of Incorporation
(&#147;Certificate&#148;) and Bylaws require a higher stockholder voting threshold only for fundamental
corporate matters involving certain (i)&nbsp;business combinations, (ii)&nbsp;amendments to our Certificate
and (iii)&nbsp;amendments to our Bylaws. We strongly believe that these voting requirements accord with
good governance and serve the best interests of all stockholders. The Company disagrees with many
of the statements included in the proposal, including statements regarding the Company&#146;s corporate
governance practices. The Company has been named in <I>Institutional Investor </I>magazine&#146;s inaugural
ranking of America&#146;s most shareholder-friendly companies. In addition, the Company has received
high governance ratings from Institutional Shareholder Services,
Governance Metrics and The
Corporate Library.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Certificate requires approval of at least 75% of the outstanding shares of voting stock,
including the affirmative vote of the holders of not less than 66 2/3% of the outstanding shares of
voting stock not owned by a related person, for the authorization of any business combination
between the Company and a related person. The 75% voting requirement is not applicable if certain
procedural and other requirements are met. This protects
stockholders against self-interested actions by one or a few large stockholders. The Company&#146;s
charter documents also require approval of at least 75% of all shares of stock of the Company
entitled to vote in the election of directors before changes to certain provisions of the
Certificate and certain amendments to the Company&#146;s Bylaws can be made, including stockholder
amendments to the Bylaws, stockholder meetings, director liability, Board structure, certain
business combinations and cumulative voting. These voting requirements do not preclude changes to
these corporate governance provisions, but ensure that fundamental changes can only be made with a
broad consensus of stockholders. As outlined in the Corporate Governance section of this Proxy
Statement, the Company&#146;s governance policies and practices comply with best governance practices
and all requirements of the NYSE and SEC corporate governance standards.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your Board believes that the voting provisions as currently contained in the Certificate and
Bylaws are necessary to preserve the fundamental framework of the Company&#146;s governance structure.
The Company&#146;s prudent and limited use of such voting requirements has and continues to effectively
safeguard the best interests of our stockholders, and we therefore recommend a vote against this
Proposal.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Recommendation
of the Board of Directors</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Your
Board of Directors recommends a vote &#147;AGAINST&#148; approval of Stockholder Proposal No.&nbsp;1 on
majority voting.
</B></DIV>

<DIV align="left">
<A name="123"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ANNUAL REPORT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 2005 Annual Report on Form 10-K of the Company, which includes audited financial
statements for the fiscal year ended December&nbsp;31, 2005, accompanies this Proxy Statement; however,
that report is not part of the proxy soliciting information.
</DIV>

<DIV align="left">
<A name="124"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>INCORPORATION BY REFERENCE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To the extent that this Proxy Statement is incorporated by reference into any other filing by
Baker Hughes under the Securities Act of 1933, as amended, or the Exchange Act, the sections of
this Proxy Statement entitled &#147;Compensation Committee Report,&#148; &#147;Audit/Ethics Committee Report&#148; (to
the extent permitted by the rules of the SEC) and &#147;Corporate Performance Graph,&#148; as well as the
annexes to this Proxy Statement, will not be deemed incorporated unless specifically provided
otherwise in such filing. Information contained on or connected to
our website is not incorporated by reference into this Proxy Statement and should not be considered
part of this Proxy Statement or any other filing that we make with the SEC.
</DIV>


<P align="center" style="font-size: 10pt">31
</DIV>

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<DIV align="left">
<A name="125"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>STOCKHOLDER PROPOSALS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proposals of stockholders intended to be presented at the 2007 Annual Meeting must be received
by the Company by November&nbsp;15, 2006 to be properly brought before the 2007 Annual Meeting and to be
considered for inclusion in the Proxy Statement and form of proxy relating to that meeting. Such
proposals should be mailed to the Corporate Secretary, c/o Baker Hughes Incorporated 3900 Essex Lane,
Suite&nbsp;1200, Houston, Texas 77027-5177. Nominations of directors by stockholders must be received by
the Chairman of the Governance Committee of the Company&#146;s Board of Directors, P.O. Box 4740,
Houston, Texas 77210-4740 or the Corporate Secretary, c/o Baker Hughes Incorporated 3900 Essex
Lane, Suite&nbsp;1200, Houston, Texas 77027-5177 between October&nbsp;16, 2006 and November&nbsp;15, 2006 to be
properly nominated before the 2007 Annual Meeting, although the Company is not required to include
such nominees in its Proxy Statement.
</DIV>

<DIV align="left">
<A name="126"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>OTHER MATTERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors knows of no other matter to be presented at the Annual Meeting. If any
additional matter should be presented properly, it is intended that the enclosed proxy will be
voted in accordance with the discretion of the persons named in the proxy.
</DIV>



<P align="center" style="font-size: 10pt">32
</DIV>

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<DIV align="left">
<A name="127"></A>
</DIV>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>ANNEX A</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BAKER HUGHES INCORPORATED<BR>
POLICY FOR DIRECTOR INDEPENDENCE,<BR>
AUDIT/ETHICS COMMITTEE MEMBERS<BR>
AND<BR>
AUDIT COMMITTEE FINANCIAL EXPERT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>INDEPENDENCE</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>I. Introduction</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A member of the Board of Directors (&#147;Board&#148;) of Baker Hughes Incorporated (&#147;Company&#148;) shall be
deemed independent pursuant to this Policy of the Board, only if the Board affirmatively determines
that (1)&nbsp;such director meets the standards set forth in Section&nbsp;II below, and (2)&nbsp;the director has
no material relationship with the Company (either directly or as a partner, shareholder or officer
of an organization that has a relationship with the Company). In making its determination, the
Board shall broadly consider all relevant facts and circumstances. Material relationships can
include commercial, industrial, banking, consulting, legal, accounting, charitable and familial
relationships, among others.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each director of the Company&#146;s Audit/Ethics Committee, Governance Committee and Compensation
Committee must be independent. A director who is a member of the Company&#146;s Audit/Ethics Committee
is also required to meet the criteria set forth below in Section&nbsp;III. These standards shall be
implemented by the Governance Committee with such modifications as it deems appropriate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>II. Standards for Director Independence</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">1. A director who is an employee, or whose immediate family member is an executive officer, of the
Company is not independent until three years after the end of such employment relationship.
Employment as an interim Chairman or CEO shall not disqualify a director from being considered
independent following that employment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2. A director who receives, or whose immediate family member receives, more than $100,000 per year
in direct compensation from the Company, other than director and committee fees and pension or
other forms of deferred compensation for prior service (provided such compensation is not
contingent in any way on continued service), is not independent until three years after he or she
ceases to receive more than $100,000 per year in such compensation. Compensation received by a
director for former service as an interim Chairman or CEO need not be considered in determining
independence under this test. Compensation received by an immediate family member for service as a
non-executive employee of the Company need not be considered in determining independence under this
test.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">3. A director who is affiliated with or employed by, or whose immediate family member is affiliated
with or employed in a professional capacity by, a present or former internal or external auditor of
the Company is not &#147;independent&#148; until three years after the end of the affiliation or the
employment or auditing relationship.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">4. A director who is employed, or whose immediate family member is employed, as an executive
officer of another company where any of the Company&#146;s present executives serve on that company&#146;s
compensation committee is not &#147;independent&#148; until three years after the end of such service or the
employment relationship.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">5. A director who is an executive officer or an employee, or whose immediate family member is an
executive officer, of a company that makes payments to, or receives payments from, the Company for
property or services in an amount which, in any single fiscal year, exceeds the greater of $1
million, or 2% of the consolidated gross revenues of such other company employing such executive
officer or employee, is not &#147;independent&#148; until three years after falling below such
threshold.<SUP style="font-size: 85%; vertical-align: text-top">1</SUP>
</DIV>


<P align="center" style="font-size: 10pt">33
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">6. The
three-year period referred to in paragraphs II.1 through II.5 above will be applied
consistent with the New York Stock Exchange&#146;s (&#147;NYSE&#148;)
transition rules, which permit a one-year
look-back period until November&nbsp;4, 2004. Accordingly, until
November&nbsp;4, 2004, a one-year period,
rather than a three-year period, shall apply to the determination of independence and the
application of paragraphs II.1 through II.5 above.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>III. Standards for Audit/Ethics Committee Members</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">1. A director who is a member of the Audit/Ethics Committee other than in his or her capacity as a
member of the Audit/Ethics Committee, the Board, or any other Board committee, may not accept
directly or indirectly any consulting, advisory, or other compensatory fee from the Company or any
subsidiary thereof, provided that, unless the rules of the NYSE provide otherwise, compensatory
fees do not include the receipt of fixed amounts of compensation under a retirement plan (including
deferred compensation) for prior service with the Company (provided that such compensation is not
contingent in any way on continued service) .
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indirect acceptance of compensatory payments includes: (1)&nbsp;payments to spouses, minor
children or stepchildren, or children or stepchildren sharing a household with the member; or (2)
payments accepted by an entity in which such member is a partner, member, officer such as a
managing director occupying a comparable position or executive officer, or occupies a similar
position and which provides accounting, consulting, legal, investment banking or financial advisory
services to the Company.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2. A director, who is a member of the Audit/Ethics Committee may not, other than in his or her
capacity as a member of the Audit/Ethics Committee, the Board, or any other Board committee, be an
affiliated person of the Company or any subsidiary thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">3. A member of the Audit/Ethics Committee may not simultaneously serve on the audit committees of
more than two other public companies in addition to the Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>IV. Definitions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An &#147;immediate family member&#148; includes a person&#146;s spouse, parents, children, siblings, mothers
and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than
domestic employees) who shares such person&#146;s household. When considering the application of the
three year period referred to in each of paragraphs II.1 through II.5 above, the Company need not
consider individuals who are no longer immediate family members as a result of legal separation or
divorce, or those who have died or become incapacitated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The &#147;Company&#148; includes any subsidiary in a consolidated group with the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>AUDIT/ETHICS COMMITTEE FINANCIAL EXPERT QUALIFICATIONS</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company believes that it is desirable that one or more members of the Audit/Ethics
Committee possess such qualities and skills such that they qualify as an Audit Committee Financial
Expert as defined by the Securities and Exchange Commission (&#147;SEC&#148;).
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The SEC rules define an Audit Committee Financial Expert as a director who has the
following attributes:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>An understanding of generally accepted accounting principles and financial statements;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The ability to assess the general application of such principles in connection with the
accounting for estimates, accruals and reserves;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Experience preparing, auditing, analyzing or evaluating financial statements that present
a breadth and level of complexity of accounting issues that are generally comparable to the breadth
and complexity of issues that can reasonably be expected to be raised by the registrant&#146;s financial
statements, or experience actively supervising one or more persons engaged in such activities;</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">34
</DIV>

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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>An understanding of internal controls and procedures for
financial reporting; and</TD>
</TR>





<TR style="font-size: 6pt">
<TD>&nbsp;</TD>
</TR>


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(e)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&nbsp;An understanding of audit committee functions.</TD>
</TR>

