-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PCU7FYg6f6X2QJNlz5+5XNm94+jKB9a+CPOSzu7KCftiLb+WC1YGUXJAdQmlFYrL +F5JLQwF2wS+tRkBcIpvAQ== 0000950129-95-001591.txt : 19951219 0000950129-95-001591.hdr.sgml : 19951219 ACCESSION NUMBER: 0000950129-95-001591 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951218 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DANIEL INDUSTRIES INC CENTRAL INDEX KEY: 0000026821 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 741547355 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06098 FILM NUMBER: 95602247 BUSINESS ADDRESS: STREET 1: 9753 PINE LAKE DR CITY: HOUSTON STATE: TX ZIP: 77055 BUSINESS PHONE: 7134676000 MAIL ADDRESS: STREET 1: 9753 PINE LAKE DRIVE STREET 2: WINDSOR HOUSE 50 VICTORIA ST CITY: HOUSTON STATE: TX ZIP: 77055 10-K 1 DANIEL INDUSTRIES - DATED 09/30/95 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended September 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from _______________ to _______________ Commission File No. 1-6098 DANIEL INDUSTRIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 74-1547355 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 9753 PINE LAKE DRIVE HOUSTON, TEXAS 77055 (Address of principal executive offices) (Zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 467-6000 SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED - ----------------------------------- ------------------------ COMMON STOCK, $1.25 PAR VALUE NEW YORK STOCK EXCHANGE RIGHTS TO PURCHASE PREFERRED SHARES NEW YORK STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ] At November 30, 1995, the aggregate market value of Common Stock, $1.25 par value, of the registrant held by non-affiliates of the registrant was $129,552,008. As of that date, there were outstanding 12,083,485 shares of Common Stock, $1.25 par value, of the registrant. DOCUMENTS INCORPORATED BY REFERENCE There is incorporated by reference in Part III of this Annual Report on Form 10-K the information contained under the headings "Election of Directors", "Company Executive and Subsidiary Officers", "Executive Compensation", "Certain Relationships and Related Transactions" and "Principal Stockholders" in the Registrant's Proxy Statement for the Company's Annual Meeting of Stockholders proposed to be held February 1, 1996, which Proxy Statement shall be filed within 120 days of the end of the registrant's fiscal year. 2 P A R T I ITEM 1. BUSINESS. Daniel Industries, Inc. is engaged in providing products and systems used to measure rates of flow and accumulated volumes of fluids, primarily oil and natural gas. The Company manufactures a variety of measurement devices including orifice, turbine, positive displacement, ultrasonic and oval gear meters and a wide range of electronic instruments used in conjunction with flow measurement products. The Company also designs, fabricates and assembles large, automated flow measurement systems to meet specific needs and applications. The Company's flow measurement products and systems are used mainly by producers, refiners and transporters of oil and natural gas. The Company is also engaged in the manufacture and sale of pipeline valves. In connection with the Company's restructuring plan announced in February 1995, the Company sold in November 1995, the net assets of its fastener business which manufactured alloy stud bolts, ring joint gaskets and industrial flanges, and in July 1995, sold its energy fabrication business which manufactured large steam generators and water treatment equipment for enhanced oil recovery operations and produced equipment for pipeline and production facilities. (See NOTES 2 and 3 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.) Daniel Industries, Inc. was incorporated under the laws of Delaware in 1988 as the successor to a business started in 1930. Unless the context indicates otherwise, references herein to the "Company" refer to Daniel Industries, Inc., its subsidiaries and their predecessors. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Company has two industry segments: flow measurement and energy products. Financial information for the Company's industry segments is presented in NOTE 15 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. Such information is hereby incorporated by reference herein. FLOW MEASUREMENT Since its inception in 1930, the Company has manufactured products that employ a method known as differential orifice measurement to measure fluids, primarily natural gas. These orifice measurement products cause a decline in pressure as fluid flows through the device. This decline in pressure is measured and used to determine rates of flow and accumulated volumes of fluid. In addition to its orifice measurement products, the Company manufactures flow measurement products using turbines whose frequency of rotation indicates rates of flow and accumulated volumes of fluid. The Company also manufactures positive displacement and oval gear meters for the measurement of various liquid flows. Sales of all metering equipment worldwide contributed 52%, 43% and 53% of this industry segment's revenues in fiscal 1995, 1994 and 1993, respectively. The Company also manufactures a wide range of electronic instruments used in conjunction with flow measurement products. Sales of electronic products 1 3 worldwide contributed approximately 26%, 20% and 24% of this industry segment's revenues in fiscal 1995, 1994 and 1993, respectively. The Company's electronic flow computers instantaneously compute and display the rate of flow and accumulated volumes of fluid. The Company has developed several software programs and has an in-house programming capability to meet specific customer applications. Other electronic products manufactured by the Company include chromatographs for analysis of natural gas to determine its BTU content and ultrasonic flowmeters for nonintrusive gas flow measurement. In addition, the Company designs and manufactures electronic products for the automation of liquid petroleum loading facilities. The Company designs, fabricates and assembles flow measurement systems, including specialized electronic and control systems for the automation of liquid petroleum product loading systems. Sales of all systems worldwide contributed approximately 22%, 37% and 23% of this industry segment's revenues in fiscal 1995, 1994 and 1993, respectively. A typical system is mounted on one or more skids for ease of installation and contains various mechanical equipment, electronic instruments, piping, supports and walkways. A system can be operated manually or it can be completely automated through the use of computers and other instrumentation supplied and programmed by the Company. In the process of supplying a flow measurement system, the Company first defines the total measurement requirements, and subsequently designs the system. The Company then fabricates or supplies the various mechanical and electronic components of the system. The system is assembled and tested at the Company's Houston, Texas or Falkirk, Scotland plant. The Company also has the capability to supervise on-site installation and start-up operations of the system and to provide servicing for the system after installation. The Company has sales offices in seven United States cities; Calgary, Canada; Dammam, Saudi Arabia; Datchet, England; Falkirk, Scotland; Leiden, Holland; Moscow, Russia; Potsdam-Babelsberg, Germany and Singapore through which it sells its flow measurement products and systems. In addition, sales are made domestically and in certain foreign countries through a system of sales representatives and distributors working on a commission basis. Although the Company's flow measurement products and systems have been used in water handling and the chemical and power generation industries, sales are principally to integrated oil companies, gas pipeline companies and other concerns engaged in the production, transmission and marketing of oil and natural gas. The geographic market for the Company's flow measurement products and systems is worldwide. In competing for the sale of systems, the Company may enter into contracts which provide for the completion of the systems at specified prices and in accordance with time schedules. These contracts may involve greater risks as a result of unforeseen increases in the prices of raw materials and other costs. In its financial statements, the Company accounts for systems using the percentage-of-completion method, which requires recognition of revenues and costs over the life of the contract, rather than solely at the time the contract is completed. The Company has not compiled detailed market information regarding its competitive position in the flow measurement industry. However, the Company 2 4 believes that, in terms of revenues, it is the largest United States producer of orifice measurement products used to measure natural gas flows in custody transfer. In addition, management considers the Company to be a major international supplier of terminal automation equipment for terminal petroleum product truck loading and of flow measurement systems, which are used to measure crude oil flows. Among the other devices used for flow measurement are turbine measurement products, but the Company has a less than dominant position in the market for those products. In general, the flow measurement segment of the Company has numerous competitors, none of which is considered to be dominant. The principal competitive factors in this industry include, singularly or in various combinations, price, design, service, efficiency and the ability of the products or systems to measure and display rates of flow and accumulated volumes of fluid accurately. At September 30, 1995 and 1994, the Company's backlog of orders believed to be firm for the flow measurement segment's products and systems was approximately $30,800,000 and $27,400,000, respectively. The Company expects that substantially all of the backlog at September 30, 1995, will be filled during the fiscal year ending September 30, 1996. ENERGY PRODUCTS The Company is engaged in the manufacture of gate valves that range from 2" to 84" in diameter. The bodies of the 8" to 84" valves are fabricated from plate steel which is cut and welded, rather than from castings. The Company's gate valve operation includes a line of cast gate valves ranging from 2" to 6" in diameter and a round body design, which incorporates a combination of fabricated and cast valve components, for large diameter and high pressure applications. The Company manufactures a line of forged-body trunnion ball valves in 2" through 48" bore sizes. Their primary application is pipeline block valves and on/off service in liquid and gas systems. The Company's pipeline valves are marketed by three domestic sales offices and offices in Calgary, Canada; Dammam, Saudi Arabia; Datchet, England; Leiden, Holland; Moscow, Russia and Singapore. In addition, sales are made worldwide through representatives working on a commission basis. The Company's valves are sold primarily to pipeline contractors and transmission companies for use in controlling liquid or gas pipeline flows. The Company competes worldwide with numerous manufacturers of fabricated, forged and cast valves. Ability to meet strict delivery requirements, as well as price and quality of the valves sold, are considered to be the principal competitive factors in the sale of pipeline valves. In connection with the Company's restructuring plan announced in February 1995, the Company sold in November 1995, the net assets of its fastener business which manufactured alloy stud bolts, ring joint gaskets and industrial flanges, and in July 1995, sold its energy fabrication business which manufactured large steam generators and water treatment equipment for enhanced oil recovery operations and produced equipment for pipeline and production facilities. (See NOTES 2 and 3 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.) 3 5 At September 30, 1995 and 1994, the Company's backlog of orders believed to be firm for the energy products segment was approximately $15,900,000 and $6,000,000, respectively. The Company expects that substantially all of the backlog at September 30, 1995, will be filled during the fiscal year ending September 30, 1996. FOREIGN OPERATIONS Approximately 18% of the Company's consolidated revenues for its fiscal year ended September 30, 1995, was attributable to sales of flow measurement products and systems manufactured or assembled at the Company's plants in Falkirk, Scotland and Potsdam-Babelsberg, Germany. Sales of Company products and systems for foreign installation or use outside the United States, inclusive of the operations in Scotland and Germany, contributed approximately 49%, 60% and 52% of the Company's consolidated revenues in fiscal 1995, 1994 and 1993, respectively. The Company's operations outside the United States are subject to the usual risks of such operations, including changes in governmental policies, currency transfer restrictions and devaluation. The Company endeavors to minimize these risks through the use of letters of credit, United States dollar-denominated contracts and hedging of specific foreign currency commitments. Financial information about the Company's foreign and domestic operations and export sales by geographic area is presented in NOTE 15 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. Such information is hereby incorporated by reference herein. RAW MATERIALS Raw materials and other supplies used by the Company in the manufacture and fabrication of its products are purchased from suppliers and other manufacturers. No purchases are made under long-term contracts, and the Company does not consider that it is materially dependent upon any single source of supply. From time to time, however, the Company encounters difficulty in obtaining steel and steel castings. CUSTOMERS Occasionally, the Company's flow measurement segment is engaged to supply one or more flow measurement systems for a single installation. A few contracts to design and assemble such systems would be of material importance to that industry segment's results of operations for a particular fiscal period. However, the Company is not dependent on a few customers on a continuing basis. PATENTS AND RESEARCH The Company has sought patent protection for products which appear to have commercial importance. The Company does not consider that the patents currently held by it are material to its operations as a whole. The Company engages in research activities with a view to the development of new products as well as the improvement of existing products. The amounts spent during the fiscal years ended September 30, 1995, 1994 and 1993, on 4 6 research and product development activities were approximately $2,700,000, $4,100,000 and $5,300,000, respectively. EMPLOYEES At September 30, 1995, the Company employed approximately 1,200 persons, of whom approximately 940 were located in the United States, approximately 160 were located in the United Kingdom and 100 were located in other nations. Subsequent to the sale of the fastener business, the Company employed approximately 1,050 persons. ENVIRONMENTAL COMPLIANCE Compliance with existing governmental regulations which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, does not have, nor is expected to have, a material effect on the Company. OTHER BUSINESS CONDITIONS AND REGULATIONS The Company's business is largely dependent upon the level and nature of the activities in the worldwide oil and natural gas industries. The level of such activities may be influenced by numerous factors, including general economic conditions, the demand for oil and/or natural gas, development of alternative energy sources, taxation, price controls and other political and economic conditions. The business of the Company is moderately seasonal to the extent that many of the Company's products and systems are installed and its services provided out-of-doors. Consequently, sales attributable to these products and services tend to increase somewhat during the summer months when the weather is more favorable, and there are more daylight hours. For a discussion of the Company's practices relating to working capital, see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." - "Liquidity and Capital Resources." 5 7 ITEM 2. PROPERTIES. The principal offices and manufacturing facilities of the Company are as follows:
APPROX. AREA LOCATION (SQ. FT.) TENURE UTILIZATION -------- ------------ ------ ----------- Flow Measurement Segment - ------------------------ Houston, Texas(a) 428,000 Owned Manufacture of flow Falkirk, Scotland 258,000 Owned measurement products and design, fabrication and testing of flow measure- ment systems. Potsdam-Babelsberg, 180,000 Owned Manufacture of flow measure- Germany ment products. Houston, Texas 54,000 Owned Fabrication of flow computers, automation systems, gas chromatographs and ultrasonic flowmeters. Calgary, Canada 15,000 Leased Manufacture and sales of flow measurement products. Houston, Texas 13,000 Owned The building is being held for future use or possible sale. Waller County, Texas 321 acres Owned Land purchased for future development. Energy Products Segment - ----------------------- Houston, Texas 189,000 Owned Manufacture of stud bolts, ring joint gaskets and industrial flanges. The property was sold in November 1995 in conjunction with the sale of the business.(b) Houston, Texas 213,000 Owned Manufacture of pipeline valves. Matamoros, Mexico 35,000 Owned The building is leased to a suitable tenant and is being held for sale.
(a) Includes Corporate headquarters. (b) See NOTE 3 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 6 8 Gardena, California 20,000 Leased Wholesale gaskets, bolts and nuts. The lease was assigned in November 1995 in connection with the sale of the business.(a) Edmonton, Canada 16,000 Leased Wholesale gaskets, bolts and nuts. The lease was assigned in November 1995 in connection with the sale of the business.(a) - ----------
(a) See NOTE 3 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. ITEM 3. LEGAL PROCEEDINGS. The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amounts of ultimate liability, if any, with respect to these actions will not materially affect the financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There was no matter during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K submitted to a vote of security holders, through the solicitation of proxies or otherwise. P A R T II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The shares of common stock, $1.25 par value, of the Company are traded on the New York Stock Exchange under the symbol DAN. At November 30, 1995, the approximate number of holders of record of shares of common stock of the Company was 1,224. The following table sets forth for each quarterly period during the fiscal years ended September 30, 1995 and 1994 (i) the high and low sales prices of shares of common stock of the Company and (ii) the amount of cash dividends per share paid on the common stock of the Company. Such dividends were declared and paid on a quarterly basis. 7 9
Price of Common Dividends Stock Paid ----------------- --------- High Low ------ ------ Fiscal 1995 Quarter Ended: December 31, 1994. . . . . . . . . . . . . $13 3/4 $11 5/8 $.045 March 31, 1995 . . . . . . . . . . . . . . 15 1/2 12 5/8 .045 June 30, 1995. . . . . . . . . . . . . . . 16 1/2 13 3/4 .045 September 30, 1995 . . . . . . . . . . . . 16 1/4 13 7/8 .045 Fiscal 1994 Quarter Ended: December 31, 1993. . . . . . . . . . . . . 15 7/8 12 3/8 .045 March 31, 1994 . . . . . . . . . . . . . . 13 5/8 10 1/2 .045 June 30, 1994. . . . . . . . . . . . . . . 12 3/8 10 3/8 .045 September 30, 1994 . . . . . . . . . . . . 12 1/2 9 7/8 .045
The Company is authorized by its Certificate of Incorporation to issue up to 1,000,000 shares of serial preferred stock, $1 par value, but no shares of serial preferred stock of the Company have been issued. Subject to the rights of holders of serial preferred stock, the holders of shares of common stock of the Company are entitled to receive dividends when and as declared by the Board of Directors of the Company out of funds legally available therefor. The Company has paid cash dividends on its common stock during each year since 1948. The Company's future dividend policy with respect to its common stock, including the frequency, type and amount of dividends, if any, will be determined by its Board of Directors in light of the Company's results of operations, its cash flow and anticipated capital requirements, possible future issuances of serial preferred stock and the restrictions as to payment of dividends contained in instruments pursuant to which the Company has issued long-term debt. (See NOTE 11 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.) ITEM 6. SELECTED FINANCIAL DATA.
