The Compensation Committee (the "Committee") of the Board of Directors of Baker Hughes Incorporated (the "Company") has determined that in order to further align the long-term interests of the Company's stockholders and its senior officers ("Officers") it is in the best interest of the Company to require that the Officers have significant direct ownership in the common stock of the Company. As a result of such determination, the Committee and the Board have adopted the Stock Ownership Policy ("Policy") to provide direction to the Officers as to the level and amounts of ownership considered satisfactory in meeting the ownership requirements.

Ownership Levels

The Committee requires that the Officers have direct ownership of the Company's common stock in at least the following amounts:

Compliance Period

An Officer has five years to comply with the ownership requirement starting from the date appointed to a position noted above. If an Officer is promoted to a position with a higher Ownership Salary Multiple, the Officer will have five years from the date of the change in position to reach the higher expected Stock Ownership Level but still must meet the prior expected Stock Ownership Level within the original five years of the date first appointed to such prior position. For those Officers with the ownership requirements reflected in hiring letters, the date of hire marks the start of the five-year period.

Until the applicable Stock Ownership Level is met, the following shall apply:

Restricted Stock Awards - Upon vesting of a restricted stock award and after the payment of the taxes due as a result of vesting, the Officer is required to hold the net profit shares until the applicable Stock Ownership Level is met. Net profit shares are the shares remaining after payment of the applicable taxes owed as a result of vesting of the restricted stock, including shares applied as payment of the minimum statutory taxes.

Exercise of Stock Options - Upon exercise of a stock option and after netting down the shares to pay the taxes due as a result of exercise, the Officer is required to hold fifty percent (50%) of the net profit shares until the applicable Stock Ownership Level is met. Net profit shares are the shares remaining after payment of the applicable taxes owed as a result of the exercise of the option and the exercise price of the option, including shares applied as payment of the minimum statutory taxes. The remaining fifty percent (50%) of the net profit shares may be sold for personal use.

Payout of 2004-2006 and 2005-2007 Performance Shares - Upon any payout of performance shares, and after the payment of the taxes due as a result of the payout, the Officer is required to hold the net profit shares until the Stock Ownership Level is met. Net profit shares are the shares remaining after the payment of the applicable taxes owed at the time of the payout, including shares applied as payment of the minimum statutory taxes.

Report - The Officer shall report to the Corporate Secretary the number of shares required by the Officer to pay the applicable taxes upon the vesting of restricted stock awards and performance shares and the exercise of a stock option, in excess of the minimum statutory taxes.

In the event an Officer has a personal hardship, only the Compensation Committee of the Board of Directors or the Chief Executive Officer of the Company can approve any deviations from this Policy.

Required Ownership Shares

Upon reaching the required ownership level in accordance with this Policy, the Officer shall certify to the Corporate Secretary that the ownership requirements have been met and the Corporate Secretary shall confirm such representation and record the number of shares required to be held by the Officer under this Policy based on the closing price of the shares and the Officer's current salary level on the day prior to certification by the Officer (the "Required Ownership Shares"). At such time, Section III a, b, c and d above, shall therefore no longer apply to such Officer.

The Officer will not be required to accumulate any shares in excess of the Required Ownership Shares so long as the Required Ownership Shares are held by the Officer, regardless of changes in the price of the shares. However, the Officer may only sell shares if, after the sale of shares, the Officer will still be in compliance with the Stock Ownership Level under this Policy as of the day the shares are sold based on current share price and salary level.

Annual Review

The Committee will review all Required Ownership Shares levels of the Officers covered by the Policy on an annual basis. The Chief Executive Officer of the Company will be responsible for ensuring compliance with this Policy.

This Policy replaces and supersedes in its entirety any previous Stock Ownership Policy or Guidelines.