</TABLE>
</DIV>

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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Under SEC rules, a director must have acquired such attributes through any one or more of
the following:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Education and experience as a principal financial officer, principal accounting
officer, controller, public accountant or auditor or experience in one or more
positions that involve the performance of similar functions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Experience actively supervising a principal financial officer, principal
accounting officer, controller, public accountant, auditor or person performing
similar functions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Experience overseeing or assessing the performance of companies or public
accountants with respect to the preparation, auditing or evaluation of financial
statements; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Other relevant experience.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 0pt; margin-left: 2%; text-indent: -2%"><SUP style="font-size: 85%; vertical-align: text-top">1</SUP> In applying this test, both the payments and the consolidated gross revenues to be measured
shall be those reported in the last completed fiscal year. The look-back provision for this test
applies solely to the financial relationship between the Company and the director or immediate
family member&#146;s current employer; the Company need to consider former employment of the director or
immediate family member. Charitable organizations shall not be considered &#147;companies&#148; for purposes
of this test provided however that the company shall disclose in its annual proxy statement any
charitable contributions made by the Company to any charitable organization in which a director
serves as an executive officer if, within the preceding three years, contributions in any single
fiscal year exceeded the greater of $1&nbsp;million, or 2% of such charitable organization&#146;s
consolidated gross revenues.
</DIV>


<P align="center" style="font-size: 10pt">35
</DIV>

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<DIV align="left">
<A name="128"></A>
</DIV>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>ANNEX B</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BAKER HUGHES INCORPORATED</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CHARTER OF THE<BR>
AUDIT/ETHICS COMMITTEE OF THE<BR>
BOARD OF DIRECTORS<BR>
(as amended and restated October&nbsp;26, 2005)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors of Baker Hughes Incorporated (the &#147;Company&#148;) has heretofore constituted
and established an Audit/Ethics Committee (the &#147;Committee&#148;) with authority, responsibility and
specific duties as described in this Charter. It is intended that this Charter and the composition
of the Committee comply with the rules of the New York Stock Exchange (the &#147;NYSE&#148;). This document
replaces and supersedes in its entirety the previous Charter of the Committee adopted by the Board
of Directors of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>PURPOSE</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Committee&#146;s purpose is to assist the Board of Directors with oversight of: (i)&nbsp;the
integrity of the Company&#146;s financial statements and financial reporting system, (ii)&nbsp;the Company&#146;s
compliance with legal and regulatory requirements, (iii)&nbsp;the independent auditor&#146;s qualifications
and independence and performance and (iv)&nbsp;the performance of the Company&#146;s internal audit function
and independent auditors. The Committee shall also prepare the report of the Committee to be
included in the Company&#146;s annual proxy statement, carry out the duties and responsibilities set
forth in this Charter and conduct an annual self-evaluation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>COMPOSITION</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Committee and Chairman of the Committee shall be elected annually by the Board of
Directors and are subject to removal pursuant to the terms of the Company&#146;s Bylaws. The Committee
shall be comprised of not less than three non-employee Directors who are (i)&nbsp;independent (as
defined by Section&nbsp;10A(m)(3) of the Securities Exchange Act of 1934 and the regulations thereunder
and the NYSE) and (ii)&nbsp;financially literate (as interpreted by the Board of Directors in its
business judgment). Such Committee members may not simultaneously serve on the audit committee of
more than three public companies. At least one member of the Committee shall have accounting or
related financial management expertise and at least one member of the Committee shall be an &#147;audit
committee financial expert,&#148; as defined by the Securities and Exchange Commission (&#147;SEC&#148;). The
audit committee financial expert must have: an understanding of GAAP and financial statements;
experience in the (a)&nbsp;preparation, auditing, analyzing or evaluating of financial statements of
generally comparable issuers and (b)&nbsp;application of such principles in connection with the
accounting for estimates, accruals and reserves; an understanding of internal accounting controls
and procedures for financial reporting; and an understanding of audit committee functions. The
Committee may, if appropriate, delegate its authority to subcommittees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>PRINCIPAL RESPONSIBILITIES</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The principal responsibilities of the Committee are: (i)&nbsp;to provide assistance to the Board
of Directors in fulfilling its responsibility in matters relating to the accounting and reporting
practices of the Company, the adequacy of the Company&#146;s internal controls over financial reporting
and disclosure controls and procedures and the quality and integrity of the financial statements of
the Company; and (ii)&nbsp;to oversee the Company&#146;s compliance programs. The independent auditor is
ultimately accountable to the Board of Directors and the Committee, as representatives of the
Company&#146;s stockholders, and shall report directly to the Committee; and the Committee has the
ultimate authority and direct responsibility to select, appoint, evaluate, compensate and oversee
the work, and, if necessary, terminate and replace the independent auditor (subject, if applicable,
to stockholder ratification). The Committee shall have authority to conduct or authorize
investigations into any matters within its scope of responsibilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Committee shall have the authority to engage independent counsel and other advisors, as
the Committee deems necessary to carry out its duties. The Committee shall have the sole authority
to approve the fees
</DIV>

<P align="center" style="font-size: 10pt">36
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">paid to any independent advisor retained by the Committee, and the Company shall provide funding
for such payments. In addition, the Company must provide funding for ordinary administrative
expenses of the Committee that are necessary or appropriate in carrying out its duties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Committee shall review the composition, expertise and availability of the Committee
members on an annual basis. The Committee shall also perform a self-evaluation of the Committee
and its activities on an annual basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Committee shall meet in executive session at each regularly scheduled meeting, including
separate, private meetings with the independent auditors, internal auditors, general counsel and
compliance officer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Charter is intended to be flexible so that the Committee is able to meet changing
conditions. The Committee is authorized to take such further actions as are consistent with the
following described responsibilities and to perform such other actions as applicable law, the NYSE,
the Company&#146;s charter documents and/or the Board of Directors may require. To that end, the
Committee shall review and reassess the adequacy of this Charter annually. Any proposed changes
shall be put before the Board of Directors for its approval.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">With regard to its audit responsibilities, the Committee shall:
</DIV>


<DIV style="margin-top: 6pt">
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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Receive and review reports from the independent auditors pursuant to the
Sarbanes-Oxley Act of 2002 (&#147;SOX&#148;) and, on an annual basis, formal written reports from
the independent auditors regarding the auditors&#146; independence required by Independence
Standards Board Standard No.&nbsp;1 (Independence Discussions with Audit Committees), giving
consideration to the range of audit and non-audit services performed by them and all
their relationships with the Company, as well as a report describing the (i)
independent auditors&#146; internal quality-control procedures; and (ii)&nbsp;material issues
raised by the most recent internal quality-control review or Public Company Accounting
Oversight Board review, of the independent auditors, or by any inquiry or investigation
by governmental professional authorities, within the preceding five years, respecting
one or more independent audits carried out by the auditors, and any steps taken to deal
with such issues. Conduct an active discussion with the independent auditors with
respect to any disclosed relationships or services that may impact the objectivity and
independence of the auditors; and, select the independent auditors to be employed or
discharged by the Company. Review competence of partners and managers of the
independent auditors who lead the audit as well as possible rotation of the independent
auditors. The Committee shall establish hiring policies for the Company of employees
or former employees of the independent auditors in accordance with the NYSE rules, SOX
and as specified by the SEC and review and discuss with management and the independent
auditors any proposals for hiring any key member of the independent auditors&#146; team.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Prior to commencement of the annual audit, review with management, the internal
auditors and the independent auditors the proposed scope of the audit plan and fees,
including the areas of business to be examined, the personnel to be assigned to the
audit, the procedures to be followed, special areas to be investigated, as well as the
program for integration of the independent and internal audit efforts.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review policies and procedures for the engagement of the independent auditors
to provide audit and non-audit services, giving due consideration to whether the
independent auditor&#146;s performance of non-audit services is compatible with the
auditor&#146;s independence and review and pre-approve all audit and non-audit fees for such
services, subject to the deminimus exception under the Sarbanes-Oxley Act. With the
exception of the annual audit, the Committee may delegate to a member of the Committee
the authority to pre-approve all audit and non-audit services with any such decision
presented to the full Committee at the next scheduled meeting.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review with management and independent auditors the accounting and reporting
policies and procedures that may be viewed as critical, any improvements, questions of
choice and material changes in accounting policies and procedures, including interim
accounting, as well as significant accounting, auditing and SEC pronouncements.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">37
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<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review with management and the independent auditors any financial reporting and
disclosure issues, including material correcting adjustments and off-balance sheet
financings and relationships, if any, discuss significant judgment matters made in
connection with the preparation of the Company&#146;s financial statements and ascertain
that any significant disagreements among them have been satisfactorily resolved, and
ascertain that no restrictions were placed by management on implementation of the
independent or internal auditors&#146; examinations. Regularly scheduled executive sessions
will be held for this purpose.</TD>
</TR>

</TABLE>
<DIV >
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review with management, the internal auditors and the independent auditors the results of the
annual audit prior to release of the audited financial statements in the Company&#146;s annual report on
Form 10-K filed with the SEC, including a review of the MD&#038;A section; quarterly financial
statements prior to release in the Company&#146;s quarterly report on Form 10-Q filed with the SEC,
including a review of the MD&#038;A section; and have management review the Company&#146;s financial results
with the Board of Directors.</td>
</tr>

</table>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Establish guidelines with respect to earnings releases and financial
information and earnings guidance provided to analysts and rating agencies. The
Committee may request a prior review of any annual or quarterly earnings release or
earnings guidance and delegate to the Chairman of the Committee the authority to review
any such earnings releases and guidance.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review with the Board of Directors any issues that arise with respect to the
quality or integrity of the Company&#146;s financial statements and financial reporting
system, the Company&#146;s compliance with legal or regulatory requirements, the performance
and independence of the Company&#146;s independent auditors or the performance of the
internal audit function.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review guidelines and policies on risk assessment and risk management related to the
Company&#146;s major financial risk exposures and the steps management has taken to monitor and
control such exposures.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(8)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Annually prepare a report to stockholders included in the Company&#146;s proxy
statement (a)&nbsp;stating that the Committee has (i)&nbsp;reviewed and discussed the audited
financial statements with management; (ii)&nbsp;discussed with the independent auditors the
matters required to be discussed by Statement on Auditing Standards No.&nbsp;61; (iii)
received a formal written report from the independent auditors concerning the auditors&#146;
independence; and (iv)&nbsp;based upon the review and discussion of the audited financial
statements with both management and the independent auditors, the Committee recommended
to the Board of Directors that the audited financial statements be included in the
Company&#146;s Annual Report on Form 10-K for the last fiscal year for filing with the SEC
and (b)&nbsp;cause the Charter to be included periodically in the proxy statement as
required by applicable rules.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(9)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review actions taken by management on the independent auditors and internal
auditors&#146; recommendations relating to organization, internal controls and operations.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Meet separately and periodically with management, the internal
auditors and the independent auditors to review the
responsibilities, budget and staffing of the Company&#146;s internal
audit function, the effectiveness of the Company&#146;s internal
controls, including computerized information systems controls, and
security. Review the Company&#146;s annual internal audit plan,
staffing and budget, and receive regular reports on their
activities, including significant findings and management&#146;s
actions. Review annually the audit of the travel and
entertainment expenses of the Company&#146;s senior management. Review
periodically the audit of the travel expenses members of the
Company&#146;s Board of Directors.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review membership of Company&#146;s &#147;Disclosure Control and Internal
Control Committee&#148; (&#147;DCIC&#148;), the DCIC&#146;s scheduled activities and
the DCIC&#146;s quarterly report. Review on an annual basis the DCIC
Charter.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Receive reports from the CEO and CFO on all significant
deficiencies in the design or operation of certain internal
controls over financial reporting and any fraud, whether or not
material, that involves management or other employees who have a
significant role in the Company&#146;s internal controls.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">38
</DIV>