Year Ended September 30, ---------------------------------------------------- 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- (in thousands except per share data) Revenues . . . . . . . . .$168,560 $203,766 $180,249 $210,362 $201,744 Net Income (Loss). . . . . (12,792) 1,324 5,025 8,373 (1,969) Total Assets . . . . . . . 164,468 187,337 178,068 177,079 192,091 Long-Term Debt . . . . . . 8,572 11,429 14,286 17,143 20,000 Earnings (Loss) per Share . . . . . . . . . (1.06) .11 .42 .70 (.18) Cash Dividends per Share . . . . . . . . . .18 .18 .18 .18 .18 Average Shares Outstanding . . . . . . 12,048 12,030 11,991 11,960 10,925
8 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS OVERVIEW In February 1995, the Company announced that its Board of Directors approved and adopted a restructuring plan to improve the Company's overall profitability through a greater focus on high margin and market leading product lines, and through annual cost reductions in overhead and direct expenses of approximately $8 to $10 million. As discussed in NOTES 2 and 3 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, the Company recorded in fiscal 1995 the following pretax charges:
(in thousands) Restructuring and other charges . . . . . . . . $12,330 Losses on divestitures of assets. . . . . . . . 11,958 Inventory writedowns. . . . . . . . . . . . . . 3,785 ------- $28,073 =======
For fiscal 1995, the Company reported a net loss of $12,792,000, or $1.06 per share, compared to net income of $1,324,000, or $.11 per share, for fiscal 1994. Exclusive of the charges mentioned above, the Company's operations in fiscal 1995 benefitted from improvements in the domestic natural gas markets and cost savings arising from the restructuring plan. Earnings before depreciation, interest, and taxes for fiscal 1995 (exclusive of the charges mentioned above) was 11% of revenues compared to 6% for the prior year. The Company's backlog at September 30, 1995, of approximately $46,700,000, represents an increase of 40% from the balance at September 30, 1994. FISCAL 1995 VS. FISCAL 1994 Consolidated revenues decreased 17% to $168,560,000 in fiscal 1995 compared to $203,766,000 in fiscal 1994. Revenues in the flow measurement segment were $114,966,000 in the current period compared to $145,657,000 last year. Revenues from sales of flow measurement systems, which accounted for 22% and 37% of this segment's revenues in the respective periods, declined primarily due to the inclusion in the prior year of revenues related to the construction of two large gas metering stations destined for the North Sea. Revenues from sales of flow measurement products remained unchanged between the two periods. Revenues in the energy products segment decreased 8% to $53,320,000 for the current period compared to $57,739,000 last year. Decreased sales of valve and fabricated energy products due to the competitive foreign market for valves and the divestiture of the energy fabrication business, respectively, were partially offset by increased revenues from sales of fastener products due primarily to price increases allowed by improved demand. The consolidated gross profit margin for fiscal 1995 improved to 37% of revenues compared to 34% of revenues in fiscal 1994. The gross profit margin in the flow measurement segment improved to 41% of revenues in the current period 9 11 from 37% last year. This improvement is due to a change in product mix towards sales of products which earn higher margins than sales of flow measurement systems, partially offset by the $2,385,000 charge for inventory writedowns recorded in the second quarter of fiscal 1995 in connection with the Company's decision, as part of its strategic restructuring plan, to focus on core product lines. The gross profit margin in the energy products segment increased to 28% of revenues in the current period from 26% of revenues last year. Improved margins on fastener products due primarily to price increases was partially offset by lower margins on pipeline valve products due primarily to the $1,400,000 charge for inventory writedowns. Depreciation and amortization expense increased slightly to $7,545,000 in the current period from $7,483,000 last year due to the amortization of intangibles associated with an acquisition (see NOTE 4 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS), partially offset by the discontinuation of depreciation and amortization of assets held for sale. Consolidated selling and administrative ("S&A") expenses declined 15% to $45,031,000 in the current period. S&A expenses in the flow measurement segment declined 9% to $29,229,000; expenses in the energy products segment declined 25% to $10,241,000 and corporate expenses declined 24% to $5,561,000. These declines are primarily attributable to the decreases in revenues and the realization of benefits from the restructuring program. The restructuring and other charges of $12,330,000 represent primarily employee terminations and impairments of assets. (See NOTE 2 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.) In fiscal 1995, the Company recorded losses aggregating $11,958,000 related to the divestitures of non-core product lines, primarily resulting from the divestiture of the fastener business. (See NOTE 3 to NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.) Interest expenses increased 5% to $2,028,000 in the current period due to increased short-term borrowing levels partially offset by lower long-term debt levels. FISCAL 1994 VS. FISCAL 1993 Consolidated revenues increased 13% to $203,766,000 for fiscal 1994, from $180,249,000 for fiscal 1993. The flow measurement segment posted a 32% increase in revenues to $145,657,000 for the current year, from $110,009,000 for last year. Sales of flow measurement systems, which comprised 37% and 23% of this segment's revenues in the respective periods, increased significantly in the more recent period due primarily to construction of two gas metering stations destined for the North Sea. Sales of flow measurement products increased eight percent, reflecting increased demand for the Company's metering and electronic products, primarily in foreign markets. The energy products segment experienced a 17% decline in revenues to $57,739,000 for the current year, compared to $69,424,000 for last year. Sales of pipeline valves, which comprised approximately one-half of this segment's revenues in the respective periods, decreased due to a more competitive worldwide market. 10 12 Consolidated backlog at September 30, 1994, was approximately $33,400,000, compared to $72,200,000 a year ago. The decline in backlog was due to inclusion in the prior year of an unusually large order for a flow measurement system in the amount of approximately $23,000,000. The consolidated gross profit margin declined to 34% of revenues for fiscal 1994, compared to 40% of revenues for fiscal 1993. The gross profit margin in the flow measurement segment declined seven percentage points to 37% of revenues primarily due to a shift in product mix towards sales of flow measurement systems, which earn lower margins than sales of flow measurement products. The gross profit margin in the energy products segment declined six percentage points to 26% of revenues primarily as a result of current year pricing pressures for pipeline valve and fastener products and declines in operational efficiencies at both the valve and fastener operations. Consolidated selling, general and administrative expenses increased to $53,176,000 for fiscal 1994, from $49,120,000 for fiscal 1993. However, these expenses, as a percentage of revenues, declined slightly between the two periods. Within the flow measurement segment, selling expenses declined as a percentage of revenues due to the change in product mix towards sales of flow measurement systems, which have lower sales commissions than sales of flow measurement products. General and administrative expenses also declined as a percentage of revenues, resulting from the significant increase in sales. The energy products segment's expenses increased as a percentage of revenues since certain of these expenses are fixed and do not decrease proportionately with sales. Corporate expenses increased 75% to $7,364,000 primarily due to reductions of accruals in fiscal 1993 relating to settled litigation. Research and development expenses decreased 23% to $4,094,000 for fiscal 1994, compared to $5,343,000 for fiscal 1993, primarily due to completion of certain electronics projects. Consolidated depreciation and amortization expense increased 14% to $7,483,000 for fiscal 1994 due to capital expenditures in fiscal 1993 in both the flow measurement and energy products segments. Consolidated interest expense decreased eight percent to $1,927,000 for fiscal 1994 due to lower long-term debt levels, partially offset by increased short-term borrowing levels. IMPACT OF INFLATION An effect of inflation is to increase the prices of labor and raw materials used to manufacture the Company's products, which may require periodic increases in the prices for those products to maintain gross profit margins. Although this principle impacts most manufacturers, management does not consider the Company to have any unique difficulty in managing the effects of inflation on the Company's business. With respect to the effect of inflation on reported income, the Company applies the LIFO method to a majority of its inventories to account for production costs. 11 13 LIQUIDITY AND CAPITAL RESOURCES The primary sources of the Company's liquidity for the year ended September 30, 1995, were internally generated funds, short-terms borrowings, proceeds from divestitures of non-core product lines (see NOTE 3 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS), proceeds from sales of investment securities and cash and cash equivalents available at the beginning of the year. These funds were used primarily for the acquisition of a product line (see NOTE 4 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS), capital expenditures, payments on long-term debt and payments of dividends. The Company's cash balance at September 30, 1995, was $3,895,000, an increase of $1,375,000 from September 30, 1994. Working capital at September 30, 1995 of $65,386,000 was relatively unchanged from the balance of $65,990,000 last year. The Company considers its financial position to be strong, with a working capital ratio at September 30, 1995, of 2.5 to 1.0. During fiscal 1995, the Company recorded pretax charges aggregating $28,073,000 related to divestitures of non-core product lines, and to restructuring and other charges. The non-cash portion of these charges was $20,982,000. The cash portion of these charges represented employee terminations and other costs aggregating $7,091,000, of which $4,556,000 was paid in fiscal 1995, and $2,535,000 was accrued at September 30, 1995 to be paid in fiscal 1996. Working capital at September 30, 1995, included $43,871,000 in inventory and deferred taxes on income which are not as liquid as other current assets. In fiscal 1995 and 1994, the Company relied upon short-term borrowings under its bank lines of credit to supplement its working capital and other cash requirements. At September 30, 1995, the Company had uncommitted short-term lines of credit aggregating approximately $45,000,000. (See NOTE 8 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.) At September 30, 1995 and December 14, 1995, borrowings under these lines were $10,000,000 and $5,200,000, respectively, at weighted average interest rates of 6.41% and 6.40%, respectively. While the Company expects its borrowing requirements to generally decrease during the remainder of fiscal 1996 from current levels, the timing of one or several major expenditures or receipts may affect the level of borrowings at a particular point in time. The Company anticipates capital expenditures in fiscal 1996 of approximately $4,000,000. Capital expenditures for fiscal 1995 were $4,794,000. The Company continues to seek acquisitions that would build upon its expertise in the manufacturing and marketing of measurement and flow control products and systems. ITEM 8. FINANCIAL STATEMENTS. The financial statements required to be filed under this item are presented on pages 19 through 36 of this report. Such financial statements are hereby incorporated by reference under this Item 8. 12 14 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. P A R T III ITEMS 10 TO 13 INCLUSIVE. The information contained under the headings "Election of Directors", "Company Executive and Subsidiary Officers", "Executive Compensation", "Certain Relationships and Related Transactions" and "Principal Stockholders" in the Company's Proxy Statement for the Company's Annual Meeting of Stockholders proposed to be held February 1, 1996, which Proxy Statement shall be filed within 120 days of the end of the Company's fiscal year, is hereby incorporated by reference herein. 13 15 P A R T IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (A) DOCUMENTS FILED AS A PART OF THIS REPORT 1. Financial Statements
Page ---- Report of independent accountants . . . . . . . . . . . . . . . . 18 Consolidated balance sheet at September 30, 1995 and 1994. . . . . 19 Consolidated statement of operations for the years ended September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . 20 Consolidated statement of stockholders' equity for the years ended September 30, 1995, 1994 and 1993 . . . . . . . . 21 Consolidated statement of cash flows for the years ended September 30, 1995, 1994 and 1993 . . . . . . . . . . . 22 Notes to consolidated financial statements . . . . . . . . . .23 - 36
2. All financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto listed above in Item 14(a) 1. 3. Exhibits
Exhibit Number Description - ------ ----------- 2.1 - Plan and Agreement of Merger dated as of January 22, 1988, by and between Daniel Industries, Inc., a Texas corporation ("Daniel Texas"), and Daniel Industries, Inc., a Delaware corporation (the "Company"), filed as Exhibit 2.1 to the Company's Registration of Securities of Certain Successor Issuers on Form 8-B, and hereby incorporated by reference herein. 3.1 - Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the Company's Registration of Securities of Certain Successor Issuers on Form 8-B dated May 5, 1988, and hereby incorporated by reference herein. 3.2 - By-Laws of the Company, as amended through February 2, 1995. 3.3 - Certificate of Designation, Powers, Preferences and Rights of Series A Junior Participating Preferred Stock filed as Exhibit 3.3 in the Company's Amendment to Application or Report on Form 8, and hereby incorporated by reference herein. 4.1 - Note Purchase Agreement dated as of December 5, 1988, between the Company and The Variable Annuity Life Insurance Company, The Mutual Benefit Life Insurance Company, MONY Life Insurance Company of America and MONY Legacy Life Insurance Company (including the form of the Company's Senior Notes in the aggregate in the principal
14 16 amount of $20,000,000) filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year ended September 30, 1988, and hereby incorporated by reference herein. 4.2 - Rights Agreement dated as of May 31, 1990, between the Company and Wachovia Bank and Trust Company, N.A., as Rights Agent, filed as Exhibit 1 to the Company's Registration of Certain Classes of Securities on Form 8-A filed June 5, 1990, and hereby incorporated by reference herein. 4.3 - Certificate of Designation, Powers, Preferences and Rights of Series A Junior Participating Preferred Stock (included as Exhibit 3.3 hereto). 10.1 - 1977 Stock Option Plan, as amended and restated on December 16, 1993, filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended September 30, 1995, and hereby incorporated by reference herein. 10.2 - 1981 Stock Option Plan, as amended and restated on December 31, 1986, filed as Exhibit 19.2 to Daniel Texas's Quarterly Report on Form 10-Q for the quarter ended December 31, 1986, and hereby incorporated by reference herein. 10.3 - Form of Director's Stock Option Agreements dated October 9, 1986, between Daniel Texas and the several non-employee directors, filed as Exhibit 19.1 to Daniel Texas's Quarterly Report on Form 10-Q for the quarter ended March 31, 1987, and hereby incorporated by reference herein. 10.4 - Form of Change in Control Agreement dated as of March 15, 1995, between the Company and each of W. A. Griffin, III, W. C. Clingman, H. G. Schopfer, III, T. L. Sivak and M. R. Yellin. 10.5 - Asset Purchase Agreement dated November 27, 1995, by and among DAN-LOC Bolt & Gasket, Inc., Daniel Industrial, Inc., Daniel Industries Canada and the Company. 10.6 - Supplemental Executive Retirement Plan effective July 1, 1995. 10.7 - Written description of a Consulting Agreement between the Company and Ralph H. Clemons, Jr. effective as of July 1, 1994. 10.8 - Written description of a Consulting Agreement between the Company and W. A. Griffin effective as of February 3, 1995.
15 17 10.9 - Written description of the Company's key employees' incentive compensation plan. 21 - Subsidiaries of the Company. 23 - Consent of Independent Accountants. 27 - Financial data schedule.
(b) REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the fourth quarter of its fiscal year ended September 30, 1995. 16 18 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. DANIEL INDUSTRIES, INC. (REGISTRANT) DATE: DECEMBER 8, 1995 BY W. A. GRIFFIN, III ---------------------------------- W. A. GRIFFIN, III CHIEF EXECUTIVE OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- RICHARD L. O'SHIELDS Chairman of the Board December 8, 1995 - ------------------------------ (Richard L. O'Shields) W. A. GRIFFIN, III President and a Director December 8, 1995 - ------------------------------ (Chief Executive Officer) (W. A. Griffin, III) HENRY G. SCHOPFER, III Vice President, Finance December 8, 1995 - ------------------------------ (Chief Financial Officer) (Henry G. Schopfer, III) MARY R. BESHEARS Corporate Controller December 8, 1995 - ------------------------------ (Chief Accounting Officer) (Mary R. Beshears) RALPH H. CLEMONS, JR. Director December 8, 1995 - ------------------------------ (Ralph H. Clemons, Jr.) GIBSON GAYLE, JR. Director December 8, 1995 - ------------------------------ (Gibson Gayle, Jr.) W. A. GRIFFIN Chairman Emeritus and December 8, 1995 - ------------------------------ a Director (W. A. Griffin) RONALD C. LASSITER Director December 8, 1995 - ------------------------------ (Ronald C. Lassiter) LEO E. LINBECK, JR. Director December 8, 1995 - ------------------------------ (Leo E. Linbeck, Jr.) WILLIAM C. MORRIS Director December 8, 1995 - ------------------------------ (William C. Morris) BRIAN E. O'NEILL Director December 8, 1995 - ------------------------------ (Brian E. O'Neill)
17 19 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF DANIEL INDUSTRIES, INC. In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a) 1 on page 14 present fairly, in all material respects, the financial position of Daniel Industries, Inc. and its subsidiaries at September 30, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Houston, Texas November 21, 1995 18 20 DANIEL INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET
September 30, ----------------------- 1995 1994 -------- -------- (in thousands) ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 3,895 $ 2,520 Receivables, net of reserve of $98,000 and $243,000 . . . . . . . . . . 34,807 38,146 Costs in excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . 941 14,888 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,889 45,314 Deferred taxes on income . . . . . . . . . . . . . . . . . . . . . . . 7,982 5,126 Net assets held for sale . . . . . . . . . . . . . . . . . . . . . . . 22,838 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,427 5,657 -------- -------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . 108,779 111,651 Property, plant and equipment at cost, net . . . . . . . . . . . . . . . 52,677 69,796 Intangibles and other assets . . . . . . . . . . . . . . . . . . . . . . 3,012 5,890 -------- -------- $164,468 $187,337 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,000 $ 5,900 Current maturities of long-term debt . . . . . . . . . . . . . . . . . 2,857 2,857 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,702 16,946 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,834 19,958 -------- -------- Total current liabilities . . . . . . . . . . . . . . . . . . . . 43,393 45,661 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,572 11,429 Deferred taxes on income . . . . . . . . . . . . . . . . . . . . . . . . 3,183 8,367 -------- -------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 55,148 65,457 -------- -------- Commitments and contingencies Stockholders' equity: Preferred stock, $1.00 par value, 1,000,000 shares authorized, 150,000 shares designated as Series A junior participating preferred stock, no shares issued or outstanding . . . . . . . . . . . . . . . . . . . . . . . . Common stock, $1.25 par value, 20,000,000 shares authorized, 12,083,485 and 12,032,470 shares issued . . . . . . . . . . . . . . . 15,104 15,041 Capital in excess of par value . . . . . . . . . . . . . . . . . . . . 90,247 89,675 Translation component . . . . . . . . . . . . . . . . . . . . . . . . . (295) (2,061) Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,264 19,225 -------- -------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 109,320 121,880 -------- -------- $164,468 $187,337 ======== ========
The accompanying notes are an integral part of the financial statements. 19 21 DANIEL INDUSTRIES, INC. CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended September 30, --------------------------------------- 1995 1994 1993 ---------- --------- --------- (in thousands except per share amounts) Revenues . . . . . . . . . . . . . . . . . . . . . . . . . $168,560 $203,766 $180,249 -------- -------- -------- Costs and expenses: Cost of goods sold . . . . . . . . . . . . . . . . . . . 105,524 134,966 109,032 Depreciation and amortization . . . . . . . . . . . . . . 7,545 7,483 6,584 Selling and administrative expenses . . . . . . . . . . . 45,031 53,176 49,120 Research and development expenses . . . . . . . . . . . . 2,659 4,094 5,343 Restructuring and other charges . . . . . . . . . . . . . 12,330 Losses on divestitures of assets . . . . . . . . . . . . 11,958 Interest expense . . . . . . . . . . . . . . . . . . . . 2,028 1,927 2,088 -------- -------- -------- 187,075 201,646 172,167 -------- -------- -------- Income (loss) before income tax expense . . . . . . . . . . (18,515) 2,120 8,082 Income tax expense (benefit) . . . . . . . . . . . . . . . (5,723) 796 3,057 -------- -------- -------- Net income (loss) . . . . . . . . . . . . . . . . . . . . . $(12,792) $ 1,324 $ 5,025 ======== ======== ======== Earnings (loss) per common share . . . . . . . . . . . . . $ (1.06) $ .11 $ .42 ======== ======== ========
The accompanying notes are an integral part of the financial statements. 20 22 DANIEL INDUSTRIES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS EXCEPT FOR SHARES)
Capital Common Stock in Excess ------------ of Par Translation Retained Shares Amount Value Component Earnings Total ---------- -------- ------- --------- -------- -------- Balance at September 30, 1992 . 11,968,987 $14,961 $89,004 $ (739) $ 17,201 $120,427 Net income . . . . . . . . . 5,025 5,025 Cash dividends . . . . . . . (2,159) (2,159) Exercise of stock options, including tax benefits . . 57,463 72 560 632 Aggregate translation adjustment for the year . . (2,875) (2,875) ---------- ------- ------- ------- ------- -------- Balance at September 30, 1993 . 12,026,450 15,033 89,564 (3,614) 20,067 121,050 Net income . . . . . . . . . 1,324 1,324 Cash dividends . . . . . . . (2,166) (2,166) Exercise of stock options, including tax benefits . . 6,020 8 111 119 Aggregate translation adjustment for the year . . 1,553 1,553 ---------- ------- ------- ------- ------- -------- Balance at September 30, 1994 . 12,032,470 15,041 89,675 (2,061) 19,225 121,880 Net loss . . . . . . . . . . (12,792) (12,792) Cash dividends . . . . . . . (2,169) (2,169) Exercise of stock options, including tax benefits . . 51,015 63 572 635 Aggregate translation adjustment for the year . . 1,766 1,766 ---------- ------- ------- ------- ------- -------- Balance at September 30, 1995 . 12,083,485 $15,104 $90,247 $ (295) $ 4,264 $109,320 ========== ======= ======= ======= ======= ========
The accompanying notes are an integral part of the financial statements. 21 23 DANIEL INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended September 30, -------------------------------- 1995 1994 1993 ------ ------ ------ (in thousands) Cash flows from operating activities: Net income (loss) . . . . . . . . . . . . . . . . . . . . . $(12,792) $ 1,324 $ 5,025 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Non-cash portion of restructuring and other items . . . 11,124 Loss on divestitures of non-core product lines. . . . . 9,858 Depreciation and amortization . . . . . . . . . . . . . 7,545 7,483 6,584 Deferred income taxes . . . . . . . . . . . . . . . . . (8,040) (1,810) 468 Changes in operating assets and liabilities: Receivables . . . . . . . . . . . . . . . . . . . . . (1,164) (5,041) 1,521 Inventories . . . . . . . . . . . . . . . . . . . . . (9,896) (5,868) 1,122 Costs in excess . . . . . . . . . . . . . . . . . . . 13,947 (8,834) (3,150) Accounts payable and accrued liabilities. . . . . . . (5,853) 2,079 4,698 Other assets/liabilities, net . . . . . . . . . . . . 976 1,223 (100) -------- ------- ------- Net cash provided by (used in) operating activities . . . . . 5,705 (9,444) 16,168 -------- ------- ------- Cash flows from investing activities: Capital expenditures . . . . . . . . . . . . . . . . . . . (4,794) (13,631) (11,793) Acquisition and related costs . . . . . . . . . . . . . . . (4,177) Purchase of investment securities . . . . . . . . . . . . . (3,067) Investment in license agreement . . . . . . . . . . . . . . (2,667) Proceeds from sales of investment securities. . . . . . . . 2,039 1,000 Proceeds from sales of assets . . . . . . . . . . . . . . . 2,819(a) 304 375 -------- ------- ------- Net cash used in investing activities . . . . . . . . . . . . (4,113) (12,327) (17,152) -------- ------- ------- Cash flows from financing activities: Net borrowings on lines of credit . . . . . . . . . . . . . 4,100 5,900 Payments on long-term debt. . . . . . . . . . . . . . . . . (2,857) (2,857) (2,857) Cash dividends paid, $.18 per share . . . . . . . . . . . . (2,169) (2,166) (2,159) Activity under stock option plan . . . . . . . . . . . . . 635 119 632 -------- ------- ------- Net cash provided by (used in) financing activities . . . . . (291) 996 (4,384) -------- ------- ------- Effect of exchange rate changes on cash and cash equivalents. 74 75 (661) -------- ------- ------- Increase (decrease) in cash and cash equivalents . . . . . . 1,375 (20,700) (6,029) Cash and cash equivalents, beginning of year. . . . . . . . . 2,520 23,220 29,249 -------- ------- ------- Cash and cash equivalents, end of year. . . . . . . . . . . . $ 3,895 $ 2,520 $23,220 ======== ======= ======= Cash payments for (refunds of) income taxes . . . . . . . . . $ 5,036 $ 1,835 $ (199) Cash payments for interest. . . . . . . . . . . . . . . . . . 2,152 2,022 2,136
(a) Includes proceeds from sales of non-core assets of $2,680,000. The accompanying notes are an integral part of the financial statements. 22 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. TRANSLATION OF FOREIGN CURRENCIES Gains and losses resulting from balance sheet translation of foreign operations where a foreign currency is the functional currency are included as a separate component of stockholders' equity. Gains and losses resulting from balance sheet translation of foreign operations where the U. S. dollar is the functional currency are included in the consolidated results of operations. FAIR VALUE OF FINANCIAL INSTRUMENTS Management has determined that the fair value of the Company's financial instruments is equivalent to the carrying amount of such instruments as presented or disclosed in the financial statements. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. ACCOUNTS RECEIVABLE A substantial portion of the Company's trade receivables are from customers in the petroleum industry. REVENUE RECOGNITION Sales and cost of goods sold of systems contracts are recorded using the percentage-of-completion method, based on the ratio of costs incurred to date to total estimated costs on each contract. Losses, if any, to be incurred on contracts in progress are charged to income in full as soon as they become apparent, and estimated warranty costs are accrued as revenues are earned. Sales and cost of goods sold of products are recorded when the customer takes title to the products. INVENTORIES Inventories are valued at the lower of cost or market. Cost, which includes material, labor and overhead, is determined principally by the last-in, first-out (LIFO) method and by the average cost method. INVESTMENTS Marketable securities are carried at cost, which approximates fair value. Effective October 1, 1994, the Company adopted Financial Accounting Standards Board Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Adoption of this statement had an immaterial effect on the Company's financial statements. 23 25 PROPERTY, PLANT AND EQUIPMENT Depreciation of plant and equipment is provided over the estimated useful lives of the various classes of assets using the straight-line method. Maintenance and repairs are charged to expense. Renewals and betterments are capitalized. On retirement or sale of assets, the cost of such assets and accumulated depreciation are removed from the accounts and the gain or loss, if any, is credited or charged to income. In connection with the determination of certain restructuring and other charges recognized in the second quarter of fiscal 1995, the Company elected early adoption of Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". INTANGIBLE ASSETS Goodwill, representing the excess cost of purchased subsidiaries over the fair value of net assets acquired, is amortized using the straight-line method over a 40-year period. Other intangible assets are amortized using the straight-line method over their estimated useful lives, none of which exceeds 12 years. At September 30, 1995 and 1994, accumulated amortization on intangibles was approximately $3,000,000 and $2,600,000, respectively. INCOME TAXES Income tax expense (benefit) is computed based on pretax income (loss) included in the Consolidated Statement of Operations. The asset and liability approach is used to recognize deferred tax liabilities and assets for expected future tax consequences of temporary differences between the carrying amounts and the tax bases of the assets and liabilities. The Company does not provide for U.S. income taxes on foreign subsidiaries' undistributed earnings intended to be permanently reinvested in foreign operations. EARNINGS (LOSS) PER SHARE Earnings (loss) per share are computed based on the average number of shares outstanding during each year. Stock options outstanding have not been included in the computation of earnings per share since the effect is not significant. NOTE 2 - RESTRUCTURING AND OTHER CHARGES In February 1995, the Company announced that its Board of Directors had approved and adopted a restructuring plan to improve the Company's overall profitability through a greater focus on high margin and market leading product lines, and cost through reductions in overhead and direct expenses. 24 26 During fiscal 1995, the Company recorded pretax charges of $16,115,000 relating to restructuring and other charges as follows:
(in thousands) Recorded as restructuring: Employee terminations . . . . . . . . . . $ 3,997 Recorded as other charges: Impairments of property, plant and equipment and other assets. . . . . 7,339 Expenses incurred in connection with an unsolicited merger proposal . . 600 Other . . . . . . . . . . . . . . . . . . 394 ------- 12,330 Recorded as cost of sales adjustments: Inventory writedowns. . . . . . . . . . . 3,785 ------- Total charges . . . . . . . . . . . . . . . . . $16,115 =======
Charges for asset impairments and writedowns are non-cash in nature. At September 30, 1995, the Company's accrual for employee terminations totaled $1,478,000; approximately two- thirds of the 245 planned terminations (substantially all in the flow measurement segment) had occurred as of that date. NOTE 3 - DIVESTITURES OF ASSETS As part of the restructuring plan, the Company announced its intention to divest identified non-core product lines. In June 1995, the Company sold, for approximately $1,500,000, the operating assets of its energy fabrication subsidiary to a group consisting of the former president of the subsidiary and a director of the Company. In conjunction with the sale, the Company entered into a three-year lease agreement with the purchaser for certain real property. Rental income recorded in fiscal 1995 was approximately $9,000. In August 1995, the Company's airplane was sold for cash. In November 1995, the net assets of the fastener subsidiary, Daniel Industrial, Inc., were sold to an investor group for $8,000,000 in cash and $9,500,000 in collaterized notes, discounted to $8,600,000. In fiscal 1995, the Company recorded pretax charges aggregating $11,958,000 representing the losses on divestitures of its non-core product lines, primarily the fastener operation. At September 30, 1995, the Company recorded a current asset of $22,838,000 representing management's estimate of net realizable value of assets held for sale. Subsequent to the sale of the fastener operation, approximately $5,800,000 of net assets remained representing primarily inventory and property, plant and equipment. The results of operations for non-core product lines included in the Consolidated Statement of Operations are shown below. Operating income (loss) amounts have been determined based upon management's estimate of certain costs and expenses which have been allocated to the non-core product lines. For comparability, the fiscal 1995 operating income amount shown below includes 25 27 depreciation expense of $985,000. Due to the discontinuation of depreciation on assets held for sale, this depreciation was not included in the Company's Consolidated Statement of Operations.
Year Ended September 30, ------------------------ 1995 1994 -------- -------- (in thousands) Revenues . . . . . . . . . . . $35,806 $35,443 Operating income (loss). . . . 2,067 (3,271)
NOTE 4 - ACQUISITION In October 1994, the Company acquired the orifice metering product line assets of another company. Acquisition and related costs of $4,177,000 were paid in cash. The operations related to this acquisition, which was accounted for under the purchase method, are not material to the Company's results of operations. NOTE 5 - CONTRACTS IN PROGRESS Information with respect to contracts in progress accounted for under the percentage-of-completion method is as follows:
September 30, ----------------- 1995 1994 ------ ------- (in thousands) Cost and estimated earnings on contracts in progress $13,145 $47,017 Less billings applicable thereto . . . . . . . . . . 12,329 32,368 ------- ------- $ 816 $14,649 ======= ======= Presented in accompanying financial statements as: Costs in excess . . . . . . . . . . . . . . . . . $ 941 $14,888 Billings in excess (included in accrued expenses) . . . . . . . . . . . . . . . 125 239 ------- ------- $ 816 $14,649 ======= =======
26 28 NOTE 6 - INVENTORIES
September 30, ----------------- 1995 1994 ------- ------- (in thousands) Inventories by valuation method are as follows: Last-in, first-out (LIFO) . . . . . . . . . . . . $21,462 $25,286 Average cost . . . . . . . . . . . . . . . . . . 14,427 20,028 ------- ------- $35,889 $45,314 ======= ======= Major components of inventories include: Raw materials . . . . . . . . . . . . . . . . . . $14,527 $16,412 Work in process . . . . . . . . . . . . . . . . . 10,752 8,854 Finished goods. . . . . . . . . . . . . . . . . . 15,751 27,490 ------- ------- 41,030 52,756 Less LIFO reserve . . . . . . . . . . . . . . . . 5,141 7,442 ------- ------- $35,889 $45,314 ======= =======
The decrease in inventory is due primarily to the divestitures as described in NOTE 3. NOTE 7 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment and related accumulated depreciation are summarized as follows:
September 30, Estimated -------------------- Useful Life 1995 1994 in Years -------- -------- ----------- (in thousands) Land . . . . . . . . . . . . . . . . $ 6,927 $ 7,411 Buildings. . . . . . . . . . . . . . 30,835 34,881 10-45 Machinery and equipment. . . . . . . 36,655 48,975 3-12 Computer and peripheral equipment. . 6,725 8,603 3-5 Office furniture and equipment . . . 5,233 6,022 3-10 Automotive equipment . . . . . . . . 1,109 1,719 3-4 Other transportation equipment . . . 4,183 8-15 Other. . . . . . . . . . . . . . . . 9,171 13,308 5-20 -------- -------- 96,655 125,102 Less accumulated depreciation. . . . 43,978 55,306 ------- -------- $ 52,677 $ 69,796 ======== ========
The decrease in property, plant and equipment is due primarily to divestitures as described in NOTE 3. NOTE 8 - NOTES PAYABLE At September 30, 1995, the Company had uncommitted short-term lines of credit aggregating approximately $45,000,000. One of these lines contains 27 29 restrictions regarding the amount of the line available for short-term borrowings and the amount available for issuance of letters of credit. The other lines are available for either short-term borrowings or the issuance of letters of credit. Loans under these lines may be made in such amounts and at such maturities and interest rates as may be offered by the banks and accepted by the Company at the time of each borrowing. At September 30, 1995, borrowings under these lines were $10,000,000, and $22,500,000 was available for additional short-term borrowings. These borrowings were at a weighted average interest rate of 6.41% and were due at varying dates through October 10, 1995. NOTE 9 - ACCRUED EXPENSES Accrued expenses are summarized as follows:
September 30, ------------------- 1995 1994 -------- -------- (in thousands) Other accrued expenses . . . . . . . . . . . . . . . $14,382 $14,873 Accrued taxes other than on income . . . . . . . . . 2,325 2,809 Salaries and wages . . . . . . . . . . . . . . . . . 2,127 2,276 ------ ------- $18,834 $19,958 ======= =======
NOTE 10 - INCOME TAXES Income tax expense (benefit) is as follows:
Year Ended September 30, ----------------------------- 1995 1994 1993 ------- ------- ------- (in thousands) Federal: Current . . . . . . . . . . . . . . . . $ 1,830 $ 1,327 $ 1,758 Deferred. . . . . . . . . . . . . . . . (5,180) (1,486) 281 Foreign: Current . . . . . . . . . . . . . . . . 231 1,259 782 Deferred. . . . . . . . . . . . . . . . (2,742) (359) 187 State and local: . . . . . . . . . . . . . . 138 55 49 ------- ------- ------- Income tax expense (benefit). . . . . . $(5,723) $ 796 $ 3,057 ======= ======= =======
The components of income (loss) before income tax expense (benefit) are:
Year Ended September 30, ----------------------------- 1995 1994 1993 ------- ------- ------- (in thousands) Domestic. . . . . . . . . . . . . . . . . . . . $(11,943) $ 421 $ 8,339 Foreign . . . . . . . . . . . . . . . . . . . . (6,572) 1,699 (257) -------- ------ ------- $(18,515) $2,120 $ 8,082 ======== ====== =======
28 30 The cumulative undistributed earnings of foreign subsidiaries, on which U.S. taxes have not been provided, were approximately $11,600,000, $12,700,000 and $10,100,000 at September 30, 1995, 1994 and 1993, respectively. The U. S. income tax effect associated with the repatriation of these earnings may be offset by foreign tax credits. Components of the difference between the income tax expense (benefit) computed at the U.S. statutory income tax rate and the income tax expense (benefit) are as follows:
Year Ended September 30, --------------------------- 1995 1994 1993 ------ ------ ------- (in thousands) Tax expense (benefit) of income (loss) at 34%. . $(6,295) $ 721 $2,748 Foreign Sales Corporation provisions . . . . . . (350) (373) (384) Loss of foreign subsidiary with no tax benefit . . . . . . . . . . . . . . . . . 171 375 737 Goodwill amortization/chargeoff. . . . . . . . . 667 40 41 Tax exempt interest. . . . . . . . . . . . . . . (14) (61) (179) Non-deductible expenses. . . . . . . . . . . . . 103 197 156 State income taxes . . . . . . . . . . . . . . . 111 (5) 32 Foreign tax rates and other effects of foreign operations . . . . . . . . . . . . (796) (53) (112) Increase in valuation allowance. . . . . . . . . 765 Other, net . . . . . . . . . . . . . . . . . . . (85) (45) 18 ------- ------ ------ Income tax expense (benefit) . . . . . . . . . . $(5,723) $ 796 $3,057 ======= ====== ====== Effective tax expense (benefit) rate. . . . . (31%) 38% 38% ======= ====== ======
29 31 Deferred tax assets (liabilities) are as follows:
September 30, 1995 1994 ------- -------- (in thousands) Gross deferred tax assets: Restructuring and other charges and loss on divestitures. . . . . . . . . . . . . . . . . $ 6,568 Operating loss carryforward from subsidiary . . . . 5,773 $ 3,648 Excess tax over book basis of inventories . . . . . 2,758 2,551 Insurance reserves. . . . . . . . . . . . . . . . . 780 673 Alternative minimum tax credit carryforward . . . . 653 263 Intercompany transfer pricing . . . . . . . . . . . 602 687 Other reserves. . . . . . . . . . . . . . . . . . . 483 479 Inventory reserves. . . . . . . . . . . . . . . . . 396 699 Vacation accruals . . . . . . . . . . . . . . . . . 260 270 Loss on sales of subsidiaries . . . . . . . . . . . 78 408 Other . . . . . . . . . . . . . . . . . . . . . . . 689 750 ------- ------- 19,040 10,428 ------- ------- Gross deferred tax liabilities: Excess book over tax basis of property equipment. . . . . . . . . . . . . . . . . . . . . (8,589) (9,144) Partnership income . . . . . . . . . . . . . . . . . (302) (312) Property tax accrual . . . . . . . . . . . . . . . . (324) (291) Other . . . . . . . . . . . . . . . . . . . . . . . . (1,578) (1,502) ------- ------- (10,793) (11,249) ------- ------- Deferred tax asset valuation allowance . . . . . . . . . (3,448) (2,420) ------- ------- $ 4,799 $(3,241) ======= =======
Through September 30, 1995, the Company's German subsidiary generated a tax loss carryforward of $11,065,000 which may be carried forward indefinitely. The valuation allowance relates primarily to the amount of the German loss carryforward which may not be realized. NOTE 11 - LONG-TERM DEBT Long-term debt includes the following:
September 30, ----------------- 1995 1994 ------- ------- (in thousands) Payable to four insurance companies (unsecured); 11.5%; principal payable in annual installments of $2,857,140; interest payable semi-annually . . . . . . . . . . . $11,429 $14,286 Less portion due within one year. . . . . . . . . . . . 2,857 2,857 ------- ------- $ 8,572 $11,429 ======= =======
In December 1988, four insurance companies purchased an aggregate of $20,000,000 of the Company's unsecured 11.5% Senior Notes due 1998. Prepayment of amounts in excess of scheduled maturities are subject to certain restrictions 30 32 and would be at a premium. The note purchase agreement related to the sale of these notes requires the maintenance of a specified current ratio and a specified amount of net worth and also includes restrictive covenants relating to additional indebtedness and leases, creation of liens, payment of dividends, mergers and disposition of assets. Retained earnings was unrestricted as to the payment of dividends at September 30, 1995. Long-term debt at September 30, 1995, matures as follows:
Year Ending September 30, Amount ------------------------- ------------- (in thousands) 1996 . . . . . . . . . . . . . . . . . . . . . . . $2,857 1997 . . . . . . . . . . . . . . . . . . . . . . . 2,857 1998 . . . . . . . . . . . . . . . . . . . . . . . 2,857 1999 . . . . . . . . . . . . . . . . . . . . . . . 2,858
NOTE 12 - STOCKHOLDERS' EQUITY, STOCK OPTIONS AND PROFIT SHARING AND SAVINGS PLAN On May 31, 1990, the Board of Directors declared a dividend of one Preferred Share Purchase Right (the "Right") for each outstanding share of common stock. Under certain conditions, each Right may be exercised to purchase one one- hundredth share of a new series of junior participating preferred stock at an exercise price of $60, subject to adjustment. The Rights may only be exercised 10 days following a public announcement that a third party has acquired 20% or more of the outstanding common shares or 10 days following the commencement of, or announcement of an intention to make a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a third party of 20% or more of such outstanding common shares. The Rights, which do not have voting rights, expire May 31, 2000, and at the Company's option, may be redeemed by the Company prior to expiration for $.01 per Right. In the event that the Company is acquired in a merger or other business combination or 50% or more of its consolidated assets or earning power are sold, provision shall be made so that each holder of a Right shall have the right to receive, upon exercise thereof at the then current exercise price, that number of shares of common stock of the surviving company which at the time of such transaction would have a market value of two times the exercise price of the Right. EMPLOYEE STOCK OPTION PLANS The Company maintains two stock option plans, the 1981 Plan and the 1977 Plan. Under the 1981 Plan, the exercise price may not be less than the fair market value on the date of grant. Under both plans, options are granted for a ten-year term and are exercisable either from the date of grant or at the end of the first year of the term. 31 33 A summary of stock option activity related to the plans are as follows:
Shares Price Range ------- -------------- Options outstanding, September 30, 1992 276,112 $7.00 - $18.43 Cancelled (10,000) 16.75 Exercised (57,463) 7.00 - 10.00 Granted 300,000 14.13 ------- Options outstanding, September 30, 1993 508,649 7.00 - 18.43 Cancelled (22,500) 14.13 Exercised (6,020) 7.00 ------- Options outstanding, September 30, 1994 480,129 7.00 - 18.43 Cancelled (94,000) 14.13 - 18.43 Exercised (51,015) 7.00 - 14.13 Granted 470,000 14.13 ------- Options outstanding, September 30, 1995 805,114 7.00 - 16.75 ======= Exercisable, September 30, 1995 335,114 7.00 - 16.75 =======
There were 52,876 shares available for grants under the Plans at September 30, 1995. NON-EMPLOYEE DIRECTORS' STOCK OPTION AGREEMENTS There were 10,000 shares available for grants at September 30, 1995. Options are exercisable for six years from the date of grant. A summary of stock option activity related to these agreements is as follows:
Shares Price Range ------- -------------- Options outstanding, September 30, 1992 and 1993 10,000 $12.75 Granted 10,000 11.00 ------- Options outstanding, September 30, 1994 20,000 $11.00 - 12.75 Cancelled (10,000) 12.75 ------- Options outstanding, September 30, 1995 10,000 11.00 =======
PROFIT SHARING AND SAVINGS PLAN The Company and its domestic subsidiaries have adopted a profit sharing and savings plan in which substantially all employees are eligible to participate. Annual contributions to the profit sharing portion of the plan are discretionary, and are determined by the Company's Board of Directors. Contributions to the savings portion of the plan are made on a monthly basis in an amount as required by the plan. Expenses related to this plan were approximately $1,200,000, $1,800,000 and $1,300,000 for the fiscal years 1995, 1994 and 1993, respectively. 32 34 NOTE 13 - COMMITMENTS AND CONTINGENCIES The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position of the Company. Additionally, in the ordinary course of business, the Company has issued standby letters of credit and bank guarantees as security for advances, progress payments and performance on long-term contracts and, as a result, is contingently liable in the amount of approximately $16,300,000 at September 30, 1995. NOTE 14 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following is a summary of unaudited quarterly financial data for fiscal 1995 and 1994:
Net Earnings Gross Income (Loss) Revenues Profit (Loss) Per Share -------- ------ ------ --------- (in thousands except per share amounts) Quarter Ended: December 31, 1994 . . . . $42,298 $16,079 $ 601 $ .05 March 31, 1995 . . . . . 38,737 11,277 (9,705)(a) (.81) June 30, 1995 . . . . . . 42,028 17,560 1,281 (b) .11 September 30, 1995 . . . 45,497 18,120 (4,969)(b) (.41) Quarter Ended: December 31, 1993 . . . . $40,575 $15,536 $ (841) $ (.07) March 31, 1994 . . . . . 48,632 16,679 120 .01 June 30, 1994 . . . . . . 56,239 17,892 477 .04 September 30, 1994 . . . 58,320 18,693 1,568 .13
- ---------- (a) Net loss for the quarter was affected by restructuring and other charges, the effect of which is described in NOTE 2. (b) Net income (loss) for the quarter was affected by losses on divestitures of non-core assets, the effect of which is described in NOTE 3. NOTE 15 - INDUSTRY SEGMENTS The Company has two principal industry segments: flow measurement and energy products. The Flow Measurement segment manufactures and services products and systems used to measure rates of flow and accumulated volumes of fluids, primarily oil and natural gas. The energy products segment offers an array of products and services to the energy markets. Operations of this segment include the manufacture of pipeline valves used on both gas and liquid pipelines, the production of fasteners for use in oil, gas and process industries and energy recovery products. 33 35 Intersegment transfers (primarily energy products to flow measurement) and transfers to other geographic areas (primarily U.S. to U.K.) are not significant to the operations of either segment or geographic area and are accounted for as transfers at cost on the following schedules. Segment operating income (loss) represents revenues less operating expenses and is not reduced for interest expense, general corporate expenses and income taxes. Identifiable assets are those tangible and intangible assets that are identified with the operations of a particular industry segment or geographic area. 34 36
INFORMATION ON INDUSTRY SEGMENTS -------------------------------- (IN THOUSANDS) Operating Identi- Capital Depreciation Income fiable Expendi- and Revenues (Loss)(a) Assets tures Amortization -------- --------- ------ -------- ------------ FISCAL 1995 - ----------- Flow measurement. . $114,966 $ 10,395 $109,836 $ 3,683 $5,526 Energy products . . 53,320 3,110 42,992 729 1,602 -------- -------- -------- ------- ------ Subtotal. . . . . 168,286 13,505 152,828 4,412 7,128 Corporate . . . . . 274 (5,704) 11,640 382 417 Other charges . . . (24,288) Interest expense. . (2,028) -------- -------- -------- ------- ------ Total . . . . . . $168,560 $(18,515) $164,468 $ 4,794 $7,545 ======== ======== ======== ======= ====== FISCAL 1994 - ----------- Flow measurement. . $145,657 $ 13,454 $117,388 $ 8,416 $3,986 Energy products . . 57,739 (1,501) 54,193 5,002 2,588 -------- -------- -------- ------- ------ Subtotal. . . . . 203,396 11,953 171,581 13,418 6,574 Corporate . . . . . 370 (7,906) 15,756 213 909 Interest expense. . (1,927) -------- -------- -------- ------- ------ Total . . . . . . $203,766 $ 2,120 $187,337 $13,631 $7,483 ======== ======== ======== ======= ====== FISCAL 1993 - ----------- Flow measurement. . $110,009 $ 9,601 $ 97,909 $ 7,250 $3,561 Energy products . . 69,424 4,747 50,454 3,879 2,236 -------- -------- -------- ------- ------ Subtotal. . . . . 179,433 14,348 148,363 11,129 5,797 Corporate . . . . . 816 (4,178)(b) 29,705 664 787 Interest expense. . (2,088) -------- -------- -------- ------- ------ Total . . . . . . $180,249 $ 8,082 $178,068 $11,793 $6,584 ======== ======== ======== ======= ======
- ---------- (a) Includes restructuring and other charges and losses on divestitures of non-core assets (see NOTES 2 and 3). (b) Includes pretax income of $1,500 from an insurance settlement. 35 37 INFORMATION ON GEOGRAPHIC OPERATIONS (IN THOUSANDS)
United States Europe Canada Consolidated ------ ------ ------ ------------ FISCAL 1995 - ----------- Revenues . . . . . . . . . . . . . $125,944 $29,795 $12,547 $168,286 ======== ======= ======= ======== Operating income (loss) (a) . . . . $ 9,670 $ (485) $ 4,320 $ 13,505 ======== ======= ======= ======== Identifiable assets at September 30, 1995 . . . . . . . $107,926 $39,699 $ 5,203 $152,828 ======== ======= ======= ======== FISCAL 1994 - ----------- Revenues . . . . . . . . . . . . . $134,904 $52,962 $15,530 $203,396 ======== ======= ======= ======== Operating income . . . . . . . . . $ 4,553 $ 2,476 $ 4,924 $ 11,953 ======== ======= ======= ======== Identifiable assets at September 30, 1994 . . . . . . . $116,514 $48,851 $ 6,216 $171,581 ======== ======= ======= ======== FISCAL 1993 - ----------- Revenues . . . . . . . . . . . . . $140,639 $29,133 $ 9,661 $179,433 ======== ======= ======= ======== Operating income . . . . . . . . . $ 10,724 $ 675 $ 2,949 $ 14,348 ======== ======= ======= ======== Identifiable assets at September 30, 1993 . . . . . . . $106,526 $36,807 $ 5,030 $148,363 ======== ======= ======= ========
- ---------- (a) Includes restructuring and other charges (see NOTE 2) and losses on divestitures of assets (see NOTE 3). Included in United States revenues were export sales of $40,500,000, $52,800,000 and $55,500,000 in fiscal 1995, 1994 and 1993, respectively. These sales were primarily to Africa, the Far East, the Middle East, and South America. At September 30, 1995, 1994 and 1993, the Company's investment in consolidated foreign subsidiaries, primarily its U.K. subsidiary, approximated $35,100,000, $40,200,000 and $30,100,000, respectively. Foreign currency transaction gains and losses included in the Consolidated Statement of Operations were immaterial in fiscal 1995, 1994 and 1993. 36 38 INDEX TO EXHIBITS Exhibit Number - ------ 2.1 - Plan and Agreement of Merger dated as of January 22, 1988, by and between Daniel Industries, Inc., a Texas corporation ("Daniel Texas"), and Daniel Industries, Inc., a Delaware corporation (the "Company"), filed as Exhibit 2.1 to the Company's Registration of Securities of Certain Successor Issuers on Form 8-B, and hereby incorporated by reference herein. 3.1 - Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the Company's Registration of Securities of Certain Successor Issuers on Form 8-B dated May 5, 1988, and hereby incorporated by reference herein. 3.2 - By-Laws of the Company, as amended through February 2, 1995. 3.3 - Certificate of Designation, Powers, Preferences and Rights of Series A Junior Participating Preferred Stock filed as Exhibit 3.3 in the Company's Amendment to Application or Report on Form 8, and hereby incorporated by reference herein. 4.1 - Note Purchase Agreement dated as of December 5, 1988, between the Company and The Variable Annuity Life Insurance Company, The Mutual Benefit Life Insurance Company, MONY Life Insurance Company of America and MONY Legacy Life Insurance Company (including the form of the Company's Senior Notes in the aggregate in the principal amount of $20,000,000) filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year ended September 30, 1988, and hereby incorporated by reference herein. 4.2 - Rights Agreement dated as of May 31, 1990, between the Company and Wachovia Bank and Trust Company, N.A., as Rights Agent, filed as Exhibit 1 to the Company's Registration of Certain Classes of Securities on Form 8-A filed June 5, 1990, and hereby incorporated by reference herein. 4.3 - Certificate of Designation, Powers, Preferences and Rights of Series A Junior Participating Preferred Stock (included as Exhibit 3.3 hereto). 39 INDEX TO EXHIBITS Exhibit Number - ------ 10.1 - 1977 Stock Option Plan, as amended and restated on December 16, 1993, filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended September 30, 1995, and hereby incorporated by reference herein. 10.2 - 1981 Stock Option Plan, as amended and restated on December 31, 1986, filed as Exhibit 19.2 to Daniel Texas's Quarterly Report on Form 10-Q for the quarter ended December 31, 1986, and hereby incorporated by reference herein. 10.3 - Form of Director's Stock Option Agreements dated October 9, 1986, between Daniel Texas and the several non-employee directors, filed as Exhibit 19.1 to Daniel Texas's Quarterly Report on Form 10-Q for the quarter ended March 31, 1987, and hereby incorporated by reference herein. 10.4 - Form of Change in Control Agreement dated as of March 15, 1995, between the Company and each of W. A. Griffin, III, W. C. Clingman, H. G. Schopfer, III, T. L. Sivak and M. R. Yellin. 10.5 - Asset Purchase Agreement dated November 27, 1995, by and among DAN-LOC Bolt & Gasket, Inc., Daniel Industrial, Inc., Daniel Industries Canada and the Company. 10.6 - Supplemental Executive Retirement Plan effective July 1, 1995. 10.7 - Written description of a Consulting Agreement between the Company and Ralph H. Clemons, Jr. effective as of July 1, 1994. 10.8 - Written description of a Consulting Agreement between the Company and W. A. Griffin effective as of February 3, 1995. 40 INDEX TO EXHIBITS Exhibit Number - ------ 10.9 - Written description of the Company's key employees' incentive compensation plan. 21 - Subsidiaries of the Company. 23 - Consent of Independent Accountants. 27 - Financial data schedule. EX-3.2 2 BY-LAWS OF DANIEL INDUSTRIES 1 EXHIBIT 3.2 BY-LAWS OF DANIEL INDUSTRIES, INC. (as amended through February 2, 1995) ARTICLE I MEETINGS OF STOCKHOLDERS SECTION 1.1. PLACE OF MEETINGS. All meetings of stockholders shall be held at such place, either within or without the State of Delaware, as shall be determined from time to time by the Board of Directors. SECTION 1.2. ANNUAL MEETINGS. The annual meeting of stockholders shall be held at such date and time as shall be determined from time to time by the Board of Directors. The annual meeting shall be held for the purpose of electing directors in accordance with Article X of the Certificate of Incorporation and transacting such other business as may be properly brought before the meeting. SECTION 1.3. SPECIAL MEETINGS. Special meetings of stockholders may be called only by the Board of Directors. The Board of Directors shall determine the date and time of each special meeting of stockholders. The business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice of that meeting. SECTION 1.4. NOTICE OF MEETINGS. Written notice of each meeting of stockholders, stating 1 2 the time and place and purpose or purposes thereof, shall be given to each stockholder entitled to vote at the meeting, within the time prescribed by statute. SECTION 1.5. QUORUM. The holders of a majority of the shares entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders except as otherwise provided by statute. The holders of a majority of the shares entitled to vote thereat, present in person or represented by proxy, whether or not a quorum is present, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted that might have been transacted at the meeting as originally notified. SECTION 1.6. VOTING. When a quorum is present or represented at any meeting of stockholders, the affirmative vote of the holders of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders in all matters, including the election of directors, unless the matter is one upon which, by express provision of the statutes, of the Certificate of Incorporation or of these by-laws, a different vote is required, in which case such express provision shall govern and control the decision of that matter. Every stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder, bearing a date not more than three years prior to voting, unless such instrument provides for a longer period, and filed with the Secretary of the corporation before, or at the time of, the meeting. If such instrument shall designate 2 3 two or more persons to act as proxies, unless such instrument shall provide to the contrary, a majority of such persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting thereby conferred. SECTION 1.7. CONSENTS OF STOCKHOLDERS. As provided in Article VI of the Certificate of Incorporation, the right of stockholders of the corporation to take action by a consent in writing is denied. ARTICLE II BOARD OF DIRECTORS SECTION 2.1. POWERS. The business and affairs of the corporation shall be managed under the direction of its Board of Directors, which may exercise all powers of the corporation and do all lawful acts and things as are not by statute or by the Certificate of Incorporation or by these by-laws required to be exercised or done by the stockholders. SECTION 2.2. NUMBER AND CLASSIFICATION. The number of directors shall be fixed in the manner provided by, and the directors shall be divided into classes in accordance with, Article X of the Certificate of Incorporation. The number of directors so fixed shall constitute the total number of directors of the corporation. By the affirmative vote of not less than 80% of the number of directors of the corporation in office at the time, the directors may appoint advisory directors. Advisory directors will be entitled to attend and participate at meetings of the Board of Directors but shall not be entitled to vote on any matter submitted to directors or to exercise any other power vested in a director. Advisory directors shall not constitute directors of the corporation and shall have none of the duties of directors to the corporation. Any advisory director may be removed without cause by the affirmative vote of not less than 80% of the number of directors of the 3 4 corporation in office at the time. Advisory directors shall be compensated in accordance with Section 2.10 of these by-laws. SECTION 2.3. CHAIRMAN OF THE BOARD. Annually the Board of Directors shall elect from among its members a person to serve as Chairman of the Board of Directors until his successor is elected and duly qualified. The Chairman shall preside at all meetings of the Board of Directors, and he shall have such other authority and perform such other duties as may be determined from time to time by resolution of the Board of Directors not inconsistent with these by- laws. SECTION 2.4. REMOVAL. A director may not be removed except in accordance with Article X of the Certificate of Incorporation. SECTION 2.5. ANNUAL MEETINGS. The annual meeting of the Board of Directors shall be held each year, without other notice than this by-law, at the place of, and immediately following, the annual meeting of stockholders. However, if a majority of the whole Board of Directors shall so consent in writing, such regular meeting may be held at such time and place as shall be fixed by such consent, and the Secretary shall give notice of such regular meeting, stating such time and place, in the manner required by these by-laws. SECTION 2.6. OTHER MEETINGS. Other meetings of the Board of Directors may be called by the Chairman of the Board of Directors, the President or any two directors. Except as provided in Section 2.5 of these by-laws, notice of each meeting of the Board of Directors stating the time and place of the meeting shall be given not less than seventy- two hours before the time of the meeting, by or at the direction of the person or persons calling the meeting, to each director. If the person or persons calling the meeting shall instruct the Secretary or any Assistant Secretary to give such notice, then the Secretary or such Assistant Secretary shall promptly do so in the manner required by these 4 5 by-laws. SECTION 2.7. WAIVER OF NOTICE. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. SECTION 2.8. QUORUM. A majority of the total number of directors, determined in accordance with Section 2.2 of these by-laws, shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and the vote of a majority of the directors present at a meeting at which there is a quorum shall be the act of the Board of Directors unless the Certificate of Incorporation or these by-laws shall require a vote of a greater number of directors. If a quorum shall not be present at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. SECTION 2.9. ACTION BY CONSENT OF DIRECTORS. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the directors. SECTION 2.10. COMPENSATION OF DIRECTORS. The Board of Directors, irrespective of any personal interest of any of its members, shall have authority to fix the compensation of all directors for services to the corporation as directors, as members of one or more committees of the Board of Directors, as officers, or otherwise. 5 6 ARTICLE III COMMITTEES OF DIRECTORS SECTION 3.1. DESIGNATION, POWERS AND NAME. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, including, if they shall so determine, an Executive Committee, each such committee to consist of one or more of the directors of the corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. SECTION 3.2. MEETINGS OF AND ACTION BY COMMITTEES. Except as otherwise provided in the resolution pursuant to which a particular committee of the Board of Directors was designated, (i) meetings of such committee may be held within or without the State of Delaware and may be called by any member thereof, (ii) notice of each meeting of such committee stating the time and place of the meeting shall be given not less than forty-eight hours before the time of the meeting, by or at the direction of the person or persons calling the meeting, to each member of such committee, and if the person or persons calling the meeting shall instruct the Secretary or any Assistant Secretary to give such notice, then the Secretary or such Assistant Secretary shall promptly do so in the manner required by these by-laws, (iii) attendance of a director at any meeting of such committee shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not 6 7 lawfully called or convened, (iv) neither the business to be transacted at, nor the purpose of, any meeting of such committee need be specified in the notice or waiver of notice of such meeting, (v) at all meetings of such committee, a majority of the number of directors comprising such committee, as fixed by such resolution, shall constitute a quorum for the transaction of business, (vi) the vote of a majority of the members present at a meeting of such committee at which there is a quorum shall be the act of such committee, and (vii) if a quorum shall not be present at any meeting of such committee, a majority of the members present at such meeting may adjourn such meeting from time to time, without notice other than announcement at such meeting, until a quorum shall be present. The Board of Directors, by resolution adopted by a majority of the whole Board of Directors may amend or repeal the resolution pursuant to which any committee of the Board of Directors was designated, may remove any member of any committee, and may fill any vacancy occurring on any committee. Each committee of directors shall keep regular minutes of its proceedings and report the same to the Board of Directors when requested to do so. SECTION 3.3. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of any committee of the Board of Directors may be taken without a meeting if a consent in writing, setting forth the action so take, is signed by all of the members of such committee. ARTICLE IV NOTICE SECTION 4.1. METHODS OF GIVING NOTICE. Whenever under the provisions of the statutes, the Certificate of Incorporation or these by-laws, notice is required to be given to any director, member of any committee or stockholder, such notice shall be in writing and delivered personally or mailed 7 8 to such director, member or stockholder; provided that in the case of a director or a member of any committee such notice may be given orally or by telephone or telegram. If mailed, notice to a director, member of a committee or stockholder shall be deemed to be given when deposited in the United States mail first class in a sealed envelope, with postage thereon prepaid, addressed, in the case of a stockholder, to the stockholder at the stockholder's address as it appears on the records of the corporation or, in the case of a director or a member of a committee, to such person at his business or home address. If sent by telegraph, notice to a director or member of a committee shall be deemed to be given when the telegram, so addressed, is delivered to the telegraph company. SECTION 4.2. WRITTEN WAIVER. Whenever any notice is required to be given under the provisions of the statutes, the Certificate of Incorporation or these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS SECTION 5.1. OFFICERS. The officers of the corporation shall be a President, one or more Vice Presidents, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. The Board of Directors may elect or appoint other officers and agents, including Assistant Secretaries and Assistant Treasurers, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined by the Board of Directors. Any two or more offices, other than the offices of President and Secretary, may be held by the same person. SECTION 5.2. TERM OF OFFICE. Each officer shall hold office until his successor is elected by the Board of Directors or until his earlier death, resignation or removal from office. 8 9 SECTION 5.3. REMOVAL AND RESIGNATION. Any officer or agent elected or appointed by the Board of Directors may be removed without cause by the Board of Directors whenever, in its sole judgment, the best interests of the corporation shall be served thereby, but such removal shall be without prejudice to the contractual rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Any officer may resign at any time by giving written notice to the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 5.4. VACANCIES. Any vacancy occurring in any office of the corporation by death, resignation or removal from office may be filled only by the Board of Directors. SECTION 5.5. SALARIES. The salaries of all officers of the corporation shall be fixed by the Board of Directors or pursuant to its direction. No officer shall be prevented from receiving a salary by reason of his also being a director. SECTION 5.6. CHIEF EXECUTIVE OFFICER. The President shall be the Chief Executive Officer of the corporation. The Chief Executive Officer shall be the principal executive officer of the corporation for the purposes of all filings by the corporation with the United States Securities and Exchange Commission, shall preside at all meetings of stockholders, shall have general and active management of the business of the corporation, and shall see that all resolutions of the Board of Directors are carried into effect. SECTION 5.7. PRESIDENT. The President shall be the Chief Operating Officer of the corporation, and he shall have general supervision of the day-to-day operations of the corporation's several industry segments. Unless the Board of Directors shall have designated a particular officer 9 10 of the corporation as Chief Financial Officer, then the President shall be the Principal Financial Officer of the corporation for purposes of all filings by the corporation with the United States Securities and Exchange Commission. The President shall have such other authority and perform such other duties as may be determined from time to time by resolution of the Board of Directors not inconsistent with these by-laws. If the President shall have been last designated as Chief Executive Officer, then he also shall have the authority and perform the duties appertaining to that designation, as specified in Section 5.6 of these by-laws. SECTION 5.8. VICE PRESIDENTS. The Vice Presidents shall have such authority and perform such duties as may be determined from time to time by resolution of the Board of Directors not inconsistent with these by-laws or as the Chairman of the Board of Directors or the President may from time to time delegate. The Board of Directors may, at the time of the election of any Vice President of the corporation, designate such Vice President a "Senior Vice President" or "Executive Vice President" of the corporation or designate such Vice President by reference to a principal business function, such as "Finance" or "Administration". SECTION 5.9. SECRETARY. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and shall record all of the proceedings of such meetings in minute books to be kept for that purpose. If any member of any committee of the Board of Directors shall so request, the Secretary shall perform like duties in respect of the proceedings of meetings of such committee. If requested by any person or persons having authority to call such a meeting, the Secretary shall give, or cause to be given, notice of each meeting of the Board of Directors and notice of each meeting of stockholders, such notice to be given promptly in the manner required by these by-laws. The Secretary shall keep in safe custody the seal of the corporation and, when authorized 10 11 by the Board of Directors, shall affix the same to any instrument requiring it. The Secretary shall have such other authority and perform such other duties as may be determined from time to time by resolution of the Board of Directors not inconsistent with these by-laws or as the Chief Executive Officer may from time to time delegate. SECTION 5.10. ASSISTANT SECRETARY. The Assistant Secretary shall, in the absence or disability of the Secretary, have the authority and perform the duties of the Secretary. He shall have such other authority and perform such other duties as may be determined from time to time by resolution of the Board of Directors not inconsistent with these by-laws or as the Secretary may from time to time delegate. SECTION 5.11. TREASURER. The Treasurer shall have custody of the corporate funds and securities and shall keep full and accurate accounts and records of receipts, disbursements and other transactions in books belonging to the corporation. He shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the corporation as and when ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer and to the Board of Directors, when the Chief Executive Officer or the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the corporation. The Treasurer shall have such other authority and perform such other duties as may be determined from time to time by resolution of the Board of Directors not inconsistent with these by-laws or as the Chief Executive Officer may from time to time delegate. SECTION 5.12. ASSISTANT TREASURER. The Assistant Treasurer shall, in the absence or disability of the Treasurer, have the authority and perform the duties of the Treasurer. He shall have 11 12 such other authority and perform such other duties as may be determined from time to time by resolution of the Board of Directors not inconsistent with these by-laws or as the Treasurer may from time to time delegate. ARTICLE VI CHECKS AND DEPOSITS SECTION 6.1. CHECKS, ETC. All checks, demands, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers or such agent or agents of the corporation, and in such manner, as shall be determined by the Board of Directors. SECTION 6.2. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the Board of Directors may select. ARTICLE VII CERTIFICATES OF STOCK SECTION 7.1. ISSUANCE. Each stockholder of the corporation shall be entitled to a certificate or certificates showing the number of shares of stock registered in his name on the books of the corporation. The certificates shall be in such form as may be determined by the Board of Directors, shall be issued in numerical order and shall be entered in the books of the corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary, provided that such signatures may be facsimile. All certificates surrendered to the corporation's transfer agent for transfer shall be canceled, and no new certificate shall be issued until the former certificate for a like number of shares 12 13 shall have been surrendered and canceled, except that in the case of a lost, stolen, destroyed or mutilated certificate a new one may be issued therefor upon such terms and with such indemnity, if any, to the corporation as the Board of Directors may prescribe. Unless otherwise provided in the resolution or resolutions of the Board of Directors providing for the issuance of shares of Preferred Stock of the corporation of a particular series, certificates shall not be issued representing fractional shares of stock. SECTION 7.2. LOST CERTIFICATES. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate or certificates alleged to have been lost, stolen or destroyed, or both. SECTION 7.3. REGISTERED STOCKHOLDERS. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. 13 14 ARTICLE VIII DIVIDENDS SECTION 8.1. DECLARATION. Dividends upon the stock of the corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property or in shares of stock. SECTION 8.2. RESERVE. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interest of the corporation. ARTICLE IX INDEMNIFICATION SECTION 9.1. THIRD PARTY ACTIONS. The corporation shall indemnify any natural person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgements, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonable believed to be in or not opposed to the best interests of the corporation, and, with 14 15 respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or preceding by judgement, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. SECTION 9.2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The corporation shall indemnify any natural person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 9.3. DETERMINATION OF CONDUCT. The determination whether an officer, director or agent has met the applicable standard of conduct set forth in Sections 9.1 and 9.2 (unless 15 16 indemnification is ordered by a court) shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such quorum is not obtainable, or even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. SECTION 9.4. PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred by an officer, director or agent in defending a civil or criminal action, suit or proceeding for which such person may be entitled to indemnity under this Article IX shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified under this Article IX. SECTION 9.5. DEFINITIONS. For purposes of this Article IX, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued would have had power and authority to indemnify its directors and officers, so that any person who is or who was a director or officer of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article IX with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article IX, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a 16 17 director or officer of the corporation that imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the best interest of the participants and beneficiaries in the employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article IX. SECTION 9.6. INDEMNITY NOT EXCLUSIVE. The indemnification and advancement of expenses provided by this Article IX shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any agreement, vote of stockholders, vote of disinterested directors, insurance arrangement or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. SECTION 9.7 CONTINUATION. The indemnification and advancement of expenses provided by this Article IX shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 9.8. NO FURTHER AUTHORIZATION REQUIRED. This Article IX is intended to make mandatory the indemnification permitted by Section 145 of the Delaware General Corporation Law. This Article IX shall be deemed to constitute the authorization required by subsection (d) of said Section 145, and no further authorization by the Board of Directors or the stockholders of the corporation shall be necessary in any specific case if the indemnification or advancement of expenses referred to in this Article IX is, by the terms of this Article IX, required to be afforded in that case. 17 18 ARTICLE X BY-LAW AMENDMENTS: APPLICATION OF SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW SECTION 10.1. CERTIFICATE OF INCORPORATION TO GOVERN. These by-laws may not be adopted, amended or repealed otherwise than in accordance with Article VI of the Certificate of Incorporation, provided that Section 10.2 of these by-laws may not be further amended by the Board of Directors. SECTION 10.2. NO APPLICATION OF SECTION 203. The corporation hereby expressly elects not to be governed by Section 203 of the Delaware General Corporation Law entitled "Business Combinations with Interested Stockholders". 18 EX-10.4 3 FORM OF CHANGE IN CONTROL AGREEMENT 1 EXHIBIT 10.4 CHANGE IN CONTROL AGREEMENT THIS AGREEMENT between Daniel Industries, Inc., a Delaware corporation (the "Company"), and ________________________________________ (the "Employee") is dated as of March 15, 1995 (the "Effective Date"). W I T N E S S E T H: WHEREAS, the Company considers it to be in the best interests of its stockholders to encourage the continued employment of key employees of the Company; and WHEREAS, the Employee is a key employee of the Company; and WHEREAS, the Company believes that the possibility of the occurrence of a Change in Control of the Company (as that phrase is defined in Section 2) may result in the termination by the Employee of the Employee's employment by the Company or in the distraction of the Employee from the performance of his duties to the Company, in either case to the detriment of the Company and its stockholders; and WHEREAS, the Company recognizes that the Employee could suffer adverse financial and professional consequences if a Change in Control of the Company were to occur; and WHEREAS, the Company wishes to enter into this Agreement to protect the Employee if a Change in Control of the Company occurs, thereby encouraging the Employee to remain in the employ of the Company and not be distracted from the performance of his duties to the Company; NOW, THEREFORE, the parties agree as follows: Section 1. Other Employment Arrangements. Except as provided in Section 15, this Agreement does not affect the Employee's existing or future employment arrangements with the Company unless a Change in Control of the Company shall have occurred before the expiration of the term of this Agreement. The Employee's employment by the Company shall continue to be at the will of the Board of Directors or, if the Employee is not an officer of the Company at the time of the termination of the Employee's employment by the Company, the will of the Chief Executive Officer of the Company, except that if (i) a Change in Control of the Company shall have occurred before the expiration of the term of this Agreement and (ii) the Employee's employment by the Company is terminated (whether by the Employee or the Company or automatically as provided in Section 3) after the occurrence of that Change in Control of the Company, then the Employee shall be entitled to receive certain benefits as provided in this Agreement. Section 2. Change in Control of the Company. A "Change in Control of the Company" shall have occurred if, after the Effective Date: (i) a report on Schedule 13D shall be filed with the Commission pursuant to Section 13(d) of the Exchange Act and that report discloses that any person (within the meaning of Section 13(d) of the Exchange Act), other than the Company (or one of its subsidiaries) or any employee benefit plan sponsored by the Company (or one of its subsidiaries), is the beneficial owner (as that term 2 is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 20 percent or more of the outstanding Voting Stock; (ii) any person (within the meaning of Section 13(d) of the Exchange Act), other than the Company (or one of its subsidiaries) or any employee benefit plan sponsored by the Company (or one of its subsidiaries), shall purchase securities pursuant to a tender offer or exchange offer to acquire any Voting Stock (or any securities convertible into Voting Stock) and, immediately after consummation of that purchase, that person is the beneficial owner (as that term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 20 percent or more of the outstanding Voting Stock (such person's beneficial ownership to be determined, in the case of rights to acquire Voting Stock, pursuant to paragraph (d) of Rule 13d-3 under the Exchange Act); (iii) the stockholders of the Company shall approve (w) a merger or consolidation of the Company with or into any other person, unless the sole purpose of the merger is to change the Company's domicile within the United States of America, (x) any sale, lease, exchange or other transfer of all or substantially all the assets of the Company and its consolidated subsidiaries, (y) the dissolution of the Company, or (z) a transaction immediately after the consummation of which any person (within the meaning of Section 13(d) of the Exchange Act) would be the beneficial owner (as that term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50 percent of the outstanding Voting Stock; or (iv) during any period of 12 consecutive months, the individuals who at the beginning of that period constituted the Board of Directors shall cease to constitute a majority of the Board of Directors. Section 3. Term of This Agreement. The term of this Agreement shall begin on the Effective Date and, unless automatically extended pursuant to the second sentence of this Section 3, shall expire on the first to occur of: (i) the Employee's death, the Employee's Disability or the Employee's Retirement, the occurrence of any of which shall automatically result in the termination of the Employee's employment by the Company, (ii) the termination by the Employee or the Company of the Employee's employment by the Company, or (iii) the end of the three-year period (the "Expiration Date") beginning on (x) the Effective Date if no Change in Control of the Company shall have occurred during that three-year period (or any period for which the term of this Agreement shall have been automatically extended) or (y) if one or more Changes in Control of the Company shall have occurred during that three-year period (or any period for which the term of this Agreement shall have been automatically extended), the date on which the last Change in Control of the Company occurred. If (i) the term of this Agreement shall not have expired as a result of the occurrence of one of the events described in clause (i) or (ii) of the immediately preceding sentence and (ii) the Company shall not have given notice to the Employee not fewer than 45 days before the 2 3 Expiration Date that the term of this Agreement will expire on the Expiration Date, then the term of this Agreement shall be automatically extended for successive one-year periods (the first such period to begin on the day immediately following the Expiration Date) unless the Company shall have given notice to the Employee not fewer than 45 days before the end of any one-year period for which the term of this Agreement shall have been automatically extended that such term will expire at the end of that one-year period. The expiration of the term of this Agreement shall not terminate this Agreement itself or affect the right of the Employee or the Employee's legal representative to enforce the payment of any amount or other benefit to which the Employee was entitled before the expiration of the term of this Agreement or to which the Employee became entitled as a result of the event (including the termination, whether by the Employee or the Company or automatically as provided in this Section 3, of the Employee's employment by the Company) that caused the term of this Agreement to expire. Section 4. Event of Termination for Cause. An "Event of Termination for Cause" shall have occurred if, after the Effective Date, the Employee shall: (i) willfully and continuously fail to substantially perform the Employee's duties to the Company (other than any failure that results from the Employee's having become mentally or physically disabled or any actual or anticipated failure that results from the occurrence of an Event of Termination for Good Reason) within 30 days after notice demanding substantial performance, which notice shall specifically identify the duties that the Employee has failed to substantially perform, is given to the Employee by the Company; or (ii) willfully engages in conduct that the Employee knows to be materially injurious to the Company. Section 5. An Event of Termination for Good Reason. An "Event of Termination for Good Reason" shall have occurred if, after the Effective Date, the Company shall: (i) assign to the Employee any duties inconsistent with the Employee's position (including offices, titles and reporting requirements), authority, duties or responsibilities with the Company in effect immediately before the occurrence of the first Change in Control of the Company; (ii) remove the Employee from, or fail to re-elect or appoint the Employee to, any position with the Company that was held by the Employee immediately before the occurrence of the first Change in Control of the Company, except that a nominal change in the Employee's title shall not constitute such an event; (iii) take any other action that results in a material diminution in such position, authority, duties or responsibilities; (iv) reduce the Employee's annual base salary as in effect immediately before the occurrence of the first Change in Control of the Company or as the Employee's annual base salary may be increased from time to time after that occurrence (the "Base Salary"); 3 4 (v) relocate the Employee's principal office outside of the metropolitan area of the City of Houston, Texas; (vi) fail to (x) continue in effect any profit sharing, savings, retirement or pension plan of the Company in which the Employee was a participant immediately before the occurrence of the first Change in Control of the Company (including the Company's Employees' Profit Sharing and Savings Plan), or any substitute plan adopted by the Board of Directors and in which the Employee was a participant immediately before the occurrence of the last Change in Control of the Company, unless an equitable arrangement (embodied in a substitute or alternative plan) shall have been made with respect to such profit sharing, savings, retirement or pension plan promptly following the occurrence of the last Change in Control of the Company, or (y) continue the Employee's participation in any such plan (or any substitute or alternative plan) on substantially the same basis, both in terms of the amount of benefits provided to the Employee and the level of the Employee's participation relative to other participants, as existed immediately before the occurrence of the first Change in Control of the Company; (vii) fail to continue to provide the Employee with benefits substantially similar to those enjoyed by the Employee under any of the Company's other employee benefit plans (the "Other Benefit Plans"), including life insurance, medical, dental, health, accident or disability plans, in which the Employee was a participant immediately before the occurrence of the first Change in Control of the Company; (viii) take any action that would directly or indirectly materially reduce any other benefits that were provided to the Employee by the Company immediately before the occurrence of the first Change in Control of the Company or deprive the Employee of any material fringe benefit enjoyed by the Employee immediately before the occurrence of the first Change in Control of the Company; (ix) fail to provide the Employee with the number of paid vacation days to which the Employee was entitled in accordance with the Company's vacation policy in effect immediately before the occurrence of the first Change in Control of the Company; (x) fail to comply with Section 8; or (xi) purport to terminate the Employee's employment by the Company unless notice of that termination shall have been given to the Employee pursuant to, and that notice shall meet the requirements of, Section 6. Section 6. Notice of Termination. If a Change in Control of the Company shall have occurred before the expiration of the term of this Agreement, any subsequent termination by the Employee or the Company of the Employee's employment by the Company, or any determination of the Employee's Disability, shall be communicated by notice to the other party that shall indicate