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<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review reports, media coverage and similar public information
provided to analysts and rating agencies, as the Committee deems
appropriate.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Establish formal procedures for (i)&nbsp;the receipt, retention and
treatment of complaints received by the Company regarding
accounting, internal accounting controls or auditing matters, (ii)
the confidential, anonymous submissions by Company employees of
concerns regarding questionable accounting or auditing matters,
and (iii)&nbsp;the protection of reporting employees from retaliation.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Committee shall annually review with the independent auditors
any audit problems or difficulties and management&#146;s response. The
Committee must regularly review with the independent auditor any
difficulties the auditor encountered in the course of the audit
work, including any restrictions on the scope of the independent
auditors&#146; activities or on access to requested information, and
any significant disagreements with management. Among the items
the Committee may want to review with the auditors are: any
accounting adjustments that were noted or proposed by the auditor
but were &#147;passed&#148; (as immaterial or otherwise); any communications
between the audit team and the audit firm&#146;s national office
respecting auditing or accounting issues presented by the
engagement; and any &#147;management&#148; or &#147;internal control&#148; letter
issued, or proposed to be issued, by the audit firm to the
Company.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">With regard to its compliance responsibilities, the Committee shall:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(10)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review the management&#146;s monitoring of compliance with the Company&#146;s Business
Code of Conduct and Foreign Corrupt Practices Act policy.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review in conjunction with counsel (i)&nbsp;any legal matters that could have significant impact
on the organization&#146;s financial statements; (ii)&nbsp;correspondence and material inquiries
received from regulators or governmental agencies; and (iii)&nbsp;all matters relating to the
ethics of this Company and its subsidiaries.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(11)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Coordinate the Company&#146;s compliance with inquiries from any government
officials concerning legal compliance in the areas covered by the Business Code of
Conduct and the Foreign Corrupt Practices Act policy.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(12)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review the Company&#146;s compliance with its environmental policy on an annual
basis.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(13)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Respond to such other duties as may be assigned to the Committee, from time to
time, by the Board of Directors.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">While the Committee has the responsibilities and powers set forth in this Charter, it is not the
duty of the Committee to plan or conduct audits or to determine that the Company&#146;s financial
statements are complete and accurate and are in accordance with generally accepted accounting
principles; these are the responsibilities of management and the independent auditor. Nor is it
the duty of the Committee to conduct investigations, to resolve disagreements, if any, between
management and the independent auditor or to assure compliance with laws and regulations or with
Company policies.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>MEETINGS</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Committee will meet at least five times per year as determined by the Board of Directors.
Special meetings may be called, as needed, by the Chairman of the Board of Directors or the
Chairman of the Committee. The Committee may create subcommittees who shall report to the
Committee. In addition, the Committee will make itself available to the independent auditors and
the internal auditors of the Company as requested. All meetings of the Committee will be held
pursuant to the Bylaws of the Company with regard to notice and waiver thereof, and written minutes
of each meeting will be duly filed in the Company records. Reports of meetings of the Committee
shall be made to the Board of Directors at its next regularly scheduled meeting following the
Committee meeting accompanied by any recommendations to the Board of Directors approved by the
Committee.
</DIV>

<P align="center" style="font-size: 10pt">39
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="129"></A>
</DIV>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>ANNEX C</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BAKER HUGHES INCORPORATED<BR>
GUIDELINES FOR<BR>
MEMBERSHIP ON THE BOARD OF DIRECTORS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These Guidelines set forth the policies of the Board of Directors (&#147;Board&#148;) of Baker Hughes
Incorporated (&#147;Company&#148;) regarding Board membership. These Guidelines shall be implemented by the
Governance Committee of the Board with such modifications as it deems appropriate. The Governance
Committee will consider candidates based upon:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The size and existing composition of the Board</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The number and qualifications of candidates</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The benefit of continuity on the Board</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The relevance of the candidate&#146;s background and experience to issues facing the Company.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>1. Criteria for Selection</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In filling director vacancies on the Board, the Governance Committee will strive to:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(A)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Recommend candidates for director positions who will help create a collective
membership on the Board with varied experience and perspective and who:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="9%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Have demonstrated leadership, and significant experience in an
area of endeavor such as business, finance, law, public service, banking or
academia;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="9%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Comprehend the role of a public company director, particularly
the fiduciary obligations owed to the Company and its stockholders;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="9%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Have relevant expertise and experience, and be able to offer
advice and guidance based upon that expertise;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="9%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">iv)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Have a substantive understanding of domestic considerations and
geopolitics, especially those pertaining to the service sector of the oil and
gas and energy related industries;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="9%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">v)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Will dedicate sufficient time to Company business;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="9%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">vi)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibit integrity, sound business judgment and support for the
Core Values of the Company;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="9%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">vii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Understand basic financial statements;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="9%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">viii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Are independent as defined by the Securities and Exchange
Commission (&#147;SEC&#148;) and the New York Stock Exchange;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="9%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">ix)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Support the ideals of the Company&#146;s Business Code of Conduct
and are not engaged in any activity adverse to, or do not serve on the board of
another company whose interests are adverse to, or in conflict with the
Company&#146;s interests;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="9%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">x)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Possess the ability to oversee, as a director, the affairs of
the Company for the benefit of its stockholders while keeping in perspective
the interests of the Company&#146;s customers, employees and the public; and</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">40
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="9%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">xi)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Are able to exercise sound business judgment.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(B)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Maintain a Board that reflects diversity, including but not limited to gender,
ethnicity and experience.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. Age</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Board will not nominate any person to serve as a director who has attained the age of 72.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>3. Audit/Ethics Committee</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Governance Committee believes that it is desirable that one or more members of the Company&#146;s
Audit/Ethics Committee possess such qualities and skills such that they qualify as an Audit
Committee Financial Expert, as defined by SEC rules and regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>4. Significant Change in Occupation or Employment</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Any non-employee director who has a significant change in occupation or retires from his or her
principal employment or position will promptly notify the Governance Committee. The Governance
Committee will determine if it is in the best interests of the Company to nominate such person
to serve another term as a director following expiration of the director&#146;s current term.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>5. Board Review and Assessments</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Each year the members of the Board will participate in a review and assessment of the Board and
of each committee. In connection with such reviews, or at any other time, a director with
concerns regarding performance, attendance, potential conflicts of interest, or any other
concern respecting any other director shall report such concerns to the Chairman of the
Governance Committee. The Chairman of the Governance Committee, in consultation with such other
directors as he or she deems appropriate will determine how such concerns should be investigated
and reported to members of the Governance Committee who are not the director in question
(&#147;Disinterested Committee Members&#148;). If the Disinterested Committee Members conclude that the
director is not fulfilling his or her duties, they will determine what actions should be taken.
Such actions may include, without limitation, the Chairman of the Board or another Board member
discussing the situation with the director in question, identifying what steps are required to
improve performance, or, if appropriate, requesting that the director resign from the Board.
</DIV>

<P align="center" style="font-size: 10pt">41
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="130"></A>
</DIV>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>ANNEX D</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BAKER HUGHES INCORPORATED<BR>
SELECTION PROCESS FOR<BR>
NEW BOARD OF DIRECTORS<BR>
CANDIDATES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Baker Hughes Incorporated (&#147;Company&#148;) has established the following process for the selection of
new candidates for the Company&#146;s Board of Directors (&#147;Board&#148;). The Board or the Company&#146;s
Governance Committee will evaluate candidates properly proposed by stockholders in the same manner
as all other candidates.
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Chairman/CEO, the Governance Committee, or other Board members identify a need to fill
vacancies or add newly created directorships.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Chairman of the Governance Committee initiates search, working with staff support and
seeking input from the Board members and senior management, and hiring a search firm or
obtaining advice from legal or other advisors, if necessary.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Candidates, including any candidates properly proposed by stockholders in accordance with
the Company&#146;s Bylaws that satisfy criteria as described in the Company&#146;s &#147;Guidelines For
Membership on the Board of Directors&#148; or otherwise qualify for membership on the Board, are
identified and presented to the Governance Committee.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Determine if the Governance Committee members, Board members or senior management have a
basis to initiate contact with preferred candidates; or if appropriate, utilize a search
firm.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Chairman/CEO and at least one member of the Governance Committee interviews prospective
candidate(s).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">6.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Full Board to be kept informed of progress.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">7.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Governance Committee meets to consider and approve final candidate(s) (conduct interviews
as necessary).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">8.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Governance Committee will propose to the full Board candidates for Board membership to
fill vacancies, or to stand for election at the next Annual Meeting of Stockholders.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">42
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>
<DIV align="left">
<A name="131"></A>
</DIV>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>ANNEX E</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BAKER HUGHES INCORPORATED<BR>
STOCKHOLDER COMMUNICATIONS<BR>
WITH THE<BR>
BOARD OF DIRECTORS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In order to provide the stockholders and other interested parties of Baker Hughes Incorporated
(&#147;Company&#148;) with a direct and open line of communication to the Company&#146;s Board of Directors
(&#147;Board&#148;), the following procedures have been established for communications to the Board.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stockholders and other interested persons may communicate with any member of the Board, including
the Company&#146;s Lead Director, the Chairman of any of the Company&#146;s Governance Committee,
Audit/Ethics Committee, Compensation Committee, Finance Committee or with the non-management
directors of the Company as a group, by sending such written communication to the following
address:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-left: 3%; margin-top: 6pt">Corporate Secretary<BR>
c/o Baker Hughes Incorporated<BR>
3900 Essex Lane, Suite&nbsp;1200<BR>
Houston, TX 77027-5177
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stockholders desiring to make candidate recommendations for the Board may do so by submitting
nominations to the Company&#146;s Governance Committee, in accordance with the Company&#146;s Bylaws and
&#147;Policy and Submission Procedures For Stockholder Recommended Director Candidates&#148; addressed, as
above, to the Corporate Secretary, or to:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-left: 3%; margin-top: 6pt">Chairman, Governance Committee of the Board of Directors<BR>
P.O. Box 4740<BR>
Houston, TX 77210-4740
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Any written communications received by the Corporate Secretary will be forwarded to the appropriate
directors.
</DIV>