the specific paragraph of Section 7 pursuant to which the Employee is to receive benefits as a result of the termination. If the notice states that the Employee's employment by the Company has been automatically terminated as a result of the Employee's Disability, the notice shall (i) specifically describe the basis for the determination of the 4 5 Employee's Disability and (ii) state the date of the determination of the Employee's Disability, which date shall be not more than ten days before the date such notice is given. If the notice is from the Company and states that the Employee's employment by the Company is terminated by the Company as a result of the occurrence of an Event of Termination for Cause, the notice shall specifically describe the action or inaction of the Employee that the Company believes constitutes an Event of Termination for Cause. If the notice is from the Employee and states that the Employee's employment by the Company is terminated by the Employee as a result of the occurrence of an Event of Termination for Good Reason, the notice shall specifically describe the action or inaction of the Company that the Employee believes constitutes an Event of Termination for Good Reason. Each notice given pursuant to this Section 6 (other than a notice stating that the Employee's employment by the Company has been automatically terminated as a result of the Employee's Disability) shall state a date, which shall be not fewer than 30 days nor more than 60 days after the date such notice is given, on which the termination of the Employee's employment by the Company is effective. The date so stated in accordance with this Section 6 shall be the "Termination Date". If a Change in Control of the Company shall have occurred before the expiration of the term of this Agreement, any subsequent purported termination by the Company of the Employee's employment by the Company, or any subsequent purported determination by the Company of the Employee's Disability, shall be ineffective unless that termination or determination shall have been communicated by the Company to the Employee by notice that meets the requirements of the foregoing provisions of this Section 6 and the provisions of Section 9. Section 7. Benefits Payable on Change in Control and Termination. If (x) a Change in Control of the Company shall have occurred before the expiration of the term of this Agreement and (y) the Employee's employment by the Company is terminated (whether by the Employee or the Company or automatically as provided in Section 3) after the occurrence of that Change in Control of the Company, the Employee shall be entitled to the following benefits: (i) If the Employee's employment by the Company is terminated (x) by the Company as a result of the occurrence of an Event of Termination for Cause or (y) by the Employee before the occurrence of an Event of Termination for Good Reason, then the Company shall pay to the Employee the Base Salary accrued through the Termination Date but not previously paid to the Employee. (ii) If the Employee's employment by the Company is automatically terminated as a result of the Employee's death, the Employee's Disability or the Employee's Retirement, then (x) the Company shall pay to the Employee the Base Salary accrued through the date of the occurrence of that event but not previously paid to the Employee and (y) the other benefits to be paid to the Employee as a result of that occurrence shall be determined in accordance with the Other Benefit Plans in effect at that date. (iii) If the Employee's employment by the Company is terminated (x) by the Company otherwise than as a result of the occurrence of an Event of Termination for Cause or (y) by the Employee after the occurrence of an Event of Termination for Good Reason, then the Employee shall be entitled to the following benefits: (1) the Company shall pay to the Employee the Base Salary accrued through the Termination Date but not previously paid to the Employee; 5 6 (2) the Company shall pay to the Employee, as a lump sum, an amount (the "Severance Payment") equal to two and one-half times the sum of: (A) the amount of the Base Salary that would have been paid to the Employee during the fiscal year of the Company in which the Termination Date occurs based on the assumption that the Employee's employment by the Company had continued throughout that fiscal year at the Base Salary equal to the greater of (I) the Base Salary in effect at the beginning of that fiscal year and (II) the Base Salary in effect immediately before any reduction in the Base Salary that constituted an Event of Termination for Good Reason, plus (B) the amount of any cash bonus paid or payable by the Company to the Employee for services rendered during the immediately preceding fiscal year, regardless of whether that bonus was paid, or is payable, after the end of such immediately preceding fiscal year, plus (C) the amount of any income that (I) is or was includable, for federal income tax purposes, in the Employee's gross income for any period and (II) is attributable to the exercise of options that were (X) granted to the Employee pursuant to any of the Company's existing or future stock option plans and (Y) exercised at any time during the 365-day period that ends on the day immediately following the Termination Date. provided that the amount of the Severance Payment shall be subject to reduction pursuant to Section 11; and (3) the Company (at its sole expense) shall take the following actions: (A) throughout the Relevant Period, the Company shall maintain in effect, and not materially reduce the benefits provided by, each of the Other Benefit Plans in which the Employee was a participant immediately before the Termination Date; and (B) the Company shall arrange for the Employee's uninterrupted participation throughout the Relevant Period in each of such Other Benefit Plans, 6 7 provided that if the Employee's participation after the Termination Date in any such Other Benefit Plan is not permitted by the terms of that Other Benefit Plan, then throughout the Relevant Period, the Company (at its sole expense) shall provide the Employee with substantially the same benefits that were provided to the Employee by that Other Benefit Plan immediately before the Termination Date. Upon payment by the Company to the Employee of the amounts and other benefits required to be paid pursuant to the foregoing provisions of this Section 7, the Company shall no longer be obligated to pay any other amounts or benefits to the Employee, other than benefits that, at the time of termination of the Employee's employment by the Company, had vested in the Employee as a result of the Employee's participation in any profit sharing, savings, retirement, or pension plan of the Company. If the Employee's employment by the Company shall have been terminated as a result of the Employee's death, the benefits otherwise required to be paid to the Employee pursuant to the foregoing provisions of this Section 7 shall be paid to the executor or administrator of the estate of the Employee. Each payment required to be made to the Employee pursuant to the foregoing provisions of this Section 7 (i) shall be made by check drawn on an account of the Company at a bank located in the United States of America and (ii) shall be paid (x) if the Employee's employment by the Company was terminated as a result of the Employee's death, the Employee's Disability or the Employee's Retirement, not more than 30 days immediately following the date of the occurrence of that event, and (y) if the Employee's employment by the Company was terminated for any other reason, not more than 10 days immediately following the Termination Date. Section 8. Successors. If a Change in Control of the Company shall have occurred before the expiration of the term of this Agreement, (i) the Company shall not, directly or indirectly, consolidate with, merge into or sell or otherwise transfer its assets as an entirety or substantially as an entirety to, any person, or permit any person to consolidate with or merge into the Company, unless immediately after such consolidation, merger, sale or transfer, the Successor shall have assumed in writing the Company's obligations under this Agreement, and (ii) not fewer than 10 days before the consummation of any consolidation of the Company with, merger by the Company into, or sale or other transfer by the Company of its assets as an entirety or substantially as an entirety to, any person, the Company shall give the Employee notice of that proposed transaction. Section 9. Notice. Notices required or permitted to be given by either party pursuant to this Agreement shall be in writing and shall be deemed to have been given when delivered personally to the other party or when deposited with the United States Postal Service as registered mail with postage prepaid and addressed: (i) if to the Employee, at the Employee's address last shown on the Company's records, and (ii) if to the Company, at 9753 Pine Lake Drive, Houston, Texas 77055, directed to the attention of the Chief Executive Officer, 7 8 or, in either case, to such other address as the party to whom or which such notice is to be given shall have specified by notice given to the other party. Section 10. Withholding Taxes. The Company may withhold from all payments to be paid to the Employee pursuant to this Agreement all taxes that, by applicable federal or state law, the Company is required to so withhold. Section 11. Conditional Reduction of Severance Payment. If all or any portion of the amount of any Change in Control Payment would not be deductible for federal income tax purposes by a Tax Affiliate (or other person who made or is required to make such Change in Control Payment) by reason of the application of section 280G of the Code, the Severance Payment shall be reduced until (i) no portion of the total amount of all Change in Control Payments is not deductible by a Tax Affiliate (or other person who made or is required to make such Change in Control Payment) by reason of the application of that section or (ii) the Severance Payment is reduced to zero. For purposes of determining whether all or any portion of the amount of any Change in Control Payment would not be deductible for federal income tax purposes by a Tax Affiliate (or other person who made or is required to make such Change in Control Payment) by reason of the application of that section, (i) no portion of the total amount of all Change in Control Payments the receipt or enjoyment of which the Employee shall have effectively waived, for purposes of section 280G of the Code, before the date of payment of the Severance Payment shall be taken into account, (ii) no portion of the total amount of all Change in Control Payments shall be taken into account that, in the opinion of tax counsel selected by the Company's independent accountants and acceptable to the Employee (the "Tax Counsel"), does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, (iii) no portion of the total amount of all Change in Control Payments shall be taken into account that, in the opinion of Tax Counsel, (x) constitutes reasonable compensation for services rendered within the meaning of section 280G(B)(4) of the Code and (y) is not considered in the calculation of a "parachute payment" or is considered in that calculation but does not cause an excess "parachute payment", and (iv) the value of any noncash benefit or any deferred payment or benefit included in the total amount of all Change in Control Payments shall be determined by the Company's independent accountants in accordance with sections 280G(d)(3) and 280G(d)(4) of the Code. Section 12. Expenses of Enforcement. If a Change in Control of the Company shall have occurred before the expiration of the term of this Agreement, then, upon demand by the Employee made to the Company, the Company shall reimburse the Employee for the reasonable expenses (including attorneys' fees and expenses) incurred by the Employee in enforcing or seeking to enforce the payment of any amount or other benefit to which the Employee shall have become entitled pursuant to this Agreement, except to the extent that the reimbursement of such expenses would not be, or would cause any other portion of the total amount of all Change in Control Payments not to be, deductible for federal income tax purposes by a Tax Affiliate (or other person who made or is required to make such Change in Control Payment) by reason of the application of section 280G of the Code. 8 9 Section 13. Employment by Subsidiaries. If, at the Effective Date, the Employee is an employee of a subsidiary of the Company, references in this Agreement to the Employee's employment by the Company shall be to the Employee's employment by the subsidiary. Section 14. No Obligation to Mitigate. The Employee shall not be required to mitigate the amount of any payment or other benefit required to be paid to the Employee pursuant to this Agreement, whether by seeking other employment or otherwise, nor shall the amount of any such payment or other benefit be reduced on account of any compensation earned by the Employee as a result of employment by another person. Section 15. Confidential Information. From the Effective Date until the expiration of the term of this Agreement, the Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, that shall have been obtained by the Employee during the Employee's employment by the Company or any of its affiliated companies and that shall not have become public knowledge (other than as a result of acts by the Employee in violation of this Section 15). The Company shall not withhold or reduce any amount or other benefit payable to the Employee pursuant to the terms of this Agreement or otherwise on the grounds that the Employee has breached or threatened to breach the foregoing provisions of this Section 15, and the sole remedy of the Company for a breach or anticipated breach of those provisions shall be injunctive relief. Section 16. Amendment and Waiver. No provision of this Agreement may be amended or waived unless that amendment or waiver is by written instrument signed by the parties hereto. No waiver by either party of any breach of this Agreement shall be deemed a waiver of any other or subsequent breach. Section 17. Governing Law. The validity, interpretation, construction and enforceability of this Agreement shall be governed by the laws of the State of Texas. Section 18. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. Section 19. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute the same instrument. Section 20. Assignment. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representative. The Company may not assign any of its obligations under this Agreement unless (i) such assignment is to a Successor and (ii) the requirements of Section 8 are fulfilled. Section 21. Arbitration. Any dispute between the parties arising out of this Agreement, whether as to this Agreement's construction, interpretation or enforceability or as to any party's breach or alleged breach of any provision of this Agreement, shall be submitted to arbitration in accordance with the following procedures: (i) Either party may demand such arbitration by giving notice of that demand to the other party. The notice shall state (x) the matter in controversy and (y) the name of the arbitrator selected by the party giving the notice. 9 10 (ii) Not more than 15 days after such notice is given, the other party shall give notice to the party who demanded arbitration of the name of the arbitrator selected by the other party. If the other party shall fail to timely give such notice, the arbitrator that the other party was entitled to select shall be named by the Arbitration Committee of the American Arbitration Association. Not more than 15 days after the second arbitrator is so named, the two arbitrators shall select a third arbitrator. If the two arbitrators shall fail to timely select a third arbitrator, the third arbitrator shall be named by the Arbitration Committee of the American Arbitration Association. (iii) The dispute shall be arbitrated at a hearing that shall be concluded within 10 days immediately following the date the dispute is submitted to arbitration unless a majority of the arbitrators shall elect to extend the period of arbitration. Any award made by a majority of the arbitrators (x) shall be made within 10 days following the conclusion of the arbitration hearing, (y) shall be conclusive and binding on the parties, and (z) may be made the subject of a judgment of any court having jurisdiction. (iv) All expenses of the arbitration shall be borne by the Company. The agreement of the parties contained in the foregoing provisions of this Section 21 shall be a complete defense to any action, suit or other proceeding instituted in any court or before any administrative tribunal with respect to any dispute between the parties arising out of this Agreement. Section 22. Interpretation. (a) As used in this Agreement, the following terms and phrases have the indicated meanings: (i) "Base Salary" has the meaning assigned to that term in Section 5. (ii) "Board of Directors" means the Board of Directors of the Company. (iii) "Change in Control of the Company" has the meaning assigned to that phrase in Section 2. (iv) "Change in Control Payment" means a payment or other benefit, including the Severance Payment, received or to be received by the Employee from any Tax Affiliate in connection with a Change in Control of the Company or the termination of the Employee's employment by the Company, whether that payment or other benefit has been paid or is payable pursuant to this Agreement or otherwise. (v) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (vi) "Commission" means the United States Securities and Exchange Commission or any successor agency. 10 11 (vii) "Company" has the meaning assigned to that term in the recitals to this Agreement. The term "Company" shall also include any Successor, whether the liability of such Successor under this Agreement is established by contract or occurs by operation of law. (viii) "Effective Date" has the meaning assigned to that term in the recitals to this Agreement. (ix) "Employee's Disability" means: (x) if no Change in Control of the Company shall have occurred before the date of determination, the physical or mental disability of the Employee determined in accordance with the disability policy of the Company at the time in effect and generally applicable to its salaried employees; and (y) if a Change in Control of the Company shall have occurred at that date, the physical or mental disability of the Employee determined in accordance with the disability policy of the Company in effect immediately before the occurrence of the first Change in Control of the Company and generally applicable to its salaried employees. The Employee's Disability, and the automatic termination of the Employee's employment by the Company by reason of the Employee's Disability, shall be deemed to have occurred on the date of determination, provided that if (1) a Change in Control of the Company shall have occurred before the expiration of the term of this Agreement, (2) the Company shall have subsequently given notice pursuant to Section 6 of the Company's determination of the Employee's Disability and (3) the Employee shall have given notice to the Company that the Employee disagrees with that determination, then (A) whether the Employee's Disability shall have occurred shall be submitted to arbitration pursuant to Section 21, and (B) if a majority of the arbitrators decide that the Employee's Disability had not occurred at the date of determination by the Company, then (I) the Employee's Disability, and the automatic termination of the Employee's employment by the Company by reason of the Employee's Disability, shall be deemed not to have occurred and (II) on demand by the Employee made to the Company, the Company shall reimburse the Employee for the reasonable expenses (including attorneys' fees and expenses) incurred by the Employee in obtaining that decision. (x) "Employee's Retirement" means (x) if no Change in Control of the Company shall have occurred before the date of the Employee's proposed retirement, the retirement of the Employee in accordance with the retirement policy of the Company at the time in effect and generally applicable to its salaried employees and (y) if a Change in Control of the Company shall have occurred at that date, the retirement of the Employee from the employ of the Company in accordance with the retirement policy of the Company in effect immediately before the occurrence of the first Change in Control of the Company and generally applicable to its salaried employees. 11 12 (xi) "Event of Termination for Good Reason" has the meaning assigned to that phrase in Section 5. (xii) "Event of Termination for Cause" has the meaning assigned to that phrase in Section 4. (xiii) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. (xiv) "Expiration Date" has the meaning assigned to that term in Section 3. (xv) "Other Benefit Plans" has the meaning assigned to that term in Section 4. (xvi) "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, limited partnership, limited liability company, trust, unincorporated organization, government, or agency or political subdivision of any government. When the context of this Agreement indicates, the term "person" also has the meaning assigned to that term in Section 13(d) of the Exchange Act. (xvii) "Relevant Period" means a period beginning on the Termination Date and ending on the first to occur of (x) the third anniversary of the Termination Date, (y) the date on which the Employee becomes a full time employee of another person and (z) the Employee's normal retirement date, determined in accordance with the retirement policy of the Company in effect on the Termination Date. (xviii) "Severance Payment" has the meaning assigned to that term in Section 7. (xix) "Successor" means a person with or into which the Company shall have been merged or consolidated or to which the Company shall have transferred its assets as an entirety or substantially as an entirety. (xx) "Tax Affiliate" means the Company, any of its successors pursuant to Section 8 or otherwise, any person whose actions result in a Change in Control of the Company, and any person "affiliated" or that, as a result of the completion of the transactions that result in a Change in Control of the Company, will become "affiliated" with the Company within the meaning of section 1504 of the Code. (xxi) "Tax Counsel" has the meaning assigned to that term in Section 7. (xxii) "Termination Date" has the meaning assigned to that term in Section 6. (xxiii) "this Agreement" means this Change in Control Agreement as it may be amended from time to time in accordance with Section 16. 12 13 (xxiv) "Voting Stock" means shares of capital stock of the Company the holders of which are entitled to vote for the election of directors of the Company, but excluding shares entitled to so vote only upon the occurrence of a contingency unless that contingency shall have occurred. (b) In the event of the enactment of any successor provision to any statute or rule cited in this Agreement, references in this Agreement to such statute or rule shall be to such successor provision. (c) The headings of Sections of this Agreement shall not control the meaning or interpretation of this Agreement. (d) References in this Agreement to any Section are to the corresponding Section of this Agreement unless the context otherwise indicates. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the Effective Date. DANIEL INDUSTRIES, INC. By______________________________________ Chairman of the Board of Directors [NAME OF EMPLOYEE] By______________________________________ 13 EX-10.5 4 ASSET PURCHASE AGREEMENT - DAN-LOC BOLT & GASKET 1 EXHIBIT 10.5 ASSET PURCHASE AGREEMENT 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II PURCHASE, SALE AND DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2.1 Purchased Assets and Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 2.3 Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 2.4 Allocation Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 2.5 Accounts Receivable, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 2.6 Mail Received After Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 2.7 Full Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE III LIABILITIES AND OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 3.1 Obligations Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 3.2 Liabilities Not Assumed by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES . . . . . . . . . . . . . . . . . . . . . 12 Section 4.1 Corporate Status and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 4.3 Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 4.4 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 4.5 Broker Involvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 4.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 4.7 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 4.8 Continuity Prior to Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 4.9 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 4.10 Trademarks, Trade Names and Intellectual Property . . . . . . . . . . . . . . . . . . . . . 16 Section 4.11 All Assets of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 4.12 Financial Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 4.13 Condition of Fixed Assets and Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 4.14 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 4.15 Employees and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 4.16 No Material Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 4.17 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 4.18 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 4.19 WARN Act Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 4.20 Government Licenses, Permits and Related Approvals . . . . . . . . . . . . . . . . . . . . 18 Section 4.21 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 4.22 Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 4.23 Safety Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
i 3 Section 4.24 Investment Intention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 4.25 Transactions with Certain Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 4.26 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 4.27 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 4.28 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 4.29 Change in Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 4.30 COBRA Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 4.31 Warranty and Return Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 4.32 Product Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 4.33 Houston Facility; Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 4.34 Future Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 4.35 Certificates of Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 5.1 Corporate Status and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 5.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 5.3 Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 5.4 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 5.5 Broker Involvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE VI COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 6.1 Regular Course of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 6.2 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 6.3 Notices and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 6.4 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 6.5 Further Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 6.6 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 6.7 Employee Termination; COBRA Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 6.8 Transition Employees, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 6.9 Representation Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 6.10 Necessary Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE VII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 7.1 Seller's Indemnity Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 7.2 Buyer's Indemnity Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 7.3 Indemnification Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 7.4 Arbitration of Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 7.5 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 7.6 Right of Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 7.7 Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ii 4 ARTICLE VIII CONDITIONS PRECEDENT TO CLOSING: TERMINATION . . . . . . . . . . . . . . . . . . . . . . . 38 Section 8.1 General Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 8.2 Reasons for Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 8.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE IX ACTIONS TO BE TAKEN AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 9.1 Actions to be Taken by Seller at the Closing . . . . . . . . . . . . . . . . . . . . . . . 43 Section 9.2 Actions to be Taken by Buyer at the Closing . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 9.3 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE X COVENANTS OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE XI GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 11.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 11.3 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 11.4 Waivers and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 11.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 11.6 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 11.7 Compliance with Bulk Sales Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 11.8 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 11.9 Governing Law; Settlement of Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 11.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 11.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 11.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE XII COVENANTS NOT TO COMPETE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 12.1 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 12.2 Relinquishment of Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