<P align="center" style="font-size: 10pt">43
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="132"></A>
</DIV>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>ANNEX F</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BAKER HUGHES INCORPORATED<BR>
ANNUAL INCENTIVE COMPENSATION PLAN</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B><I>(Amendment and Restatement<BR>
Adopted by the Board of<BR>
Directors on January&nbsp;26, 2006)</I></B>

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>WITNESSETH</B>:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>WHEREAS</B>, effective October&nbsp;1, 1994, Baker Hughes Incorporated (&#147;<I>Baker Hughes&#148;) </I>previously
adopted the Baker Hughes Incorporated 1995 Employee Annual Incentive Compensation Plan (the &#147;<I>Plan</I>&#148;)
for the benefit of certain employees of Baker Hughes and affiliates of Baker Hughes;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>WHEREAS</B>, 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);
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>WHEREAS</B>, Baker Hughes desires to amend and restate the Plan on behalf of itself and on behalf
of the other adopting entities; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>WHEREAS, </B>Baker Hughes desires to change the name of the Plan;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOW THEREFORE</B>, the name of the Plan is changed to the &#147;Baker Hughes Incorporated Annual
Incentive Compensation Plan&#148; and the Plan is hereby amended and restated in its entirety as
follows, effective as of January&nbsp;1, 2005 except insofar as a later effective date is expressly
specified.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BAKER HUGHES INCORPORATED<BR>
ANNUAL INCENTIVE COMPENSATION PLAN</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>(As Amended and Restated<BR>
Effective January&nbsp;1, 2005)</B>

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE I<BR>
DEFINITIONS AND CONSTRUCTION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.01 <B>Definitions</B>. The words and phrases defined in this Article shall have the meaning set
out in the definition unless the context in which the word or phrase appears reasonably requires a
broader, narrower or different meaning.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Account(s)&#148; </I></B>means all ledger accounts pertaining to a Participant or former Participant which
are maintained by the Plan Administrator to reflect the Employer&#146;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:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <I>Banked Account </I>&#150; the Participant&#146;s or former Participant&#146;s banked Final Award for a given
Performance Period.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(b)&nbsp;Unbanked Account </I>&#150; the Participant&#146;s or former Participant&#146;s Final Award for a given
Performance Period that is not banked pursuant to Article&nbsp;V.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Affiliate&#148; </I></B>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),
which is a member of an affiliated service group (within the meaning of section 414(m) of the Code)
with Baker Hughes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Applicable Interest Rate&#148; </I></B>means the 10-year U.S. Treasury rate plus 25 basis points (0.25%).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Award Opportunity&#148; </I></B>has the meaning specified in Section&nbsp;3.01 of the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Baker Hughes&#148; </I></B>means Baker Hughes Incorporated, a Delaware corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Baker Value Added&#148; </I></B>and <B><I>&#147;BVA&#148; </I></B>mean, with respect to a Performance Period, the amount
calculated under the following formula:
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">&#091;&#091;(a) &#043; (b) &#043; (c)&#093; x (1 &#150; (d))&#093; &#150; (e)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">where (a)&nbsp;is the Profit Before Tax of the Company for the Performance Period, (b)&nbsp;is the net
interest expense of the Company for the Performance Period, (c)&nbsp;is the goodwill and non-compete
amortization of the Company for the Performance Period, (d)&nbsp;is the Tax Rate for the Performance
Period and (e)&nbsp;is the Capital Charge determined for the Company for the Performance Period. For
this purpose, &#147;<I>Average Adjusted Net Capital Employed&#148; </I>means the sum of the Monthly Adjusted Net
Capital Employed during the Performance Period divided by 12; <I>&#147;Capital Charge&#148; </I>means Average
Adjusted Net Capital Employed multiplied by the Cost of Capital; <I>&#147;Company&#148; </I>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; &#147;<I>Cost of Capital</I>&#148; means the weighted average after-tax cost of debt and cost of
equity for the Company for the Performance Period; &#147;<I>Cost of Sales</I>&#148; 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 (<I>e.g.</I>, commission and royalty) directly relating to
the service provided; &#147;<I>Monthly Adjusted Net Capital Employed</I>&#148; means the capital employed by the
Company during a month of the Performance Period plus accumulated goodwill amortization plus the
value of significant operating leases; &#147;<I>Operating Expenses</I>&#148; means costs incurred in
non-manufacturing areas to provide products and services to customers (<I>e.g.</I>, finance and
administrative support) during the Performance Period; &#147;<I>Profit Before Tax</I>&#148; means the revenue of the
Company for the Performance Period minus the Cost of Sales 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 <I>&#147;Tax Rate&#148; </I>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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>&#147;</B><B><I>Beneficial Owner</I></B><B>&#148; </B>or <B>&#147;</B><B><I>Beneficial Ownership</I></B><B>&#148; </B>shall have the meaning ascribed to the term in
Rule&nbsp;13d-3 of the General Rules and Regulations under the Exchange Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Beneficiary&#148; </I></B>means the person or persons, or the trust or trusts created for the benefit of a
natural person or persons or the Participant&#146;s estate, designated by the Participant to receive the
benefits payable under the Plan upon his death in accordance with the beneficiary designation
procedures specified in Section&nbsp;9.03.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>&#147;</B><B><I>Board</I></B><B>&#148; </B>means the Board of Directors of Baker Hughes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Cause&#148; </I></B>means (i)&nbsp;the willful and continued failure by the Participant to substantially
perform the Participant&#146;s duties with the Employer (other than any such failure resulting from the
Participant&#146;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&#146;s duties, or (ii)&nbsp;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)&nbsp;and (ii)&nbsp;of this definition, (A)&nbsp;no act, or failure to act,
on the Participant&#146;s part shall be deemed &#147;willful&#148; 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 Employer and (B)&nbsp;in the event of a dispute concerning the application of this
provision, no claim by the Employer that Cause exists shall be given effect unless the Employer
establishes to the Committee by clear and convincing evidence that Cause exists. The Committee&#146;s
determination regarding the existence of Cause shall be conclusive and binding upon all parties.
</DIV>

<P align="center" style="font-size: 10pt">45
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Change in Control&#148; </I></B>means the occurrence of any of the following events:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) the individuals who are Incumbent Directors cease for any reason to constitute a majority
of the members of the Board;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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&nbsp;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;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) any Person, other than a Specified Owner, becomes a Beneficial Owner, directly or
indirectly, of securities of Baker Hughes representing 30&nbsp;percent or more of the combined
voting power of Baker Hughes&#146; then outstanding Voting Securities;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) a sale, transfer, lease or other disposition of all or substantially all of Baker Hughes&#146;
Assets is consummated (an &#147;<I>Asset Sale</I>&#148;), <I>unless</I>:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 9%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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&nbsp;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&#146; Voting Securities immediately prior to such Asset Sale;
or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 9%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 9%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) The stockholders of Baker Hughes approve a plan of complete liquidation or dissolution of
Baker Hughes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;CIC Committee&#148; </I></B>means (i)&nbsp;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)&nbsp;in the event that fewer than three individuals are available from the group specified in
clause (i)&nbsp;above for any reason, such individuals as may be appointed by the individual or
individuals so available (including for this purpose any individual or individuals previously so
appointed under this clause (ii)); provided, however, that the maximum number of individuals
constituting the CIC Committee shall not exceed six (6).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Code&#148; </I></B>means the Internal Revenue Code of 1986, as amended from time to time<B><I>.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Committee&#148; </I></B>means the Compensation Committee of the Board.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Covered Employee&#148; </I></B>has the meaning ascribed to that term in Section&nbsp;162(m).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Disability</I></B><I>&#148; </I>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 Committee&#146;s determination regarding the existence of Disability shall be conclusive
and binding upon all parties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Domestic Relations Order&#148; </I></B>has the meaning ascribed to that term in section 414(p) of the
Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Employer&#148; </I></B>means Baker Hughes and any Affiliate that adopts the Plan pursuant to the
provisions of Article&nbsp;XII.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Entity&#148; </I></B>means any corporation, partnership, association, joint-stock company, limited
liability company, trust, unincorporated organization or other business entity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Exchange Act&#148; </I></B>means the Securities Exchange Act of 1934, as amended from time to time, or any
successor act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Final Award&#148; </I></B>means the actual award earned for a Plan Year by a Participant as determined by
the Committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Good Reason&#148; </I></B>for termination by the Participant of his employment means the occurrence
(without the Participant&#146;s express written consent) after any Change in Control, or prior to a
Change in Control under the circumstances described in clauses (ii)&nbsp;and (iii)&nbsp;of Section&nbsp;10.04
(treating all references to &#147;<I>Change in Control</I>&#148; in paragraphs (a)&nbsp;through (f)&nbsp;below as references
to a &#147;<I>Potential Change in Control</I>&#148;), of any one of the following acts by the Employer, or failures
by the Employer to act, unless, in the case of any act or failure to act described in paragraph
(a), (e), (f)&nbsp;or (g)&nbsp;below, such act or failure to act is corrected prior to the effective date of
the Participant&#146;s termination for Good Reason:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) the assignment to the Participant of any duties or responsibilities which are
substantially diminished as compared to the Participant&#146;s duties and responsibilities immediately
prior to the Change in Control;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) a reduction by the Employer in the Participant&#146;s annual base salary as in effect on the
date hereof or as the same may be increased from time to time, except for across-the-board salary
reductions similarly affecting all individuals having a similar level of authority and
responsibility with the Employer and all individuals having a similar level of authority and
responsibility with any Person in control of the Employer;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) the relocation of the Participant&#146;s principal place of employment to a location outside of
a 50-mile radius from the Participant&#146;s principal place of employment immediately prior to the
Change in Control or the Employer&#146;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
Employer&#146;s business to an extent substantially consistent with the Participant&#146;s business travel
obligations immediately prior to the Change in Control;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) the failure by the Employer to pay to the Participant any portion of the Participant&#146;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 Employer
and all individuals having a similar level of authority and responsibility with any Person in
control of the Employer, or to pay to the Participant any portion of an installment of deferred
compensation under any deferred compensation program of the Employer, within seven (7)&nbsp;days of the
date such compensation is due;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) the failure by the Employer 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&#146;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
Employer to continue the Participant&#146;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&#146;s participation relative to other Baker Hughes
Participants, as existed immediately prior to the Change in Control;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) the failure by the Employer to continue to provide the Participant with benefits
substantially similar to those enjoyed by the Participant under any of the Employer&#146;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
Employer and all individuals having a similar level of authority and responsibility with any Person
in control of the Employer), the taking of any other action by the Employer which would directly or
indirectly materially reduce any of such
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">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 Employer 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 Employer in accordance with the Employer&#146;s normal vacation policy in
effect immediately prior to the time of the Change in Control; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) if the Participant is party to an individual employment, severance or other similar
agreement with the Employer, any purported termination of the Participant&#146;s employment which is not
effected pursuant to the notice of termination or other procedures specified therein.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 Employer establishes
to the Committee by clear and convincing evidence that Good Reason does not exist. The Committee&#146;s
determination regarding the existence of Good Reason shall be conclusive and binding upon all
parties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Incumbent Director&#148; </I></B>means &#150;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) a member of the Board on January&nbsp;25, 2006 or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) an individual-
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 1%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) who becomes a member of the Board after January
25, 2006;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 1%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) whose appointment or election by the Board or nomination for election by Baker
Hughes&#146; stockholders is approved or recommended by a vote of at least two-thirds of the then
serving <I>Incumbent Directors </I>(as defined herein); and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 1%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) whose initial assumption of service on the Board is not in connection with an
actual or threatened election contest.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Initial Payment Date&#148; </I></B>has the meaning ascribed to that term in Section&nbsp;7.01.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Involuntary Separation From Service&#148; </I></B>means a Participant&#146;s Separation From Service as a
result of the elimination of his job or a reduction in force.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Key Employee&#148; </I></B>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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Merger&#148; </I></B>means a merger, consolidation or similar transaction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>&#147;</B><B><I>OA Level</I></B><B>&#148; </B>means the over achievement level of performance applicable to the Award.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Participant&#148; </I></B>means an individual who is or was a Key Employee who has been granted an Award
Opportunity or who has unpaid Accounts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Performance Goals&#148; </I></B>means one or more of the criteria described in Section&nbsp;3.02 on which the
performance goals applicable to an Award Opportunity are based.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>&#147;</B><B><I>Performance Period</I></B><B>&#148; </B>means the 12-month period to which the Performance Goals apply. A
Performance Period shall coincide with a Plan Year.
</DIV>

<P align="center" style="font-size: 10pt">48
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Person&#148; </I></B>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 &#147;group&#148; as defined in section 13(d)
thereof, except that the term shall not include (a)&nbsp;Baker Hughes or any of the Affiliates, (b)&nbsp;a
trustee or other fiduciary holding Baker Hughes securities under an employee benefit plan of Baker
Hughes or any of the Affiliates, (c)&nbsp;an underwriter temporarily holding securities pursuant to an
offering of those securities or (d)&nbsp;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Plan&#148; </I></B>means the Baker Hughes Incorporated Annual Incentive Compensation Plan, as amended from
time to time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Plan Administrator</I></B><B>&#148; </B>means Baker Hughes, acting through its delegates. Such delegates shall
include the Administrative Committee, the Investment 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 &#147;<I>Plan Administrator</I>&#148; shall refer to the
applicable delegate of Baker Hughes as determined pursuant to the actions of the Board.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Plan Year&#148; </I></B>means the twelve-consecutive month period commencing January 1 of each year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Potential Change in Control&#148; </I></B>means the occurrence of any of the following events:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) the Employer enters into an agreement, the consummation of which would result in the
occurrence of a Change in Control;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) the Employer or any Person publicly announces an intention to take or to consider taking
actions which, if consummated, would constitute a Change in Control;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) any Person becomes the Beneficial Owner, directly or indirectly, of securities of Baker
Hughes representing 15&nbsp;percent or more of either the then outstanding shares of common stock of
Baker Hughes&#146; or the combined voting power of Baker Hughes&#146; then outstanding securities (not
including in the securities beneficially owned by such Person any securities acquired directly from
Baker Hughes or the Affiliates); or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) the Board adopts a resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Profit After Tax&#148; </I></B>means revenues minus cost of sales (the cost of products sold and the cost
of providing services, including personnel costs, repair and maintenance costs, freight/custom,
depreciation, and other costs (<I>e.g.</I>, commission and royalty) directly relating to the service
provided) minus operating expenses (costs incurred in non-manufacturing areas to provide products
and services to customers (<I>e.g.</I>, finance and administrative support)) minus income taxes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Retirement&#148; </I></B>means a Participant&#146;s voluntary Separation From Service when he has attained at
least 55&nbsp;years of age and has at least ten (10)&nbsp;years of service with Baker Hughes and the
Affiliates. For this purpose, &#147;year of service&#148; means a year of service for vesting purposes under
the Baker Hughes Incorporated Thrift Plan, whether or not the Participant is a participant in such
plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Section&nbsp;</I></B><B><I>162(m)</I></B><B><I>&#148; </I></B>means section 162(m) of the Code and the Department of Treasury rules and
regulations issued thereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Section&nbsp;409A&#148; </I></B>means section 409A of the Code and the Department of Treasury rules and
regulations issued thereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Separation From Service&#148; </I></B>has the meaning ascribed to that term in Section&nbsp;409A.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Specified Employee&#148; </I></B>means as of any date, a person who is a &#147;specified employee&#148; within the
meaning of Section&nbsp;409A.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Specified Owner&#148; </I></B>means any of the following:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Baker Hughes;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) an Affiliate of Baker Hughes;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) an employee benefit plan (or related trust) sponsored or maintained by Baker Hughes or any
Affiliate of Baker Hughes;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) a Person that becomes a Beneficial Owner of Baker Hughes&#146; outstanding Voting Securities
representing 30&nbsp;percent or more of the combined voting power of Baker Hughes&#146; then outstanding
Voting Securities as a result of the acquisition of securities directly from Baker Hughes and/or
its Affiliates; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) a Person that becomes a Beneficial Owner of Baker Hughes&#146; outstanding Voting Securities
representing 30&nbsp;percent or more of the combined voting power of Baker Hughes&#146; 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&nbsp;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>&#147;Voting Securities&#148; </I></B>means the outstanding securities entitled to vote generally in the
election of directors or other governing body.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.02 <B>Number and Gender</B>. 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.03 <B>Headings. </B>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.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE II<BR>
PARTICIPATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.01 <B>Eligibility. </B>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 Employers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.02 <B>Participation. </B>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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.03 <B>Partial Plan Year Participation. </B>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 year. In such case, the Participant&#146;s Final Award
normally shall be prorated based on the number of full months of participation. However, the
Committee may, based upon the recommendation of the Chief Executive Officer of Baker Hughes,
authorize an unreduced Final Award.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.04 <B>Termination of Approval. </B>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, 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,
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 (6)&nbsp;months after the cessation thereof.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE III<BR>
AWARD OPPORTUNITIES AND<BR>
PERFORMANCE GOALS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.01 <B>Award Opportunities</B>. The Committee shall establish, in writing, over achievement,
expected value, and entry value incentive award levels (the &#147;<I>Award Opportunities</I>&#148;) 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.02 <B>Performance Goals</B>. 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.&nbsp;30 of the Accounting Principles
Board (APB Opinion No.&nbsp;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&#146;s Performance Goals but may not represent more than 25&nbsp;percent of the Participant&#146;s
expected value Award Opportunity. No Participant who is a Covered Employee, or who the Committee
expects may become a Covered Employee during the next three Plan Years, may have any portion of his
Final Award based on nonfinancial, subjective Performance Goals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.03 <B>Time of Establishment of Award Opportunities and Performance Goals. </B>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)&nbsp;90&nbsp;days after the commencement of the period of service to
which the Performance Goal relates or (b)&nbsp;the lapse of 25&nbsp;percent of the period of service, and in
any event while the outcome is substantially uncertain.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.04 <B>Adjustment of Performance Goals. </B>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&nbsp;162(m)).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.05 <B>Individual Award Cap. </B>Effective for Final Awards earned for Performance Periods
commencing on and after January&nbsp;1, 2006, the maximum annual Final Award any individual may receive
under the Plan is $4,000,000.
</DIV>


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</DIV>


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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE IV<BR>
FINAL AWARD DETERMINATIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.01 <B>Final Award Determinations. </B>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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.02 <B>Separation From Service Due to Death, Disability, or Retirement. </B>If a Participant incurs
a Separation From Service by reason of death, Disability, or Retirement, the Final Award,
determined in accordance with Section&nbsp;4.01, shall be reduced so that it reflects only participation
prior to the Separation From Service. This reduction shall be determined by multiplying the Final
Award by a fraction, the numerator of which is the months of participation through the date of the
Separation From Service rounded up to whole months, and the denominator of which is twelve (12).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.03 <B>Employment Transfers. </B>If a Participant transfers from one division to another division
within Baker Hughes and the Affiliates, the Final Award for the Participant&#146;s time at the
Participant&#146;s former division will be prorated for the number of whole months rounded to the
nearest whole month of the Plan Year the Participant was at that division. The Final Award will be
determined as soon as practicable after the end of the Plan Year and will be based on the financial
results at the close of the Plan Year. The Final Award will be paid at the same time the other
Final Awards for that division are paid. If a Participant is eligible for a Final Award in his new
position, the Final Award will be based on the months left in the Plan Year, on his new base salary
level and Award Opportunities, as determined by the Committee based upon the recommendation of the
Chief Executive Officer of Baker Hughes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.04 <B>Disposition of Business. </B>If the Participant&#146;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&#146;s Final Award shall be determined in accordance with the following alternatives:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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&#146;s Final Award will not be forfeited but the Employer 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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&#146;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 Employer prior to the date of the
consummation of the sale of the Employer 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 Employer.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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&nbsp;4.05.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.05 <B>Separation From Service for Other Reasons. </B>Except as specified in Article&nbsp;X or Section
4.04, if a Participant incurs a Separation From Service for any reason other than Retirement,
Disability or death, all of the Participant&#146;s rights to any unpaid Final Award shall be forfeited.
</DIV>