iii 5 SCHEDULES
Page ---- Schedule 2.1(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Schedule 2.1(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Schedule 2.1(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Schedule 2.1(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Schedule 2.1(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Schedule 2.1(g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Schedule 2.1(h) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Schedule 2.1(i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Schedule 2.1(j) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Schedule 2.1(l) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Schedule 2.1(o) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Schedule 3.2(r) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Schedule 2.5(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Schedule 3.1(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Schedule 3.3(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Schedule 4.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Schedule 4.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Schedule 4.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Schedule 4.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Schedule 4.9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Schedule 4.13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Schedule 4.14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Schedule 4.15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Schedule 4.18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Schedule 4.28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Schedule 4.20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Schedule 4.21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Schedule 4.22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Schedule 4.23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Schedule 4.25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Schedule 4.31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Schedule 4.32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Schedule 6.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
iv 6 EXHIBITS Exhibit A-1 7-year Subordinated Secured Note and Security Agreement Exhibit A-2 4-year Subordinated Inventory Note and Security Agreement Exhibit B Environmental Remediation Agreement Exhibit C Deed of Trust Exhibit D Special Warranty Deed Exhibit E Non-Competition Agreement Exhibit F Subordination Agreement Exhibit G Loan Agreement with Texas Commerce Bank
v 7 ASSET PURCHASE AGREEMENT This Asset Purchase Agreement ("Agreement") is made this 27th day of November, 1995 by and among DAN-LOC Bolt & Gasket, Inc., a Texas corporation ("Buyer"), Daniel Industrial, Inc., a Delaware corporation ("Seller"), Daniel Industries Canada, a partnership formed under the laws of Alberta, Canada ("Dan Can"), and Daniel Industries, Inc., a Delaware corporation and the sole shareholder of Seller ("Daniel"; Daniel, Dan Can and Seller are collectively called the "Seller Parties"). WHEREAS, Seller is engaged in the business (the "Business") of assembling, manufacturing, marketing, selling, servicing, and repairing bolts, flanges, gaskets and related products; and WHEREAS, Buyer wishes to purchase and assume from Seller, and Seller wishes to sell, transfer, assign and deliver to Buyer, the Purchased Assets (hereinafter defined) and the Assumed Liabilities (hereinafter defined); NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants, indemnities and agreements stated herein, the parties hereto agree as follows: ARTICLE I CLOSING Section 1.1 Closing. The closing of the purchase and sale provided for herein (the "Closing") shall take place at 9:30 a.m. Houston time on November 28, 1995 at the offices of Winstead Sechrest & Minick P.C., Houston, Texas, or if the conditions to Closing set forth in Article VIII hereof shall not have been satisfied or waived by such date, as soon as practicable after such conditions shall have been satisfied or waived, or such other date and time as shall be agreed upon in writing by the parties hereto. The date on which the Closing actually occurs is referred to herein as the "Closing Date". ARTICLE II PURCHASE, SALE AND DELIVERY Section 2.1 Purchased Assets and Excluded Assets. Subject to the terms and conditions of this Agreement, and on the basis of the representations, warranties, covenants, indemnities and agreements hereinafter set forth, at the Closing, Seller, Daniel, and Dan Can shall sell, transfer, convey, assign and deliver to Buyer, and Buyer shall purchase from Seller and Dan Can, the rights of Seller and Dan Can in and to the following assets and properties (collectively, the "Purchased Assets"): 8 (a) All inventories of finished products, work in process, raw materials, supplies and packing and shipping material as of the Closing Date, provided, in the case of Dan Can, such inventories shall be limited to those located at or exclusively used in connection with the Edmonton bolt, flange and gasket business of Dan Can (collectively, the "Inventory"), a summary of such raw materials, finished products and work in process as of September 30, 1995 (except with respect to Dan Can which would be as of October 31, 1995) is attached as Schedule 2.1(a) which such list shall be updated as of the Closing Date in accordance with the terms hereof. A complete list of finished goods, work in process and raw materials as of the Closing Date will be provided, including a segregated list of Inventory securing the 4-year Subordinated Inventory Note, hereinafter defined; (b) All accounts receivable of Seller and Dan Can for the sale of finished Inventory as to which title has passed to the purchaser thereof as of the Closing Date (the "Accounts Receivable"), a listing of which as of September 30, 1995 (except with respect to Dan Can which is as of October 31, 1995) is attached as Schedule 2.1(b), which such list shall be updated as of the Closing Date in accordance with the terms hereof; (c) All tools, equipment, machinery, dies, patterns, furniture, fixtures, store equipment, automobiles, trucks, service equipment, computer equipment and leasehold improvements and such additional personal property, including, without limitation, equipment records, racks and forklift maintained at the Jensen Drive location, installations, fixtures, leasehold improvements, furniture and carpeting, but excluding Inventory owned by Seller or owned by Dan Can and located at or exclusively used in connection with the Edmonton bolt, flange and gasket business of Dan Can (collectively, the "Fixed Assets") with respect to, or for use in connection with, the operation of the Business or located in or upon the Houston Facility, defined below, or the manufacturing, warehouse and other facilities used by Seller or Dan Can, located in Houston, Texas, Edmonton, Alberta, Canada, and Los Angeles, California (the "Other Facilities" together with the Houston Facility, the "Facilities"), a listing of which as of September 30, 1995 is attached as Schedule 2.1(c), which such list shall be updated as of the Closing Date in accordance with the terms hereof; (d) All contracts and agreements in existence on the Closing Date (the "Contracts") relating to the Seller, the Purchased Assets or the Business (including, without limitation, distribution contracts, and agreements relating to the confidentiality of information or limiting employees, former employees or others from competing in any line of the Business), but excluding Purchase and Sales Contracts and Leases, a listing of which as of September 30, 1995 is attached as Schedule 2.1(d), which such list shall be updated as of the Closing Date in accordance with the terms hereof; (e) Each purchase or sales order or other contract, agreement or commitment for the purchase or sale of Inventory that was entered into in the ordinary course of business before the Closing Date and is unfilled as of the Closing Date ("Purchase and 2 9 Sales Contracts"), a list of which (i) in effect as of the Closing Date and (ii) involving $1,000 or more in effect as of Closing Date shall be set forth on Schedule 2.1(e) and provided as of the Closing Date. (f) Express or implied warranties, if any, from the suppliers of Seller or Dan Can, manufacturers or others with respect to the Purchased Assets; (g) All intellectual property, including patents, trademarks, trade names, including without limitation the names DAN-LOC Corporation and DAN-LOC Bolt & Gasket, Inc., copyrights, blueprints, drawings, proprietary methods and know-how, computer software and similar items, together with any goodwill associated therewith and all rights of action on account of past, present, and future unauthorized use or infringement thereof, provided, in the case of Dan Can, such intellectual property shall be limited to property rights as are located or exclusively used in connection with the Edmonton office and the bolt, flange and gasket business of Dan Can. A listing of such patents, trademarks, trade names, registered copyrights and computer software is attached as Schedule 2.1(g) which list shall be updated as of the Closing Date in accordance with the terms hereof; (h) The leases of real property (the "Leases") necessary for the use and operation of the Business including leases on certain of the Facilities, a listing of which is set forth on Schedule 2.1(h); (i) The manufacturing, warehouse and other facilities of Daniel located at 725 N. Drennan, Houston, Texas 77003, including the real property described in Schedule 2.1(i), together with all buildings, structures, installations, fixtures and other improvements appurtenant thereto or situated thereon, and all other rights and interests of Seller pertaining thereto (the "Houston Facility"); (j) Deposits, petty cash, and other current and prepaid assets as they existed on the Closing Date, provided, in the case of Dan Can, such items shall be limited to those relating to the bolt, flange and gasket business of Dan Can, a listing of which as of September 30, 1995 is attached hereto as Schedule 2.1(j) which list shall be updated as of the Closing Date in accordance with the terms hereof; (k) All books, operating and financial records, correspondence, files, customer and vendor lists and other data (collectively "Business Records") pertaining primarily to the Business, except that Buyer shall only be provided copies of all tax records, the original of which will be maintained by Seller and Dan Can; provided, however, for a period of ten years after the Closing (or such later date as is necessary to finally resolve any claims of any governmental agency) the Seller shall be given access during regular business hours to the Business Records and shall have the right to copy, at the Seller's expense, any such Business Records, and Buyer shall have access during regular business 3 10 hours to all original tax records. Seller further agrees not to destroy any such tax records and shall turn such tax records over to Buyer when no longer needed by Seller; (l) To the extent transferable, all of Seller's and Dan Can's rights in all governmental licenses, permits and authorizations (and applications for any of the foregoing) necessary for the operation of the Business, including those listed on Schedule 2.1(l); (m) All property and other rights incident or attributable to the foregoing interests, including, without limitation, all of the Seller's right, title and interest in and to originals (or, to the extent that originals are not available, copies) of all books, records, reports, files, contracts, evidence of title, surveys and similar documents or materials that relate to the foregoing interests, including, without limitation, the construction, use, maintenance, operation or administration thereof, or that would constitute evidence of ownership thereof (collectively, the "Records"). In addition, Daniel shall sell, transfer, convey, assign and deliver to Buyer, and Buyer shall purchase from Daniel, the rights of Daniel in and to the Houston Facility and the U.S. Trademark "DAN-LOC" (which shall be deemed a part of the Purchased Assets). It is hereby agreed that all items contained in any schedules set forth in this Article II shall be updated by Seller within fifteen days after the Closing Date to reflect their status as of the Closing Date. Notwithstanding the foregoing, the Purchased Assets shall not include, and Buyer will not purchase, (i) any insurance policies or insurance contracts, (ii) the outstanding capital stock of Daniel Bolt & Gasket Ltd. and the partnership interest of Daniel Bolt & Gasket Ltd. in Dan Can, (iii) any and all rights to the name "Daniel", (iv) the minute books and stock records of Seller, (v) notes or accounts receivable from employees or shareholders of Seller, (vi) the assets listed on Schedule 2.1(o), including without limitation, certain of Seller's assets used by Seller in connection with Seller's operations in the United Kingdom or assets, the nature of which was not included in preparing the Simmons Memorandum, defined below, and (vii) any rights to or obligation under the employment/royalty agreements with Mr. Lamont Harrelson and Mr. Pat Bullard (collectively, the "Excluded Assets"). Section 2.2 Purchase Price. The purchase price for the Purchased Assets (the "Purchase Price") is $17,500,000, subject to adjustment pursuant to Section 2.3 below. At the Closing, Buyer shall deliver to the Seller Parties: (i) $8,000,000 (the "Cash Purchase Price") by wire transfer of immediately available funds to the account designated in writing by Seller and (ii) two promissory notes of Buyer, payable to Seller (the "Notes"), in substantially the forms of Exhibits A-1 (the "7-year Subordinated Secured Note") in the principal amount of $6,000,000 and A-2 (the "4-year Subordinated Inventory Note"), in the principal amount of $3,500,000. 4 11 Section 2.3 Price Adjustment. Following the Closing, the Purchase Price shall be adjusted (the "Post-Closing Adjustment") if the Net Assets as of the Closing Date, exclusive of changes in accumulated depreciation and amortization, differs upwards or downwards, from $26,054,000, which represents the Net Assets as of August 31, 1995, as set forth in the revised Memorandum (the "Simmons Memorandum") prepared by Simmons & Company (the "Benchmark Calculation"). In determining the Closing Date Balance Sheet, any orders from Daniel or any of its affiliates constituting any portion of the backlog would be repriced to reflect prices agreed to herein for each particular contract constituting such portion of the backlog. Additionally, Seller agrees to cause a reserve to be included in Accrued Liabilities on the Closing Date Balance Sheet to (i) increase the profitability of Aramco Order No. 242144 by $33,000 and (ii) provide for the repairs (the "Repairs") in the aggregate amount of $79,246 (reduced by any amounts paid prior to the Closing Date to complete the Repairs) in accordance with Schedule 3.2(r). "Net Assets" is the Purchased Assets, less the Assumed Liabilities. The Post-Closing Adjustment to the Purchase Price shall be effected as follows: (a) As soon as practicable, but not later than 60 business days after the Closing Date, at Buyer's expense, Buyer (with Seller having the right to participate at its expense) shall prepare a balance sheet (the "Closing Date Balance Sheet") setting forth the Net Assets as of the Closing Date, prepared consistently with principles and practices used by Seller prior to Closing and used by Seller in preparing the Simmons Memorandum which such principles and practices shall be, except for valuation of inventory, in accordance with generally accepted accounting principles consistently applied on a going concern basis. The accrued personal property and real estate taxes reflected on the Closing Date Balance Sheet for taxes to be paid by Buyer will be based on a pro rata share of actual taxes for the year. Buyer may, after Closing, conduct (with Seller having the right to participate) a physical inventory as of the Closing Date of the Inventory (or any part thereof) or any other Purchased Asset for this purpose. Within 30 days following the delivery of the Closing Date Balance Sheet, Seller shall notify Buyer whether it agrees or disagrees with the determination set forth therein. If Seller disagrees with such determination set forth therein and Buyer and Seller do not resolve such disagreement within 30 days after Seller notifies Buyer of its disagreement, either Buyer or Seller may cause the Closing Date Balance Sheet to be audited, and the Net Assets as of the Closing Date to be determined, by the Houston, Texas office of the accounting firm of Ernst & Young or such other firm of independent public accountants of national reputation mutually acceptable to Buyer and Seller (the "Independent Accounting Firm"). Buyer and Seller agree to cooperate with each other and each other's authorized representatives and with the Independent Accounting Firm pursuant to this Section 2.3(a) in order that any and all matters in dispute shall be resolved as soon as practicable. The determination by such Independent Accounting Firm shall be final and binding on Buyer and Seller, and shall not be appealable to any court or otherwise, and the fees and expenses of such accounting firm shall be borne equally by Seller and Buyer. If the Net Assets as of the Closing Date, as finally determined by this Section 2.3 is greater than $26,054,000, (i) to the extent such excess is attributable to employee-related expenses, such excess shall be paid in cash by Buyer to Seller; and (ii) 5 12 to the extent such excess is due to any other factor, then such excess amount shall increase the principal due under the 7-year Subordinated Secured Note. If the Net Assets as of the Closing Date, as finally determined by this Section 2.3 is less than $26,054,000, then such deficiency amount shall be refunded by Seller to Buyer in cash. In any case when the principal amount on the 7-year Subordinated Secured Note is adjusted pursuant to this Section 2.3(a), then the interest on such 7-year Subordinated Secured Note shall be calculated from the Closing Date on the adjusted note amount. Any adjustment in the principal amount of the 7-year Secured Subordinated Note or refunded in cash contemplated by this Section 2.3 shall be made on or before the fifth business day following the final determination of Net Assets as of the Closing Date. If the principal amount of the 7-year Secured Subordinated Note is increased, Buyer shall deliver to Seller a new 7-year Secured Subordinated Note in the increased principal amount in exchange for the old 7-year Secured Subordinated Note, the principal amount of which has been increased. (b) Any payment required to be made by Seller or Buyer pursuant to Section 2.3(a) hereof shall bear interest from the Closing Date through the date of payment at the publicly announced prime interest rate of Texas Commerce Bank in effect from time to time from the Closing Date to the date of such payment. (c) Buyer and Seller agree that the sole purpose of preparing the Closing Date Balance Sheet shall be to implement the adjustment contemplated in this Section 2.3, and neither the existence of any liability or obligation reflected in the Closing Date Balance Sheet nor any decline in the amount of Net Assets from that reflected on the Benchmark Calculation shall in and of itself constitute a breach by Seller of any of the representations and warranties contained in Article IV. If any claim under any Section of Article IV hereof arises and an adjustment to the Cash Purchase Price under this Section 2.3 relating to or arising out of such claim has previously been made with respect to such claim, then to the extent of such adjustment, neither Buyer nor Seller shall be entitled to indemnification under any of such Sections. Section 2.4 Allocation Reporting. As soon as practicable after the Closing, Buyer shall prepare or cause to be prepared a written statement setting forth the allocation of the consideration (including the Cash Purchase Price and any adjustments thereto and the principal amount of the Promissory Notes) deemed to have been paid for federal income tax purposes by Buyer to Seller pursuant to this Agreement. The Parties shall undertake in good faith to agree on such allocation as soon as practicable; provided, that, in the event Seller and Buyer shall be unable to agree on such allocation within 30 days after it is first submitted to Seller, the parties shall jointly engage the Independent Accounting Firm to make its independent determination with respect to the issues in dispute and the amounts related thereto. Each of Seller and Buyer shall bear and pay one-half of the fees and other costs charged therefor by the Independent Accounting Firm. For federal income tax purposes (including Buyer's and Seller's compliance with the reporting requirements of Section 1060 of the Internal Revenue Code), each of Seller and Buyer hereby agree to use the allocation as so agreed to by them and to cooperate in good 6 13 faith with each other in connection with the preparation and filing of any information required to be furnished to the Internal Revenue Service under Section 1060 of the Internal Revenue Code and any applicable regulations thereunder. Section 2.5 Accounts Receivable, etc. (a) Seller and Dan Can agree that on and after the Closing Date, Buyer shall have the right and authority to collect all Accounts Receivable, and, if necessary, to endorse with the name of Seller and Dan Can any checks received on account of any such receivables or other items. Seller and Dan Can will transfer to Buyer any cash or other property which they may receive in respect of such Accounts Receivable. (b) On or subsequent to 90 days from the Closing Date, Buyer shall give Seller and Dan Can written notice of those Accounts Receivable previously transferred to Buyer pursuant to this Agreement which have not been collected by Buyer or for which the obligor has not made arrangements reasonably satisfactory to Buyer for payment in full. The notice shall identify the account and the amount outstanding for such account. Seller and Dan Can agree to pay to Buyer, within 30 days of its receipt of such notice, an amount equal to the aggregate amount of such identified accounts sold by Seller and Dan Can, respectively to Buyer, net of any reserves included in the Closing Date Balance Sheet. Upon receipt of such payment Buyer shall assign and transfer such accounts to Seller, or Dan Can, as the case may be, by instruments or documents reasonably satisfactory to Seller and Dan Can, as the case may be. Any amounts thereafter received by Buyer with respect to such transferred accounts shall be delivered to Seller and Dan Can. Buyer agrees to use its reasonable efforts, consistent with its own collection practices, to collect the Accounts Receivable transferred to Buyer pursuant to this Agreement, and will not write off any Accounts Receivable against the reserve set forth on the Closing Date Balance Sheet during the first 90 days from the Closing Date. Payments by the obligors of such receivables shall first be applied to the oldest outstanding receivables of such obligor, unless any such receivables are being disputed by such obligors. In the event any Accounts Receivable are resold to Seller or Dan Can pursuant to this provision, Buyer shall provide monthly certificates to Seller and Dan Can with respect to amounts collected by Buyer during the preceding calendar month from the obligors on any such Accounts Receivable, together with an amount in cash equal to such amounts so collected until such time as the full amount of any such Account Receivable so returned to Seller and Dan Can shall have been satisfied in full. Seller shall have such rights to inspect Buyer's books and accounts as may be necessary to ensure that Buyer has complied with the provisions of this Agreement. (c) From and after the Closing, Buyer shall be paid all amounts received at any and all lockboxes of Seller at the banks listed on Schedule 2.5(c) ("Lockbox Banks"). Seller shall instruct each Lockbox Bank to pay all such receipts to Buyer and to give control over such lockbox to Buyer, provided that the amounts attributable to Accounts Receivable repurchased by Seller shall be remitted by Buyer to Seller. 7 14 Section 2.6 Mail Received After Closing. Following the Closing, Buyer may receive and open all mail addressed to Seller and, to the extent that such mail and the contents thereof relate to the Business or the Purchased Assets, deal with the contents thereof at its discretion. Buyer shall promptly notify Seller of (and provide Seller complete copies of) any mail that on its face obliges any Seller Party to take any action or indicates that action may be taken against any of them and will promptly forward to Seller any mail applicable solely to Seller or the Excluded Assets. Section 2.7 Full Access. From and after the date hereof and until the Closing or the termination of this Agreement, (1) Buyer and its authorized representatives shall have full access during normal business hours to all properties, personnel, books, records, contracts, and documents of the Seller, and Seller and Daniel shall furnish or cause to be furnished to Buyer and its authorized representatives all information with respect to the affairs and business of the Seller as Buyer may reasonably request, and (2) the Seller shall provide Buyer with an office at the Seller's Houston Facility. Until Closing, Buyer agrees it will not direct the operations of the Business. ARTICLE III LIABILITIES AND OBLIGATIONS Section 3.1 Obligations Assumed. As part of the consideration for the Purchased Assets from and after the Closing Date, Buyer shall assume, fully perform, and timely discharge (i) all debts, obligations and liabilities of Seller or Dan Can under the trade accounts payable listed on the Closing Date Balance Sheet (the "Accounts Payable"), (ii) the accrued liabilities listed on the Closing Date Balance Sheet and of the same nature as the accrued liabilities at August 31, 1995, as set forth on Schedule 3.1(a) hereto including performance of the Repairs (the "Accrued Liabilities"), (iii) all debts, obligations and liabilities of Seller or Dan Can that accrue or are otherwise attributable to periods after the Closing Date under the Contracts listed in Schedule 2.1(d) (as updated through the Closing Date), pursuant to Purchase and Sales Contracts listed on Schedule 2.1(e), and under Leases listed on Schedule 2.1(h), (iv) except with respect to products that have been manufactured, assembled and tested prior to the Closing Date, all liabilities, damages or obligations relating to any litigation, claim, suit or proceedings with respect to the Business for product liability and product warranties, in each case for products sold by the Business on or after the Closing Date (the "Assumed Liabilities"), (v) any and all liabilities arising out of any governmental compliance, enforcement or regulatory action, suit or claim or any claim by any person or entity arising out of the operation of the Business or the Purchased Assets on or after the Closing Date, and (vi) any liability under agreements relating to Seller's employment of temporary employees, but only to the extent such liability arises as a result of Buyer's employment of such temporary employees.. Section 3.2 Liabilities Not Assumed by Buyer. Except for the Assumed Liabilities, Seller shall pay and discharge in due course all of its liabilities, debts and obligations, whether 8 15 known or unknown, whether or not listed on any Schedule to this Agreement, now existing or hereafter arising, contingent or liquidated (the "Retained Liabilities"), and neither Buyer nor any of its Affiliates shall assume, or in any way be liable or responsible for any of the Retained Liabilities. Without limiting the generality of the foregoing, the Retained Liabilities shall include the following: (a) except to the extent included in Accrued Liabilities on the Closing Date Balance Sheet, any liability or obligation for any and all Taxes of, or pertaining or attributable to, (i) Seller or (ii) the Business or the Purchased Assets for any period or portion thereof that ends on or before the Closing Date for which liability is or may be sought to be imposed on Buyer under any successor liability, transferee liability or similar provision of any applicable federal, foreign, state or local law; (b) any and all liabilities arising from or under any Environmental Laws, as hereafter defined, arising from events, conditions, circumstances, acts or omissions: (i) on or prior to the Closing Date with respect to the Purchased Assets or any Facility; and (ii) on, prior to, or after the Closing Date with respect to the Excluded Assets or any other assets or business of Seller; (c) Any liability or claim with respect to accidents or occurrences arising in connection with the operation of the Business on or before the Closing Date. (d) Any product liability claims relating to products manufactured or sold in the Business on or before the Closing Date. (e) Any claims (including severance claims) relating to the termination of employment of any employee of Seller on or prior to the Closing Date (including any such termination deemed to have occurred upon the transfer of any such employee from Seller to Buyer.) (f) Any claims made by any employee or former employee of Seller who is not employed on or after the Closing Date by Buyer or any Affiliate of Buyer. (g) Except to the extent included in Accounts Payable or Accrued Liabilities on the Closing Date Balance Sheet, the following claims relating to employees or former employees of Seller: (i) All liabilities incurred on or prior to the Closing Date (including medical expenses) resulting from workers' compensation claims brought by employees or former employees of Seller, whether or not such employee or former employee is later employed by Buyer; (ii) all liabilities incurred on or prior to the Closing Date to pay hospitalization, medical or dental expenses of employees or former employees of 9 16 Seller for services performed on or prior to the Closing Date (whether or not such employee or former employee is later employed by Buyer); (iii) All liabilities relating to li): to the Closing Date; (iv) all liabilities incurred on or prior to the Closing Date relating to any employee or former employee who is certified on or prior to the Closing Date as being eligible for long-term disability; (v) liabilities and obligations of Seller as of the Closing Date relating to employee compensation (whether or not an employee or former employee is later employed by Buyer), including any accrued but unearned vacation, and, therefore, not paid by Seller on the Closing Date; (vi) all liabilities resulting from employment-related claims brought by employees or former employees of Seller (whether or not such employee or former employee is later employed by Buyer) if such employment-related claims arise from occurrences or omissions transpiring on or prior to the Closing Date, including, without limitation, claims alleging violations of the following: (1) employment discrimination law; (2) labor law; (3) affirmative action, government contract or contract compliance law; (4) occupational safety or health, safe work place or employee right-to-know law; (5) unemployment compensation law; (6) workers' compensation law; (7) laws (including statutory and case law) prohibiting wrongful discharge of employees, whether based on express or implied contracts, public policy, bad faith, tort, illegal retaliation or other theories; (8) laws governing wage and hour matters; (9) immigration law; (10) common law employment-related tort claims, including, without limitation, defamation, invasion of privacy, intentional infliction of emotional distress, fraud and misrepresentation and negligent hiring; (11) plant closing and mass lay-off laws; (12) laws relating to an employee's right to continued coverage under a group health insurance plan; and (13) ERISA (as hereinafter defined); (vii) post-retirement benefits provided under Seller's benefit plans; and (viii) all liabilities of Seller as of the Closing Date related to the payroll and unemployment compensation taxes of Seller. (ix) Any liability under any employee benefit plan maintained or contributed to by Seller. (h) Any liability of Seller for income taxes, franchise taxes or other liabilities for taxes. 10 17 (i) Any cause of action or judicial or administrative action, suit, proceeding or investigation arising out of the Business and relating to periods prior to the Closing Date. (j) Any and all liability arising out of any governmental compliance, enforcement or regulatory action, suit or claim or any claim by any person or entity arising out of the operation of the Business or the Purchased Assets on or prior to the Closing Date. (k) Any infringement of the rights of any other person or entity arising out of the use of any of the Purchased Assets on or prior to the Closing Date. (l) Any liability or obligation arising out of Seller's breach, nonperformance or defective performance of the Contracts on or prior to the Closing Date. (m) Except to the extent included in Accounts Payable or Accrued Liabilities on the Closing Date Balance Sheet, bank overdrafts and other liabilities to banks for money borrowed. (n) Any amounts due to Messrs. Harrelson and Bullard for royalties, non-compete provisions, employment or consulting contracts, etc. (o) Any liability or obligation arising out of any Seller Party's failure to obtain any certificate of occupancy relating to any Facility. (p) Any liability arising out of agreements relating to Seller's employment of temporary employees, provided, however, that Seller shall not be liable for any amounts arising as a result of Buyer's employment of such temporary employees. (q) Except to the extent included in Accrued Liabilities on the Closing Date Balance Sheet, any liability for commissions, whether accrued or to be paid, arising out transactions by Seller prior to the Closing Date and commissions relating to sales to Aramco Services in connection with purchase orders in process at the Closing Date and shipped thereafter. Section 3.3 Warranty and Interim Period Benefit Plans. (a) Seller represents that in the past, in addition to its written policy concerning warranties, it has provided warranty work on a case-by-case basis, using its business judgment in determining whether such warranty work should be provided, including, without limitation, evaluating the customer involved, the type and cause of warranty work, and the effect of providing or not providing such warranty work upon the Business. For the period during which the existing warranty obligations of Seller are in effect, whether as a result of written policies or Seller's past business practices, if any 11 18 customer of Seller is entitled to, and does, seek warranty work, pursuant to such obligations on any item sold by Seller prior to the Closing Date, Buyer shall provide such warranty work on such item for Seller's account. Buyer shall use its business judgment in determining whether to provide such warranty work, utilizing similar considerations as it would with respect to Inventory manufactured and sold by Buyer after the Closing, as Seller utilized prior to the Closing Date, provided that Buyer shall give written notice prior to performing any such warranty work where the amount to be paid by Seller to Buyer for such work is expected to exceed $5,000. Seller shall pay Buyer for such work an amount equal to the actual out-of-pocket cost (the calculation of which Seller shall have the right to review), including salaries of employees actually performing work, of such work. (b) For the period commencing on the Closing Date and terminating at 12:01 A.M. on January 1, 1996 (the "Interim Period"), Seller, and Dan Can shall make available to all of Buyer's employees who were employed by Seller or Dan Can, as the case may be, prior to the Closing, coverage pursuant to the health, life insurance, dental, major medical and any and all other plans of Seller or Dan Can, as the case may be related to an employee's health benefits (a schedule of which is set forth on Schedule 3.3(b)). Buyer shall reimburse Seller or Dan Can, as the case may be, for the costs of such benefits within 20 business days after receipt of Seller's or Dan Can's invoice for costs incurred in maintaining such benefits for such employees during the Interim Period. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES The Seller Parties represent and warrant to Buyer the following: Section 4.1 Corporate Status and Good Standing. Each of the Seller and Daniel is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, with full corporate power and authority under its charter and by-laws to own and lease its properties and to conduct business as the same exists. Dan Can is validly existing as a partnership under the laws of the Province of Alberta with power and authority (partnership and other) to own and lease its properties and to conduct business as the same exists. Seller is duly qualified to do business as a foreign corporation in all states in which the nature of the Business requires such qualification and the failure to do so would have a material adverse effect on the Purchased Assets. Section 4.2 Authorization. Each of the Seller Parties has full corporate or partnership power and authority under its charter and by-laws, or partnership agreement and its board of directors and shareholders (to the extent required), or, in the case of Dan Can, its partners have taken all necessary action to authorize it, to execute and deliver this Agreement and the exhibits 12 19 and schedules hereto, to consummate the transactions contemplated herein, and to take all actions required to be taken pursuant to the provisions hereof. This Agreement constitutes the valid and binding obligation of each of the Seller Parties enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, moratorium, reorganization or similar laws affecting the rights of creditors generally. Section 4.3 Non-Contravention. Except as set forth on Schedule 4.3, neither the execution and delivery of this Agreement or any documents executed in connection herewith, nor the consummation of the transactions contemplated herein, does or will violate or result in a breach of, or require notice or consent under, any law, the charter or by-laws of any Seller Party or any provision of any agreement or instrument to which any Seller Party is a party. Section 4.4 Validity. There are no pending or threatened judicial or administrative actions, proceedings or investigations which question the validity of this Agreement, or any action taken or contemplated by any Seller Party in connection with this Agreement. Section 4.5 Broker Involvement. Except for Simmons & Company, whose fees will be paid solely by Seller, no Seller Party has hired, retained or dealt with any broker or finder in connection with the transactions contemplated by this Agreement. Section 4.6 Litigation. Except as set forth on Schedule 4.6, there is no investigation, claim or proceeding or litigation of any type pending or, to the best knowledge of the Seller Parties, threatened against the Seller Parties involving any Purchased Asset or that might have a material adverse effect on Seller, Dan Can or Buyer as the owner of any Purchased Asset, and there is no judgment, order, writ, injunction or decree of any court, government or governmental agency, or arbitral tribunal against Seller, Dan Can or that might have a material adverse effect on Seller, Dan Can or Buyer as the owner of any Purchased Asset. Section 4.7 Title. Except as set forth on Schedule 4.7, and for Permitted Liens (as defined below), Seller, Daniel or Dan Can is the true and lawful owner of the Purchased Assets, free and clear of any and all liens, encumbrances, mortgages, options, security interests, restrictions, liabilities, pledges and assignments of any kind, and have the full right to sell and transfer to Buyer good and indefeasible title to the Purchased Assets, free and clear of any and all liens and encumbrances of any nature or description. Except as set forth on Schedule 4.7 and for Permitted Liens, or liens or encumbrances granted or effected by Buyer, the delivery to Buyer of the instruments of transfer of ownership contemplated by this Agreement will vest good and indefeasible title to the Purchased Assets in Buyer, free and clear of all liens and encumbrances of any nature or description. Buyer has heretofore obtained a commitment (the "Title Commitment") for an Owner's Policy of Title Insurance in the form promulgated by the State of Texas covering the Houston Facility, such Title Commitment issued by Chicago Title Insurance Company, 909 Fannin, Suite 100, Houston, Texas (Attention: Janet Karr, 695-1411) together with legible copies of all instruments constituting exceptions and referenced in Schedule B and C of the Title 13 20 Commitment. After the Survey (hereinafter defined) has been obtained, Seller shall cause said Title Commitment to be revised to reflect matters shown on the Survey to evidence the insurer's willingness to delete or limit to the satisfaction of Buyer the standard exception for accuracy of Survey and to commit to insure all easements benefitting the parcels. Seller shall pay the costs for such title insurance commitment, as well as the costs of the Owner's Policy of Title Insurance to be issued on the Closing Date, including the additional premium associated with insuring the accuracy of the Survey. Seller shall, at its expense, furnish Buyer at least two (2) days prior to the Closing Date a current, accurate survey (the "Survey") of the Houston Facility, which Survey shall have been prepared and certified by Bowes & Assoc. Land Surveyors, Inc. as complying with the requirements for Category 1A, Condition II Land Title Survey showing access, the location and dimension of all easements, buildings, improvements, encroachments, if any, together with the legal descriptions of said real estate, certified to Buyer, Seller and Lenders designated by Buyer, and to the title insurance company, and which Survey shall otherwise be reasonably acceptable to Buyer and to the title insurance company in form and substance. Unless otherwise agreed by Seller and Buyer, the metes and bounds description contained in the Survey shall be the legal description contained in the Title Commitment and the documents employed to convey the Houston Facility from Seller to Buyer. Buyer shall have the period from the date on which the Survey is furnished to it until (i) the Closing Date (as the same may be extended from time to time), or (ii) two days thereafter, whichever is the earliest, within which to notify Seller in writing of any objections which Buyer has to any matters shown on Schedule B to the Title Commitment (as the same may be revised following receipt of the Survey) or the Survey. Buyer shall not be required to object to any matters shown on Schedule C to the Title Commitment, it being understood that Buyer has objected to such matters set forth on said Schedule C. In the event that Seller fails, by the Closing Date (as the same may be extended), to cure any objections raised by Buyer, then Buyer shall be permitted, at its option, to (i) waive such objections, (ii) extend the Closing Date and/or extend the time in which Seller may cure such exceptions; provided, however, that in no event shall Seller be required to cure such objections, (iii) cure such objections and deduct the reasonable cost of doing so from the Cash Purchase Price, up to but not to exceed $25,000, or (iv) terminate this Agreement. Any objections waived by Buyer, as well as the standard exceptions, and any matters shown on Schedule B to the Title Commitment which are not objected to by Buyer, are herein collectively called the "Permitted Encumbrances". Section 4.8 Continuity Prior to Closing Date. Except as set forth on Schedule 4.8 or as contemplated by this Agreement, from March 30, 1995 to and including the date hereof, the Seller has not, and as of the Closing Date will not have, conducted the Business otherwise than in the usual and customary manner and in the ordinary course of business, consistent with its past practice, and there has not been: 14 21 (a) except for liens or security interests arising pursuant to after-acquired property provisions of existing loan or security agreements, deeds of trust or mortgages, all of which will be released as of the Closing Date, any sale, lease, distribution, transfer, mortgage, pledge or subjection to lien of Seller's assets, except sales of inventory and obsolete or surplus equipment in the ordinary and usual course of business and the creation of liens for taxes not yet due and payable, materialmen's, mechanic's, workmen's, repairmen's or other like liens ("Permitted Liens") arising against Seller, Dan Can or the Purchased Assets in the ordinary course of business, in each case with respect to obligations or claims which are either not delinquent, except in the case of accounts payable, or are being contested in good faith and by appropriate proceedings conducted with due diligence; (b) any material transaction by Seller not in the ordinary and usual course of business; (c) any damage, destruction or loss to any of the Purchased Assets used in the Business, having a fair market value of $1,000 per item or $25,000 in the aggregate whether or not covered by insurance; (d) a termination, or a threatened termination, or material modification by any third party, in each case not in the ordinary course of business, of the relationship of Seller with any customer or supplier, who accounted for in excess of $25,000 of sales or purchases during Seller's last full fiscal year; (e) any change by Seller in accounting methods or principles or the application thereof or any change in Seller's policies or practices with respect to items affecting working capital; (f) any acceleration of shipments, sales or orders or other similar action or any intercompany transaction not in the ordinary course of business consistent with past practice; (g) any bonus payments, salary increases, commission increases or modifications, the execution of any employment agreement, severance arrangement, consulting arrangement or similar document or agreement, or other changes in employee benefits or other compensation; (h) any waiver by Seller of any rights that, singly or in the aggregate, are material to the Business, the Purchased Assets or the financial condition or results of operations of Seller; (i) any labor strikes, union organizational activities or other similar occurrence; or 15 22 (j) any agreement or commitment by Seller to do or cause to be done any of the foregoing. Section 4.9 Contracts and Commitments. Schedule 4.9 lists all agreements, commitments, contracts, undertakings or understandings not listed on Schedules 2.1(d), 2.1(e) or 2.1(h) to which Seller is a party and which relate to the Purchased Assets, including but not limited to trademark, trade name or patent license agreements, service agreements, lease, purchase or sale agreements, supply agreements, distribution or distributor agreements, purchase orders, customer orders and equipment rental agreements. Seller is not in breach of or default under any agreement, lease, contract or commitment listed in Schedule 2.1(d), 2.1(e), 2.1(h) or 4.9 (collectively, the "Agreements"). Each Agreement is a valid, binding and enforceable agreement of Seller or Dan Can and, to the knowledge of the Seller Parties, except as set forth on Schedule 4.9 or as would not have a material adverse effect on the Purchased Assets or the Business, there has not occurred any breach or default under any Agreement on the part of the other parties thereto, and no event has occurred which with the giving of notice or the lapse of time, or both, would constitute a default under any Agreement. Except as set forth on Schedule 4.9 or as would not have a material adverse effect on the Purchased Assets or the Business, there is no dispute between the parties to any Agreement as to the interpretation thereof or as to whether any party is in breach or default thereunder, and no party to any Agreement has indicated its intention to, or suggested it may evaluate whether to, terminate any Agreement. Seller is not a party to any covenant or obligation of any nature limiting the freedom of Seller to compete in any line of business that would be binding on Buyer after the Closing. Section 4.10 Trademarks, Trade Names and Intellectual Property. Except for the Excluded Assets, Schedule 2.1(g) contains an accurate and complete list of (i) all patents, pending patent applications and invention memoranda of Seller relating to the Business or Purchased Assets, (ii) all registered United States and foreign trademarks, trade names and logos owned or used by Seller in connection with its Business or Purchased Assets, and all registrations thereof, and (iii) all unregistered United States and foreign trademarks, trade names and logos used by Seller in connection with its business or Purchased Assets. Seller has the right to use all trademarks, trade names, logos, patents, pending patent applications and invention memoranda referred to herein. There is no pending or, to the knowledge of the Seller Parties, threatened action or claim that would impair any such right of Seller. Section 4.11 All Assets of Business. The Purchased Assets constitute all assets owned by Seller or used in Seller's Business (other than the Excluded Assets) and are all of the assets needed to operate the Business. All assets and items located on Seller's premises or used in Seller's Business (other than those leased pursuant to the Contracts) are owned by Seller and (other than the Excluded Assets) are being sold pursuant hereto. Section 4.12 Financial Records. The financial statements of Seller as of and for the year ended September 30, 1994, and the financial statements for the year ended September 30, 1995 (such 1995 financial statements being referred to herein as the "Financial Statements") were, except for valuation of Inventory, prepared in accordance with generally accepted 16 23 accounting principles applied on a consistent basis and fairly present the financial condition and results of operations of Seller. Section 4.13 Condition of Fixed Assets and Inventory. Except for the Repairs, each of the Fixed Assets has been maintained in a manner consistent with the prior three year's past practices, is in good operating condition and repair, subject only to normal maintenance requirements and normal wear and tear reasonably expected in the ordinary course of business. Except as set forth on Schedule 4.13, items of Inventory are marketable or in the case of raw materials, supplies and work in process suitable and useable for the production or completion of marketable products, for sale in the ordinary course of business at normal mark-ups, none of such items is below standard quality, each item is reflected in the Financial Statements and such Inventory is valued at the lower of cost or market in accordance with generally accepted accounting principles. Schedule 4.13 sets forth a list of certain inventory (the "Scheduled Inventory"). Seller represents that product classes representing at least $3,000,000 of such Scheduled Inventory has had sales since October 1, 1993, and can be sold in the ordinary course of business for at least the aggregate of the lowest sales price for those products received by Seller during the twelve months ending on the Closing Date (provided, however, if there has not been a sale of a particular product in such twelve-month period, it will be the lowest sales prices for such product since October 1, 1993) except for unforeseen price reductions originating with third parties in the market place, and that the remaining Scheduled Inventory can be sold for at least $500,000. Section 4.14 No Undisclosed Liabilities. Except as set forth on Schedule 4.14, Seller has no material liabilities of any nature, either direct or indirect, matured or unmatured, absolute or contingent, or otherwise, except: (a) those liabilities set forth in the Financial Statements (or set forth in the footnotes thereto) and not heretofore paid or discharged; (b) liabilities arising in the ordinary course of business under any agreement, contract, lease or plan specifically disclosed on any other Schedule or Exhibit or not required to be disclosed hereunder; and (c) those liabilities incurred, consistent with past business practice, in or as a result of the normal and ordinary course of business since September 30, 1995. For purposes of this Section 4.14, the term "liabilities" shall include, without limitation, any direct or indirect indebtedness, guaranty, claim, loss, damage, deficiency, cost, expense, obligation or responsibility, fixed or unfixed, liquidated or unliquidated, secured or unsecured. Section 4.15 Employees and Related Matters. Schedule 4.15 is a complete list of all employees of Seller and employees of Dan Can working out of the Edmonton office and employed in the bolt, gasket and flange business of Dan Can, in each case, listing the title or position held, base salary, most recent salary increase (showing date and amount), any 17 24 commissions or other compensation paid or payable during the fiscal year ended September 30, 1995, and any terms of any oral or written agreement with any Seller Party or any Affiliate thereof. Also set forth on Schedule 4.15 is a list of contract employees of Seller and Dan Can as of the date hereof. Section 4.16 No Material Change. Except to the extent reflected in the Closing Date Balance Sheet, there has been no material adverse change in the Purchased Assets or their value from August 31, 1995 to and including the Closing Date, and no event has occurred of which Seller has knowledge which could be expected to lead to or cause such a material adverse change. Section 4.17 Ownership. Daniel owns all the issued and outstanding capital stock of Seller. Seller has outstanding no options or convertible securities or other rights or instruments evidencing, exchangeable for or entitling the holder thereof to acquire any equity interest in Seller. Section 4.18 Compliance With Law. Except as set forth in Schedule 4.18 or Schedule 4.28 and except to the extent any noncompliance or violation would not have a material adverse effect on Seller or the Purchased Assets: (i) Seller is not in violation of any provision of any law (including any Environmental Law), decree, order, regulation, license, permit, consent, approval, authorization or qualification, including, without limitation, those relating to health, the environment or Hazardous Substances, and Seller has received no notice of any alleged violation of such law, decree, order, regulation, license, permit, consent, approval, authorization or qualification, and (ii) the location, construction, occupancy, operation and use of the Houston Facility and each other Facility does not violate any provision of any law, decree, order, regulation, license, permit, consent, approval, authorization or qualification, or any board of fire underwriters (or other body exercising similar functions), or any restrictive covenant or deed restriction (recorded or otherwise) affecting the Houston Facility and each other Facility including, without limitation, those relating to zoning ordinances, building codes, flood disaster laws, the environment or Hazardous Substances, and Seller has not received any notice of any alleged violation of such law, decree, order, regulation, license, permit, consent, approval, authorization or qualification. Section 4.19 WARN Act Notices. Any notice required under the Federal Workers Adjustment and Retraining Notification Act ("WARN Act") that is, has been, or will be, required of Seller to its employees or former employees by reason of its obligations under the WARN Act resulting from the transactions contemplated by this Agreement or other circumstances existing on or prior to the Closing Date, has been or will be given by Seller. Section 4.20 Government Licenses, Permits and Related Approvals. Schedule 4.20 hereto sets forth a list of all licenses, permits, consents, approvals, authorizations, qualifications, certificates of occupancy and orders of governmental authorities (other than Environmental Permits) required for the conduct of the Business by Seller or the ownership of any Facility, all of which are either in full force and effect or have been applied for. 18 25 Section 4.21 Taxes. Except as set forth on Schedule 4.21, Seller has caused to be timely filed with appropriate federal, state, local and other governmental authorities all tax returns, information returns