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</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE V<BR>
BANKING OF AWARDS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.01 <B>General Banking Procedures. </B>Except as specified in Section&nbsp;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 times specified in Section&nbsp;7.02. To the
extent that a Final Award for a Performance Period is banked, it shall be credited to the
Participant&#146;s Banked Account for the Performance Period effective as of the Initial Payment Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.02 <B>Exceptions. </B>No portion of a Final Award will be banked pursuant to Section&nbsp;5.01 if (a)
the amount that would be banked is $2,000 or less, (b)&nbsp;the Participant incurs a Separation From
Service and the Participant is described in clause (b)&nbsp;of Section&nbsp;4.04, (c)&nbsp;a Change in Control
occurs during the Performance Period, (c)&nbsp;applicable local laws prohibit banking of the Final Award
or (d)&nbsp;written procedures adopted by the Committee prior to the Performance Period specify that the
Final Award will not be banked.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE VI<BR>
DEEMED INVESTMENT OF FUNDS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amounts deemed credited to a Participant&#146;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.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE VII<BR>
PAYMENT OF BENEFITS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.01 <B>Time of Payment of Unbanked Final Award. </B>Except to the extent that a Final Award is
banked pursuant to Article&nbsp;V, or except as specified in Article&nbsp;X, a Participant&#146;s Final Award, to
the extent not forfeited pursuant to Article&nbsp;VIII, shall be paid to him on March&nbsp;15 following the
Performance Period (the &#147;<I>Initial Payment Date&#148;).</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.02 <B>Time of Payment of Banked Final Award. </B>To the extent that a Participant&#146;s Final Award is
banked pursuant to this Article&nbsp;V, fifty percent (50%) of the amount then credited to the
Participant&#146;s Banked Account for the Performance Period, to the extent not forfeited pursuant to
Article&nbsp;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&#146;s
Banked Account for the Performance Period, to the extent not forfeited pursuant to Article&nbsp;VIII,
shall be distributed to the Participant on the second anniversary of the Initial Payment Date.
Notwithstanding the foregoing, (a)&nbsp;if a Participant incurs an Involuntary Separation From Service
or if he incurs a Separation From Service due to Retirement, any amounts credited to his Banked
Account(s) shall be paid to him on the earlier of (1)&nbsp;the date of the Participant&#146;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 is a Specified Employee, or (2)&nbsp;the date the amount
would otherwise be paid under this Section&nbsp;7.02; (b)&nbsp;if the Participant incurs a Disability, any
amounts credited to his Banked Accounts will be paid to him on the date the date of the
Participant&#146;s Disability; or (c)&nbsp;if the Participant dies, any amounts credited to his Banked
Accounts will be paid as specified in Section&nbsp;9.02. Further, notwithstanding the foregoing, (a)
upon the occurrence of a Change in Control all amounts that are credited to the Participant&#146;s
Banked Accounts that are not deferred compensation within the meaning of Section&nbsp;409A shall be paid
to the Participant; (b)&nbsp;upon the occurrence of a Change in control that constitutes a &#147;Change in
Control&#148; within the meaning of Section&nbsp;409A all amounts that are credited to the Participant&#146;
Banked Accounts shall be paid to the Participant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.03 <B>Form of Payment of Benefits. </B>All benefit payments shall be made in cash.
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.04 <B>Account Debits. </B>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&#146;s or
former Participant&#146;s Accounts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.05 <B>Unclaimed Benefits. </B>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&#146;s determination thereof, such benefit shall be forfeited to the Employer.
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 Employer and paid in accordance with the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.05 <B>Statutory Benefits. </B>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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.06 <B>Payment to Alternate Payee Under Domestic Relations Order. </B>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&#146;s or former Participant&#146;s Account balance under the Plan.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE VIII<BR>
FORFEITURE OF BENEFITS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as specified in Section&nbsp;4.04 or Article&nbsp;X, if a Participant incurs a Separation From
Service for any reason other than Retirement, death, Disability or Involuntary Separation from
Service before the time a payment to him is to be made under Article&nbsp;VII, he shall forfeit the
payment and all amounts then deemed credited to his Accounts.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE IX<BR>
DEATH</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.01 <B>Payment of Unbanked Amounts. </B>In the event of a death of a Participant prior to the
Initial Payment Date of a Final Award, the Participant&#146;s Final Award will be paid to the
Participant&#146;s Beneficiary on the Initial Payment Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.02 <B>Payment of Banked Amounts. </B>Upon the death of a Participant any amounts deemed credited
to the Participant&#146;s Banked Accounts will be paid to his Beneficiary as soon as administratively
practicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.03 <B>Designation of Beneficiaries.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Each Participant or former Participant shall have the right to designate the
beneficiary or beneficiaries to receive payment of his benefit in the event of his death.
Each such designation shall be made by executing the beneficiary designation form prescribed
by the Plan Administrator and filing same with the Plan Administrator. Any such designation
may be changed at any time by execution of a new designation in accordance with this Section
9.03.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) If no such designation is on file with the Plan Administrator at the time of the
death of the Participant or former Participant or such designation is not effective for any
reason as determined by the Plan Administrator, then the designated beneficiary or
beneficiaries to receive such benefit shall be as follows:
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) If a Participant or former Participant leaves a surviving spouse, his benefit shall
be paid to such surviving spouse;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) If a Participant or former Participant leaves no surviving spouse, his
benefit shall be paid to such Participant&#146;s or former Participant&#146;s executor or
administrator, or to his heirs at law if there is no administration of such
Participant&#146;s or former Participant&#146;s estate.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE X<BR>
CHANGE IN CONTROL</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.01 <B>General. </B>The provisions of this Article&nbsp;X shall apply and supersede any contrary
provisions of the Plan in the event of a Change in Control.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.02 <B>CIC Committee. </B>If a Change in Control or Potential Change in Control occurs, all
references in the Plan to &#147;<I>Committee</I>&#148; shall at that point be deemed to be references to the CIC
Committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.03 <B>Change in Control During a Performance Period. </B>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&nbsp;3.02
herein have been achieved to the extent required to earn the expected value Award Opportunity), and
(ii)&nbsp;the Employer shall pay to each Participant an amount equal to the Final Award so determined
multiplied by a fraction, the numerator of which is the number of the Participant&#146;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 (12).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.04 <B>Termination of Employment Prior to Change in Control or Following Certain Changes in
Control. </B>Notwithstanding any provision of the Plan to the contrary, a Participant shall be
entitled to receive the payment described in Section&nbsp;10.03 for a Performance Period if (i)&nbsp;such
Participant&#146;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)&nbsp;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)&nbsp;such Participant&#146;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).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.05 <B>Payment of Expected Value Awards and Tax-Gross Up for Delayed Payment. </B>If a Participant
is entitled to a Final Award payment pursuant to Section&nbsp;10.03, the Employer 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&nbsp;10.04, the Employer shall pay
the Participant such Final Award within five days following the date of the Participant&#146;s
termination of employment. If for any reason the Employer fails to timely pay a Participant the
amounts due him pursuant to this Article&nbsp;X, the Employer 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&nbsp;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.06 <B>Forfeiture Restrictions. </B>Notwithstanding any other provision of the Plan, upon the
occurrence of a Change in Control during a Performance Period or upon a Participant&#146;s termination
of employment during a Performance Period in a circumstance described in Section&nbsp;10.04, the amount
of the Participant&#146;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&#146;s Accounts shall
not be forfeited.
</DIV>

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</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE XI<BR>
ADMINISTRATION OF THE PLAN</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.01 <B>Resignation and Removal. </B>The members of a Committee serving as Plan Administrator shall
serve at the pleasure of the Board; they may be officers, directors, or 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.02 <B>Records and Procedures. </B>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&#146;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.03 <B>Self-Interest of Plan Administrator. </B>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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.04 <B>Compensation and Bonding. </B>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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.05 <B>Plan Administrator Powers and Duties. </B>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:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) to construe in its discretion all terms, provisions, conditions and limitations of
the Plan;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) to employ and compensate such accountants, attorneys, investment advisors and other
agents, employees, and independent contractors as the Plan Administrator may deem necessary
or advisable for the proper and efficient administration of the Plan;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) to determine in its discretion all questions relating to eligibility;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) to determine whether and when a Participant has incurred a Separation From Service,
and the reason for such termination; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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.
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.06 <B>Reliance on Documents, Instruments, etc. </B>The Plan Administrator may rely on any
certificate statement or other representation made on behalf of the Employer 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.07 <B>Claims Review Procedures; Claims Appeals Procedures.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U><I>Claims Review Procedures</I></U><I>. </I>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&nbsp;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&nbsp;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:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) the specific reason or reasons for the denial;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) specific reference to the Plan provisions on which the denial is based; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U><I>Claims Appeals Procedures</I></U>. For purposes of this Section&nbsp;11.07 the
Participant or the person entitled to benefits under the Plan is referred to as the
&#147;claimant.&#148; If a claimant&#146;s claim made pursuant to Section&nbsp;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 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, &#147;relevant&#148; 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&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The request for review must be filed within 90&nbsp;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&nbsp;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&nbsp;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&#146;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.
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Within 60&nbsp;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&nbsp;days after the Plan&#146;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&nbsp;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.08 <B>Employer to Supply Information. </B>The Employer shall supply full and timely information
to the Plan Administrator, including, but not limited to, information relating to each
Participant&#146;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 in
connection with the Plan, the Plan Administrator shall be entitled to rely upon the aforesaid
information furnished by the Employer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.09 <B>Indemnity</B>. 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.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE XII<BR>
ADOPTION OF PLAN BY AFFILIATES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.01 <B>Adoption Procedure.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) With the written approval of the Plan Administrator, any entity that is an
Affiliate may adopt the Plan 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 or an executed adoption agreement (approved by the board of directors or noncorporate
counterpart of the Affiliate), agreeing to be bound by all the terms, conditions and
limitations of the Plan except those, if any, specifically described in the adoption
instrument, and providing all information required by the Plan Administrator. The Plan
Administrator and the adopting Affiliate may agree to incorporate specific provisions
relating to the operation of the Plan that apply to the adopting Affiliate only and shall
become, as to such adopting Affiliate and its employees, a part of the Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The provisions of the Plan may be modified so as to increase the obligations of an
adopting Affiliate <I>only </I>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&nbsp;days after the adoption of
the amendment.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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.
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Any adopting 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&#146;s participation in the Plan at
any time.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) The Plan will terminate with respect to any Affiliate that has adopted the Plan
pursuant to this Section&nbsp;12.01 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) The Plan as adopted by the Affiliates shall constitute a single plan rather than a
separate plan of each Affiliate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.02 <B>No Joint Venture Implied. </B>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.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE XIII<BR>
MISCELLANEOUS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.01 <B>Plan Not Contract of Employment. </B>The adoption and maintenance of the Plan shall not be
deemed to be a contract between the Employer and any individual or to be consideration for the
employment of any individual. Nothing herein contained shall be deemed to (a)&nbsp;give any individual
the right to be retained in the employ of the Employer, (b)&nbsp;restrict the right of the Employer to
discharge any individual at any time, (c)&nbsp;give the Employer the right to require any individual to
remain in the employ of the Employer, or (d)&nbsp;restrict any individual&#146;s right to terminate his
employment at any time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.02 <B>Funding. </B>Plan benefits are a contractual obligation of the Employers which shall be
paid out of the Employers&#146; general assets. The Plan is unfunded and Participants are merely
unsecured creditors of the Employers with respect to their benefits under the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.03 <B>Alienation of Interest Forbidden. </B>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&nbsp;13.03 shall not apply to a Domestic Relations Order.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.04 <B>Withholding. </B>All credits to a Participant&#146;s or former Participant&#146;s Accounts and
payments provided for hereunder shall be subject to applicable withholding and other deductions as
shall be required of the Employer under any applicable local, state or federal law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.05 <B>Amendment and Termination. </B>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 Employer; <I>provided,
however</I>, 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 Board may terminate the
Plan at any time. If the Plan is terminated, the amounts credited to a Participant&#146;s or former
Participant&#146;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.06 <B>Severability. </B>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.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.07 <B>Arbitration. </B>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
Employer&#146;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 &#147;<I>AAA</I>&#148;) then in effect. No
arbitration proceeding relating to the Plan may be initiated by either the Employer or the
Participant, or former Participant, unless the claims review and appeals procedures specified in
Section&nbsp;11.07 have been exhausted. Within ten (10)&nbsp;business days of the initiation of an
arbitration hereunder, the Employer and the Participant, or former Participant, will each
separately designate an arbitrator, and within twenty (20)&nbsp;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 thirty (30)&nbsp;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&nbsp;1-16 (or replacement or successor
statute). Pursuant to Section&nbsp;9 of the Federal Arbitration Act, the Employer 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&nbsp;13.07 shall be
construed to, in any way, limit the scope and effect of Article&nbsp;XI. In any arbitration proceeding
full effect shall be given to the rights, powers, and authorities of the Plan Administrator under
Article&nbsp;XI.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.08 <B>Stockholder Approval. </B>Notwithstanding any other provision of the Plan, no payments
shall be made under the Plan with respect to Performance Periods commencing on or after January&nbsp;1,
2006 unless, prior to the payments, the stockholders of Baker Hughes approve the material terms of
the performance goals under which the compensation is to be paid (within the meaning of Section
162(m)).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.09 <B>Compliance With Section&nbsp;409A. </B>To the extent applicable, the Plan shall be operated in
compliance with Section&nbsp;409A and the provisions of Section&nbsp;409A shall override any provisions of
the Plan to the extent that they are inconsistent with Section&nbsp;409A.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.10 <B>Governing Law. </B>All provisions of the Plan shall be construed in accordance with the
laws of Texas, except to the extent preempted by federal 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.
</DIV>

<P align="center" style="font-size: 10pt">60
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="133"></A>
</DIV>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>ANNEX G</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>AUDIT/ETHICS COMMITTEE<BR>
BAKER HUGHES INCORPORATED<BR>
GUIDELINES FOR PRE-APPROVAL OF<BR>
AUDIT AND NON-AUDIT FEES<BR>
OF INDEPENDENT AUDITOR</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Audit Fees</B></U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The independent auditor will submit to the Audit/Ethics Committee of the Board of Directors
(&#147;Committee&#148;) for pre-approval a worldwide engagement letter outlining the scope of the audit
services proposed to be performed for the fiscal year together with an audit services fee proposal
annually.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Non-Audit Fees</B></U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Management will submit to the Committee for pre-approval proposed projects annually for the
upcoming year requesting specific pre-approval for all projects over $15,000 and general approval
for all projects under $15,000 with the Committee informed of the particular services. The
Company&#146;s independent auditor may be awarded any type of non-audit services not prohibited by law
or regulations, including the Sarbanes-Oxley Act, which services may include but not be limited to:
tax compliance, planning and tax audit assistance; limited situation projects related to the
Company or employee statutory filings, requirements or applications; assignments related to
financial statement and internal control risk assessments. The annual request must include a
representation from management and the independent auditor as to whether, in their view, the
request is consistent with the Securities and Exchange Commission&#146;s rules on auditor independence.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Committee has delegated to the Chairman of the Committee the pre-approval requirement of
non-audit fees for new projects that are identified after the annual pre-approval by the Committee.
Projects with estimated fees of $15,000 and above arising subsequent to the annual Committee
pre-approval will be presented to the Chairman of the Committee for approval prior to starting the
project. New projects with estimated fees less than $15,000 not included in the annual
pre-approval will also be presented to the Chairman of the Committee &#147;in total,&#148; with a comparison
to original approvals. The Chairman (and subsequently the Committee) will be informed of the
particular services. All such decisions by the Chairman will be reported to the Committee at a
scheduled meeting. The Committee does not delegate its responsibilities to pre-approve services
performed by the independent auditor to management.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Committee will be provided an interim update during the year. However, if there are deviations
of ten percent or greater from the aggregate pre-approved amount, the Committee will receive an
update at a scheduled meeting. Any proposed services exceeding pre-approved cost levels will
require specific approval by the Committee.
</DIV>



<P align="center" style="font-size: 10pt">61
</DIV>


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<DIV style="font-family: Helvetica,Arial,sans-serif">


<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td align="left" valign="top"><B><font size="2" face="Times New Roman, Times, serif">MANAGEMENT
      RECOMMENDS A VOTE FOR PROPOSALS NUMBERS 1, 2 AND 3 AND AGAINST PROPOSAL
      NUMBER 4.</font></B></td>
    <td width="3%" valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="5%" valign="top" nowrap><font size="1" face="Arial, Helvetica, sans-serif">Please<br>
      Mark Here<br>
      for Address<br>
      Change or<br>
      Comments</font></td>
    <td width="10%" valign="middle"><FONT color="#000000" size="7" face="wingdings">&#111;</FONT></td>
  </tr>
  <tr>
    <td align="left" valign="top">&nbsp;</td>
    <td width="3%" valign="top">&nbsp;</td>
    <td colspan="2" valign="top" nowrap><font face="Arial, Helvetica, sans-serif" size="1"><b>SEE
      REVERSE SIDE</b></font></td>
  </tr>
</table>

<p><br>
</p>
<table width="100%" border="0" cellspacing="0" cellpadding="1">
  <tr>
    <td width="1%">&nbsp;</td>
    <td width="15%">&nbsp;</td>
    <td width="7%" align="center" valign="bottom"><font size="1" face="Arial, Helvetica, sans-serif">FOR<br>
      all<br>
      nominees</font></td>
    <td width="7%" align="center" valign="bottom"><font size="1" face="Arial, Helvetica, sans-serif">WITHHELD<br>
      from all <br>
      nominees</font></td>
    <td width="3%" align="center" valign="bottom"><font size="1" face="Arial, Helvetica, sans-serif">&nbsp;</font></td>
    <td width="1%" align="center" valign="bottom"><font size="1" face="Arial, Helvetica, sans-serif">&nbsp;</font></td>
    <td width="15%" align="center" valign="bottom"><font size="1" face="Arial, Helvetica, sans-serif">&nbsp;</font></td>
    <td width="5%" align="center" valign="bottom" nowrap><font size="1" face="Arial, Helvetica, sans-serif">&nbsp;FOR&nbsp;</font></td>
    <td width="5%" align="center" valign="bottom" nowrap><font size="1" face="Arial, Helvetica, sans-serif">&nbsp;AGAINST&nbsp;</font></td>
    <td width="5%" align="center" valign="bottom" nowrap><font size="1" face="Arial, Helvetica, sans-serif">&nbsp;ABSTAIN&nbsp;</font></td>
    <td width="3%" align="center" valign="bottom"><font size="1" face="Arial, Helvetica, sans-serif">&nbsp;</font></td>
    <td width="1%" align="center" valign="bottom"><font size="1" face="Arial, Helvetica, sans-serif">&nbsp;</font></td>
    <td align="center" valign="bottom"><font size="1" face="Arial, Helvetica, sans-serif">&nbsp;</font></td>
    <td width="5%" align="center" valign="bottom" nowrap><font size="1" face="Arial, Helvetica, sans-serif">&nbsp;FOR&nbsp;</font></td>
    <td width="5%" align="center" valign="bottom" nowrap><font size="1" face="Arial, Helvetica, sans-serif">&nbsp;AGAINST&nbsp;</font></td>
    <td width="5%" align="center" valign="bottom" nowrap><font size="1" face="Arial, Helvetica, sans-serif">&nbsp;ABSTAIN&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="top" nowrap><font size="2" face="Arial, Helvetica, sans-serif">1.
      </font></td>

<td valign="top"><font size="2" face="Arial, Helvetica, sans-serif">Election<br>
of <BR>Directors.</font></td>
    <td align="center" valign="top"><FONT color="#000000" size="7" face="wingdings">&#111;</FONT></td>
    <td align="center" valign="top"><FONT color="#000000" size="7" face="wingdings">&#111;</FONT></td>
    <td>&nbsp;</td>
    <td valign="top" nowrap><font size="2" face="Arial, Helvetica, sans-serif">2.&nbsp;</font></td>
    <td valign="top"><font size="2" face="Arial, Helvetica, sans-serif">Ratification
of  Deloitte  &amp; Touche  as  the  Company&#146;s  Independent  Auditor  for  fiscal
year  2006.</font></td>
    <td align="center" valign="top"><FONT color="#000000" size="7" face="wingdings">&#111;</FONT></td>
    <td align="center" valign="top"><FONT color="#000000" size="7" face="wingdings">&#111;</FONT></td>
    <td align="center" valign="top"><FONT color="#000000" size="7" face="wingdings">&#111;</FONT></td>
    <td>&nbsp;</td>
    <td valign="top" nowrap><font size="2" face="Arial, Helvetica, sans-serif">3.&nbsp;</font></td>
    <td valign="top"><font size="2" face="Arial, Helvetica, sans-serif">Proposal to approve Performance Criteria for Awards under
the Annual Incentive Compensation Plan.
</font></td>
    <td align="center" valign="top"><FONT color="#000000" size="7" face="wingdings">&#111;</FONT></td>
    <td align="center" valign="top"><FONT color="#000000" size="7" face="wingdings">&#111;</FONT></td>
    <td align="center" valign="top"><FONT color="#000000" size="7" face="wingdings">&#111;</FONT></td>
  </tr>
  <tr>
    <td rowspan="2">&nbsp;</td>
    <td colspan="3" rowspan="2" valign="top"><font color="#000000" size="2" face="Arial, Helvetica, sans-serif">01
      Larry D. Brady<br>
      02 Clarence P. Cazalot, Jr.<br>
      03 Chad C. Deaton <br>
      04 Edward P. Djerejian<br>
      05 Anthony G. Fernandes<br>
      06 Claire W. Gargalli <br>
      07 James A. Lash <br>
      08 James F. McCall<br>
      09 J. Larry Nichols<br>
      10 H. John Riley, Jr.<br>
      11 Charles L. Watson<br>
      </font></td>
    <td rowspan="2">&nbsp;</td>
    <td rowspan="2">&nbsp;</td>
    <td rowspan="2">&nbsp;</td>
    <td rowspan="2">&nbsp;</td>
    <td rowspan="2">&nbsp;</td>
    <td rowspan="2">&nbsp;</td>
    <td rowspan="2">&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="center" valign="bottom" nowrap><font size="1" face="Arial, Helvetica, sans-serif">&nbsp;FOR&nbsp;</font></td>
    <td align="center" valign="bottom" nowrap><font size="1" face="Arial, Helvetica, sans-serif">&nbsp;AGAINST&nbsp;</font></td>
    <td align="center" valign="bottom" nowrap><font size="1" face="Arial, Helvetica, sans-serif">&nbsp;ABSTAIN&nbsp;</font></td>
  </tr>
  <tr>
    <td valign="top" nowrap><font size="2" face="Arial, Helvetica, sans-serif">4.&nbsp;</font></td>
    <td valign="top"><font size="2" face="Arial, Helvetica, sans-serif">Stockholder Proposal No. 1 regarding voting under the Company&#146;s Delaware Charter.</font></td>
    <td align="center" valign="top"><FONT color="#000000" size="7" face="wingdings">&#111;</FONT></td>
    <td align="center" valign="top"><FONT color="#000000" size="7" face="wingdings">&#111;</FONT></td>
    <td align="center" valign="top"><FONT color="#000000" size="7" face="wingdings">&#111;</FONT></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td valign="top" nowrap><font size="2" face="Arial, Helvetica, sans-serif">5.&nbsp;</font></td>
    <td colspan="4" valign="top"><font size="2" face="Arial, Helvetica, sans-serif">Such other business as may properly come before the meeting and any reconvened meeting after an adjournment thereof.</font></td>
  </tr>
  <tr>
    <td colspan="4"><font color="#000000" size="2" face="Arial, Helvetica, sans-serif">For,
      except vote withheld from the following nominee(s):</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="center" valign="top">&nbsp;</td>
    <td align="center" valign="top">&nbsp;</td>
    <td align="center" valign="top">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="4"> <br> <hr size="1" noshade></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td colspan="5" valign="top" nowrap>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td valign="top"><font size="2" face="Arial, Helvetica, sans-serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Arial, Helvetica, sans-serif">&nbsp;</font></td>
    <td align="center" valign="top"><font size="2" face="Arial, Helvetica, sans-serif">&nbsp;</font></td>
    <td align="center" valign="top"><font size="2" face="Arial, Helvetica, sans-serif">&nbsp;</font></td>
    <td align="center" valign="top"><font size="2" face="Arial, Helvetica, sans-serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td colspan="5" valign="top"><font size="2" face="Arial, Helvetica, sans-serif">Choose
      MLink<sup><font size="1">sm</font></sup> for Fast, easy and secure 24/7
      online access to your future proxy materials, investment plan statements,
      tax documents and more. Simply log on to investor ServiceDirect at www.melloninvestor.com/isd
      where step-by step instructions will prompt you through enrollment.</font></td>
  </tr>
</table>
<p><br>
</p>
<br>
<p>&nbsp;</p>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td nowrap><font color="#000000" size="2" face="Times New Roman, Times, serif"><b>Signature</b>
      _____________________________ <b>Signature </b> _____________________________<b> Date</b>
      ______________</font></td>
  </tr>
  <tr>
    <td nowrap><b><font color="#000000" size="1" face="Arial, Helvetica, sans-serif">Please sign name(s) exactly as printed hereon. In signing as attorney, administrator, guardian or trustee, please give title as such.</font></b></td>
  </tr>
</table>
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">


<table width="100%"  border="0" cellspacing="5" cellpadding="0">
  <tr>
    <td> <hr noshade> </td>
  </tr>
  <tr align="center" valign="top">
    <td> <font size="2" face="Arial, Helvetica, sans-serif"><b><FONT size="2" face="wingdings">&#217;</FONT>
      FOLD AND DETACH HERE <FONT size="2" face="wingdings">&#217;</FONT></b></font></td>
  </tr>
</table>
<p align="center"><font color="#000000" size="4" face="Arial, Helvetica, sans-serif"><b>Vote
  by Internet or Telephone or Mail</b></font><font color="#000000" face="Arial, Helvetica, sans-serif"><br>
  <b><font size="3">24 Hours a Day, 7 Days a Week</font></b></font></p>
<P ALIGN="center"><FONT color="#000000" SIZE="2" face="Arial, Helvetica, sans-serif"><B>Internet and
telephone voting is available through  11:59 PM Eastern Time<br> the day prior to annual
meeting day.</B></FONT></P>
<P ALIGN="center"><FONT size="2" FACE="Arial, Helvetica, sans-serif"><B>Your Internet
or telephone vote authorizes the named proxies to vote your shares in the same manner<br> as
if you marked,  signed and returned your proxy card.</B></FONT> </P>
<table width="100%" border="0" align="center" cellpadding="0" cellspacing="10">
  <tr>
    <td width="1" nowrap></td>
    <td width="200" valign="top"> <center>
        <font color="#000000" size="2" face="Arial, Helvetica, sans-serif"><b>Internet<br>
        http://www.proxyvoting.com/bhi</b></font>
      </center>
      <p align="left"><font size="2" face="Arial, Helvetica, sans-serif">Use the Internet to vote your proxy.
Have your proxy card in hand when
you access the web site.</font></p></td>
    <td width="1" nowrap><font size="2" face="Arial, Helvetica, sans-serif">&nbsp;</font></td>
    <td width="50"><center>
        <font size="3" face="Arial, Helvetica, sans-serif"><b>OR</b></font></center></td>
    <td width="1" nowrap><font size="2" face="Arial, Helvetica, sans-serif">&nbsp;</font></td>
    <td width="200" valign="top"> <center>
        <font color="#000000" size="2" face="Arial, Helvetica, sans-serif"><b>Telephone<br>
       1-866-540-5760</b></font>
      </center>
      <p align="left"><font size="2" face="Arial, Helvetica, sans-serif">Use any touch-tone telephone to
vote your proxy. Have your proxy
card in hand when you call.</font></p></td>
    <td  width="1" nowrap><font size="2" face="Arial, Helvetica, sans-serif">&nbsp;</font></td>
    <td width="50"><center>
        <font size="3" face="Arial, Helvetica, sans-serif"><b>OR</b></font></center></td>
    <td width="1" nowrap><font size="2" face="Arial, Helvetica, sans-serif">&nbsp;</font></td>
    <td width="200" align="center" valign="top"><center>
        <font color="#000000" size="2" face="Arial, Helvetica, sans-serif"> <b>Mail</b></font></center>
        <br>

        <p align="left"><font size="2" face="Arial, Helvetica, sans-serif">Mark, sign and date
        your proxy card and return it in the enclosed postage-paid envelope.</font></td>
    <td width="1" nowrap></td>
  </tr>
</table>
<P ALIGN="center"><FONT SIZE="3" face="Arial, Helvetica, sans-serif"><B>If you vote your proxy by Internet or by telephone,<br>

you do NOT need to mail back your proxy card.</B></FONT></P>
<P ALIGN="center"><font size="3" face="Arial, Helvetica, sans-serif"><b>You can
  view the Annual Report and Proxy Statement on the internet at <br>
  www.bakerhughes.com/investor/information/arlist.htm</b></font></P>
<p>&nbsp; </p>
<P ALIGN="center">&nbsp;</P>
<hr size="2" noshade>
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">


<P ALIGN="center"><font size="4" face="Arial, Helvetica, sans-serif"><b>BAKER
  HUGHES INCORPORATED <br>
  <font size="3">P.O. Box 4740, Houston, TX 77210-4740</font></b></font></P>
<p align="center"><b><font size="3" face="Arial, Helvetica, sans-serif">Proxy
  For Annual Meeting Of Stockholders <br>
  This Proxy Is Solicited On Behalf Of The Board Of Directors</font></b></p>
<P ALIGN="LEFT"><FONT size="2" face="Arial, Helvetica, sans-serif">The
undersigned  hereby  appoints C.C. Deaton and J. R. Clark  as Proxies,  each with the
power to appoint a substitute,  and  hereby  authorizes  them  to  represent  and  to
vote  as  designated  below,  all the  shares of  common  stock of Baker  Hughes
Incorporated  held of  record  by the  undersigned  on  March 1, 2006,  at the Annual
Meeting of  Stockholders  to be  held on April 27, 2006,  or any  reconvened  meeting
after an  adjournment thereof.
</FONT></P>
<P ALIGN="LEFT"><b><FONT size="2" face="Arial, Helvetica, sans-serif">THIS  PROXY
WHEN  PROPERLY  EXECUTED  WILL  BE  VOTED  IN THE  MANNER DIRECTED HEREIN BY THE
UNDERSIGNED  STOCKHOLDER.  IF NO  DIRECTION  IS  MADE,  THIS  PROXY  WILL  BE  VOTED  FOR
ALL  NOMINEES,  FOR THE  RATIFICATION  OF  DELOITTE &amp; TOUCHE AS THE  COMPANY&#146;S
INDEPENDENT  AUDITOR  FOR  FISCAL  YEAR  2006,  FOR  APPROVAL  OF THE  PERFORMANCE
CRITERIA  FOR AWARDS  UNDER THE  ANNUAL  INCENTIVE  COMPENSATION  PLAN AND AGAINST
STOCKHOLDER  PROPOSAL  NO.  1. IF ANY  OTHER  MATTER  SHOULD  BE  PRESENTED  PROPERLY,
THIS  PROXY  WILL BE VOTED IN  ACCORDANCE  WITH THE  DISCRETION OF THE PERSONS NAMED
HEREIN.
 </FONT> </b></P>


<table border="1" align="center" cellpadding="0" cellspacing="0" width="100%">
  <tr>
    <td align="center"><font color="#000000" size="2" face="Arial, Helvetica, sans-serif"><b>Address
      Change/Comments <font size="1">(Mark the corresponding box on the reverse
      side)</font></b></font></td>
  </tr>
  <tr>
    <td><br>
      <br>
      <br>
    </td>
  </tr>
</table>
<p align="left">
<table width="100%"  border="0" align="center" cellpadding="0" cellspacing="5">
  <tr>
    <td>
        <hr noshade>
    </td>
  </tr>
  <tr>
    <td align="center" valign="top"> <font size="2" face="Arial, Helvetica, sans-serif"><b><FONT size="2" face="wingdings">&#217;</FONT>
      FOLD AND DETACH HERE <FONT size="2" face="wingdings">&#217;</FONT></b></font></td>
  </tr>
</table>
<br>
<P ALIGN="CENTER"><b><FONT size="5" face="Arial, Helvetica, sans-serif"><i>You can now access your Baker Hughes account online.</i></FONT> </b></P>

<P ALIGN="LEFT"><FONT size="2" face="Arial, Helvetica, sans-serif">Access your Baker Hughes stockholder account online via
Investor ServiceDirect<sup>&reg;</sup> (ISD).
</FONT> </P>
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2" face="Arial, Helvetica, sans-serif">Mellon Investor
Services LLC, Transfer Agent for Baker  Hughes Incorporated, now makes it easy and
convenient to get  current information on your shareholder account.</FONT><FONT SIZE="2"><br>
</FONT></FONT> </P>


<table width="80%" border="0" align="center" cellpadding="0">
  <tr valign="top">
    <td width="45%"><ul>
      <li><font size="2" face="Arial, Helvetica, sans-serif">View account
        status</font></li>

      <li><font size="2" face="Arial, Helvetica, sans-serif">View
      certificate history</font></li>
      <li><font size="2" face="Arial, Helvetica, sans-serif">View book-entry information</font></li>

    </ul></td>
    <td width="10%"><font size="2" face="Arial, Helvetica, sans-serif">&nbsp;</font></td>
    <td><ul>
      <li><font size="2" face="Arial, Helvetica, sans-serif">View payment
        history for dividends</font></li>

      <li><font size="2" face="Arial, Helvetica, sans-serif">Make address
      changes</font></li>

      <li><font size="2" face="Arial, Helvetica, sans-serif">Obtain a
        duplicate 1099 tax form</font></li>
      <li><font size="2" face="Arial, Helvetica, sans-serif">Establish/change
        your PIN</font></li>
    </ul></td>
  </tr>
</table>






<P ALIGN="center"><i><FONT size="2" FACE="Arial, Helvetica, sans-serif"><b>Visit
  us on the web at http://www.melloninvestor.com</b></FONT><b><FONT size="3" FACE="Arial, Helvetica, sans-serif"><br>
  </FONT> </b></i></P>

<P ALIGN="center"><i><b><FONT size="3" FACE="Arial, Helvetica, sans-serif">Call
  1-877-978-7778 between 9am-7pm <br>
  Monday-Friday Eastern Time<br>
  </FONT> </b></i></P>

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`
end
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