or statements and reports ("Tax Returns") required to be filed with respect to the Purchased Assets, Seller's operations, or the conduct of the Business, and has paid or caused to be paid all taxes due with respect thereto, except for taxes which Seller is contesting in good faith. Seller has neither received nor has knowledge of any notice of deficiency or assessment or proposed deficiency or assessment with respect to any of the Purchased Assets, Seller's operations, or the conduct of the Business from any taxing authority, and there are no outstanding agreements or waivers that extend any statutory period of limitations applicable to any federal, state or local income or franchise Tax Returns that include or reflect the use and operation of the Purchased Assets, Seller's operations, or the conduct of the Business. There are no assessments against, or to the best knowledge of the Seller Parties, threatened audits of, Seller with respect to taxes that may be asserted against Seller. Seller is not a party to any action or proceeding by any governmental authority for the collection or assessment of taxes. The transactions contemplated hereby qualify as an "occasional sale" under Section 151.304 of the Texas Tax Code. Section 4.22 Backlog. Schedule 4.22 sets forth a complete listing of all sales backlog of the Business as of September 30, 1995, including customers, ordered amounts and values of products and projected shipping dates. Section 4.23 Safety Reports. Schedule 4.23 sets forth a complete listing of all injury reports, worker's compensation reports and claims, safety citations and reports by any governmental agency, OSHA reports and all documents relating to any of the foregoing relating to the Business since January 1, 1994. Section 4.24 Investment Intention. The Seller Parties are acquiring the Notes hereunder for investment, solely for their own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. Section 4.25 Transactions with Certain Persons. Except as set forth on Schedule 4.25, during the period from August 31, 1995 through November 20, 1995, Seller has not, directly or indirectly, purchased, leased or otherwise acquired any property or obtained any services from, or sold, leased or otherwise disposed of any property or furnished any services to (except with respect to remuneration for services rendered as a director, officer or employee of Seller), in the ordinary course of business or otherwise, any Affiliate, hereinafter defined. At the Closing, Seller shall provide a revised Schedule 4.25 for the period from November 20, 1995 through the Closing Date. Seller does not owe any amount to, or have any contract with or commitment to, any of its shareholders, directors, officers, employees or consultants (other than compensation for current services not yet due and payable and reimbursement of expenses (including travel advances) arising in the ordinary course of business not in excess of $5,000 for any single individual), and none of such persons owes any amount to Seller. The term "Affiliate" means, with respect to any natural person, the spouse of such person, the children of such person or such person's spouse, either parent of such person or of such person's spouse, 19 26 and any sibling of such person or such person's spouse, and with respect to any corporation or other legal entity means any director or officer of such corporation or other legal entity, and any other person, corporation or other legal entity directly or indirectly controlling, controlled by, or under common control with, such corporation or other legal entity. For the purpose of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any person, corporation or other legal entity shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, corporation or other legal entity whether through the ownership of voting securities or by contract or otherwise. Section 4.26 Accounts Receivable. The Accounts Receivable of Seller and Dan Can purchased by Buyer are valid and genuine, arise out of bona fide sales and deliveries of goods, performance of services or other business transactions in the ordinary course of business, are owned free and clear and not subject to any lien or encumbrance, and, except to the extent an allowance has been provided for in the Closing Date Balance Sheet, are collectible. Section 4.27 Disclosure. All schedules to this Agreement are complete and accurate. No representation or warranty by any Seller Party in this Agreement or in any Schedule or Exhibit to this Agreement, or in any certificate or other document furnished to Buyer by any Seller Party pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit a material fact necessary to make the statements therein not misleading. Section 4.28 Environmental Laws. (a) Without limiting the scope of Section 4.18 above, except as set forth on Schedule 4.28, which Schedule incorporates by reference the matters disclosed in the Phase I Environmental Site Assessment, Phase II Environmental Site Assessment, and Groundwater Sampling Report prepared by Malcolm Pirnie, Inc. ("Environmental Assessments") and except for matters that would not have a material adverse effect on Seller or the Purchased Assets, neither the Purchased Assets nor the Houston Facility are currently in violation of or subject to (i) any existing, pending or, to the knowledge of Seller, threatened investigation or inquiry by any governmental authority or (ii) any remedial obligations under any Environmental Law and this representation and warranty shall continue to be true and correct following disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances, if any, known by Seller pertaining to the Houston Facility. Without limiting the generality of the preceding sentence and subject to the same qualifications, (i) Seller has obtained and is in compliance with all of the terms and conditions of all Environmental Permits required with respect to the Purchased Assets and (ii) all of the Purchased Assets and the Houston Facility are free of asbestos, PCB's, methylene chloride, trichloroethylene, 1,2-trans-dichloroethylene, dioxins, and dibenzofurans. 20 27 (b) Except as set forth on Schedule 4.28 (which Schedule incorporates the matters disclosed in the Environmental Assessments), and except for matters that would not have a material adverse effect on Seller or the Purchased Assets: (i) There are not present in, on or under any of the Facilities any Hazardous Substances in such form or quantities as to create any liability or obligation under any Environmental Law, or any other liability for either Buyer or Seller. (ii) None of the Facilities is being used, or has ever been used, in connection with the business of manufacturing, storing, transporting, handling, disposing or treating Hazardous Substances, except in compliance with Environmental Law. (iii) There are no unresolved requests, claims, notices, investigations, demands, administrative proceedings, hearings, or litigation, relating in any way to Seller or any of the Facilities, alleging liability under, violation of, or noncompliance with, any Environmental Law or any license, permit or other authorization issued pursuant thereto, nor, to the knowledge of any Seller Party, is any such matter threatened or impending. (iv) There are no judgments, orders, decrees, stipulations, settlement agreements, liens or injunctions, relating in any way to Seller or the Facilities and based in whole or in part on any Environmental Law, which have not been wholly and completely satisfied, complied with, and discharged. (v) All Environmental Permits necessary for the lawful operation of Seller's Business at any of the Facilities are in Seller's possession and are in full force and effect. (vi) Seller is not aware of any threatened or impending expiration, withdrawal, termination, revocation or material change or limitation in any of the Environmental Permits described in paragraph (v) above. (vii) All reports, filings, applications and requests required by any Environmental Law with respect to the Facilities have been duly made. (viii) There are not now, nor, to Seller's knowledge, have there ever been in the past, any underground or above-ground storage tanks on the Facilities which contain or did contain any Hazardous Substances. (ix) None of the Facilities is or, to the knowledge of Seller, ever has been listed on the National Priorities List, the Comprehensive Environmental 21 28 Response, Compensation and Liability Information System (CERCLIS), or any similar federal, state or local list, schedule, log, inventory or database. (x) Seller has made available to Buyer for Buyer's inspection and review all reports, licenses, permits, authorizations, disclosures and other documents which describe the status of any of the Facilities with respect to any Environmental Law. As used in this Agreement, "Environmental Law" means any federal, state, foreign, or local law, statute, ordinance, regulation or rule of common law pertaining to human health, or environmental conditions, including, without limitation (i) the Resource Conservation and Recovery Act, as amended by the Hazardous and Solid Waste Amendments of 1984, ("RCRA") (42 U.S.C. Section 6901 et seq.), (ii) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the SuperFund Amendments and Reauthorization Act of 1986 ("CERCLA") (42 U.S.C. Section 9601 et seq.), (iii) the Clean Water Act (33 U.S.C. Section 1251 et seq.), (iv) the Toxic Substance and Control Act (15 U.S.C. Section 2601 et seq.), (v) the Clean Air Act (42 U.S.C. Section 7401 et seq.), (vi) the Texas Solid Waste Disposal Act (V.T.C.A. Health and Safety Code, Section 361.001 et seq.), and Texas Water Code (V.T.C.A. Water Code Section 26.001 et seq.), (vii) all regulations promulgated under any of the foregoing, and (viii) any other federal, state, local or foreign law (including any common law), statute, regulation, or ordinance regulating, prohibiting, or otherwise restricting the placement, discharge, release, threatened release, generation, treatment, or disposal upon or into any environmental media of any substance, pollutant, or waste which is now or hereafter classified or considered to be hazardous or toxic to human heath or the environment. "Environmental Law" does not include the Occupational Safety and Health Act or any other federal, state, foreign or local law, statute, ordinance, regulation or rules of common law governing worker safety or work place conditions. As used in this Agreement, "Hazardous Substance" means any hazardous or toxic chemical, waste, by-product, pollutant, contaminant, compound, product or substance, the generation, storage, disposal, handling, recycling, release (or threatened release), treatment, discharge, or emission of which is regulated, prohibited or limited under any Environmental Law and shall also include, without limitation, (i) gasoline, diesel fuel, fuel oil, motor oil, waste oil, and any other petroleum hydrocarbon, including any additives or other by-products associated therewith, (ii) asbestos and asbestos containing materials in any form, (iii) polychlorinated biphenyls, (iv) any substance the presence of which on real property (A) requires reporting or remediation under any Environmental Law, (B) causes or threatens to cause a nuisance or poses or threatens to cause a hazard to the health or safety of persons on the property on which such Hazardous Substance is located or on property adjacent thereto or (C) which, if it migrated from the property on which it is located, could constitute a health or safety hazard to persons on adjacent property, (v) radon, and (vi) urea formaldehyde foam insulation. 22 29 Section 4.29 Change in Use. During each of the five (5) preceding calendar years, the Houston Facility has not received the benefit of, nor been subject to, any special assessments, valuations or tax rates resulting in a reduction in ad valorem taxes that may be subject to recoupment following a change in use or ownership of the Houston Facility. Section 4.30 COBRA Notices. Seller has performed or will perform all notice obligations which are COBRA Liabilities and which are required to be performed prior to the Closing Date. Section 4.31 Warranty and Return Obligations. Schedule 4.31 is a true and complete description of Seller's warranty obligations, practices and policies for items sold by Seller prior to Closing and Seller's obligations to take returns of items sold by Seller prior to Closing. Seller has complied with such obligations in all material respects for the past three years. Section 4.32 Product Liability. Except as set forth on Schedule 4.32, Seller has no knowledge of any liability, or any basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against Seller giving rise to any liability arising out of any injury to individuals or property damage as a result of the ownership, possession, or use of any product manufactured, sold, leased, or delivered by the Seller. Section 4.33 Houston Facility; Leases. (a) Schedule 2.1 (i) gives a legal description of the Houston Facility. With respect to the Houston Facility: (i) subject to the Permitted Encumbrances, Daniel has good and indefeasible title to the Houston Facility, free and clear of any Lien (hereinafter defined), except for Permitted Liens, easements, covenants, and other restrictions which do not impair the current use, occupancy, or value, or the marketability of title, of the property subject thereto; (ii) there are no pending or threatened condemnation proceedings, lawsuits, or administrative actions relating to the Houston Facility or other matters affecting adversely the current use, occupancy, or value thereof; (iii) the legal descriptions for the parcels contained in the deeds thereof describe the Houston Facility fully and adequately, the buildings and improvements are located within the boundary lines of the described parcels of land, are not in violation of applicable setback requirements, ordinances, or deed restrictions (and none of the properties or buildings or improvements thereon are subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications), and do not encroach on any easement which may burden the land, and the land does not serve any adjoining property for any purpose inconsistent with the use of the land, and the property is not located 23 30 within any flood plane or subject to any similar type restriction for which any permits or licenses necessary to the use thereof have not been obtained; (iv) except as otherwise provided in Schedule 4.18 or Schedule 4.28, all facilities have received all approvals of governmental authorities (including licenses and permits) required in connection with the ownership or operation thereof and have been operated and maintained in accordance with applicable laws, rules, and regulations; (v) there are no undisclosed leases, subleases, licenses, concessions, or other similar agreements, written or oral, granting to any party or parties the right of use or occupancy of any portion of the Houston Facility; (vi) there are no outstanding options or rights of first refusal to purchase the Houston Facility, or any portion thereof or interest therein; (vii) there are no parties (other than the Seller and its Affiliates) in possession of the Houston Facility; (viii) all facilities located on the Houston Facility are supplied with utilities and other services necessary for the operation of such facilities, including gas, electricity, water, telephone, sanitary sewer, and storm sewer, all of which services are adequate in accordance with all applicable laws, ordinances, rules, and regulations and are provided via public roads or via permanent, irrevocable, appurtenant easements benefitting the Houston Facility; and (ix) each parcel of real property constituting the Houston Facility abuts on and has direct vehicular access to a public road, or has access to a public road via a permanent, irrevocable, appurtenant easement benefitting the parcel of real property, and access to the property is provided by public right-of-way. (b) Schedule 2.1(h) lists and describes briefly all real property leased or subleased to any of the Seller and its Affiliates necessary in the use and operation of the Business. The Seller has delivered to the Buyer correct and complete copies of the leases and subleases listed in Schedule 2.1 (h) (as amended to date). With respect to each lease and sublease listed in Schedule 2.1(h): (i) the lease or sublease is legal, valid, binding, enforceable, and in full force and effect; (ii) the lease or sublease will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby; 24 31 (iii) no party to the lease or sublease is in breach or default, and no event has occurred which, with notice or lapse of time, would constitute a breach or default or permit termination, modification, or acceleration thereunder; (iv) no party to the lease or sublease has repudiated any provision thereof; (v) there are no disputes, oral agreements, or forbearance programs in effect as to the lease or sublease; (vi) with respect to each sublease, the representations and warranties set forth in subsections (i) through (v) above are true and correct with respect to the underlying lease; (vii) none of the Seller and its Affiliates has assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the leasehold or subleasehold; (viii) all facilities leased or subleased thereunder have received all approvals of governmental authorities (including licenses and permits) required in connection with the operation thereof and have been operated and maintained in accordance with applicable laws, rules, and regulations; (ix) all facilities leased or subleased thereunder are supplied with utilities and other services necessary for the operation of said facilities; (x) except as set forth on Schedules 4.7 and 4.14, the owner of the facility leased or subleased has good and indefeasible title to the parcel of real property, free and clear of any Lien, except for installments of special easements not yet delinquent and recorded easements, covenants, and other restrictions which do not impair the current use, occupancy, or value, or the marketability of title, of the property subject thereto; and (xi) prior to the Closing Date Seller will obtain from each lessor of each leased Facility, (i) the written consent of such lessor to assign each such lease to Buyer or Buyer's designated affiliate, and (ii) the written statement of each such lessor that the lease of which it is lessor is in full force and effect, and that the applicable Seller Party is not in default under such lease. As used in this Section, "Lien" means any lien, mortgage, pledge, assignment, security interest, charge, claim, or encumbrance of any kind (including any conditional sale or other title retention agreement to give any security interest) and any option, trust or other preferential arrangement having the practical effect of the foregoing. 25 32 Section 4.34 Future Business. Seller and Daniel agree that for a period of four years subsequent to the Closing they will use their reasonable efforts to purchase, and to require any affiliate of either to acquire, any products required by any such person, that are sold by Buyer as of the Closing Date, at the lowest price offered by Buyer to others. Section 4.35 Certificates of Occupancy. Seller has applied, or will apply prior to the Closing, for all certificates of occupancy relating to each Facility. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER The Buyer represents and warrants to each Seller Party the following: Section 5.1 Corporate Status and Good Standing. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of Texas, with full corporate power and authority under its Charter and by-laws to conduct its business as the same exists on the date hereof and on the Closing Date. Section 5.2 Authorization. The Buyer has full corporate power and authority under its Charter and by-laws, and its board of directors has taken all necessary action to authorize the Buyer, to execute and deliver this Agreement, and the Notes, the Deed of Trust, the Security Agreements, the Subordination Agreement (herein collectively the "Note Documents") and the other exhibits and schedules hereto, to consummate the transactions contemplated herein and to take all actions required to be taken by the Buyer pursuant to the provisions hereof and thereof, and this Agreement, the Notes, the Deed of Trust, the Security Agreements, and the Subordination Agreement, when executed and delivered will constitute the valid and binding obligation of the Buyer enforceable in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, moratorium, reorganization or similar laws affecting the rights of creditors generally. Section 5.3 Non-Contravention. Neither the execution, delivery and performance of this Agreement, the Note Documents or any documents executed in connection herewith or therewith, nor the consummation of the transactions contemplated herein or therein, does or will violate, or result in breach of or require notice or consent under any law, the charter or bylaws of the Buyer, or any provision of any agreement or instrument to which the Buyer is a party. Section 5.4 Validity. There are no pending or threatened judicial or administrative actions, proceedings or investigations which question the validity of this Agreement or the Note Documents or any action taken or contemplated by the Buyer in connection with this Agreement. Section 5.5 Broker Involvement. No investment banker, broker or finder has acted directly or indirectly for Buyer or any Affiliate of Buyer in connection with this Agreement or 26 33 the transactions contemplated hereby. No investment banker, broker, finder or other person is entitled to any brokerage or finder's fee or similar commission in respect thereof based in any way on agreements, arrangements or understandings made by or on behalf of Buyer or any of its Affiliates. Buyer agrees to indemnify and hold Seller and its Affiliates harmless from and against any and all claims, liabilities and obligations with respect to all fees, commissions or expenses asserted by any person on the basis of any act, statement, agreement or commitment alleged to have been made by Buyer or any of its Affiliates with respect to any such fee, expense or commission. ARTICLE VI COVENANTS Section 6.1 Regular Course of Business. From and after the date hereof and until the occurrence of the Closing or the termination of this Agreement, the Seller shall, subject to the terms of this Agreement, carry on its business diligently and substantially in the same manner as it has been carried on for the last twelve months and shall not make or institute any unusual or material change in its methods of manufacture, purchase, sale, management, marketing, accounting, investment of funds, or operations without the prior written consent of Buyer which consent shall not be unreasonably withheld. Unless otherwise consented to in writing by Buyer, which consent shall not be unreasonably withheld, or except as contemplated by this Agreement, the Seller shall: (a) Continue its normal maintenance procedures with respect to its assets; (b) Maintain insurance upon the assets of the Seller with respect to the conduct of the Business in amounts and kinds comparable to that in effect on the date hereof; (c) Use its reasonable efforts to preserve the present business organization of the Seller intact, to keep available the services of the present officers and employees, and to preserve the present relationships of the Seller with customers, suppliers and employees thereof; (d) Maintain the books, accounts, and records of the Seller in the usual, regular, and ordinary manner, on a basis consistent with prior years, endeavor to comply with all laws, rules, and regulations applicable to the Seller and to the conduct of its business, and perform all of the obligations of the Seller without default; (e) Not make any amendment to the Articles of Incorporation or Bylaws of the Seller, enter into any merger or consolidation with any person or entity, or make any sale of the assets of the Seller (except Inventory in the ordinary course of business); 27 34 (f) Not make any change in the number of shares of the capital stock of the Seller issued and outstanding; not grant or issue any option, warrant, call, right, or commitment with respect to such stock; not issue any equity security of any kind; not enter into any agreement of any kind obligating the Seller to issue any shares of its capital stock; and not issue any other securities or evidences of indebtedness convertible into capital stock of the Seller; (g) Not declare, pay, or make any dividend or other distribution or payment in respect of the shares of capital stock of the Seller or redeem any of the shares of its capital stock; (h) Except as required pursuant to existing or proposed contracts or agreements described on Schedule 2.1(d), (i) not make any increase in the compensation payable or to become payable by the Seller to any director, officer, or employee of the Seller, (ii) not make any amendment of any employee benefit plan of the Seller, except as required by law, and (iii) not enter into any employment agreements or other contracts or arrangements with respect to the performance of personal services; (i) Not make any investment of a capital nature outside of the normal and ordinary course of business of the Seller as presently conducted or consistent with past practices; (j) Not enter into any contract or commitment or engage in any transaction which is not in the normal and ordinary course of business of the Seller as presently conducted or consistent with past practices; (k) Use its reasonable efforts not to permit any event to occur which would result in any of the representations or warranties contained in this Agreement not to be true and correct; (l) Not make any material change in any of the Contracts of the Seller except in the normal and ordinary course of business of the Seller as presently conducted or consistent with past practices; (m) Substantially perform all of the obligations of the Seller required to be performed during such period under each of the Contracts and commitments of the Seller; (n) Not borrow any money, incur any liability or indebtedness, or make any payment, except in the normal and ordinary course of business of the Seller as presently conducted or consistent with past practices; 28 35 (o) Not dispose of or contract to dispose of any property of the Seller except in the normal and ordinary course of business of the Seller as presently conducted or consistent with past practices; (p) Not enter into any lease or contract for the purchase or lease of real estate; (q) Not form or cause to be formed any subsidiary of the Seller; (r) Not issue, sell, or purchase any shares of stock, bonds, notes, or other securities; (s) Except in the normal and ordinary course of business of the Seller as presently conducted or consistent with past practices, not pay any obligation or liability other than current liabilities, not waive or compromise any right or claim, and not cancel, without full payment, any note, loan, or other obligation owing to the Seller, or enter into any agreement or commitment to do any of the foregoing; and (t) Not offer, directly or indirectly, the Purchased Assets for sale to any person other than Buyer nor enter into negotiation with any other party for the disposition of the Purchased Assets. Section 6.2 Employees. At the Closing, Seller will pay its employees all amounts due them (including, without limitation, on account of vacation pay and severance), and shall pay all health claims incurred on or before the Closing for such employees when and as the same become due. The provisions of this Agreement are for the benefit of the Buyer only, and no employee of any Seller Party or any other person shall have any rights hereunder. Section 6.3 Notices and Consents. The Seller will give any notices to third parties, and the Seller will use reasonable efforts to obtain any third party consents, that the Buyer may request in connection with the matters referred to in this Agreement. Each of the parties will give any notices to, make any filings with, and use reasonable efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies in connection with the matters referred to in this Agreement. Section 6.4 Third Party Consents. Seller and Buyer shall use their reasonable efforts to obtain the consents of third parties as are necessary for the assignment of the Purchased Assets to Buyer. To the extent that any of the Purchased Assets are not assignable by the terms thereof or consents to the assignment thereof cannot be obtained, such assets shall be held by Seller in trust for Buyer and all benefits and obligations derived thereunder shall be for the account of Buyer; provided that where entitlement of Buyer to those Purchased Assets is not recognized by any third party, Seller shall, at the request of Buyer, enforce in a reasonable manner, for the account of Buyer, any and all rights of Seller against the third party. 29 36 Section 6.5 Further Assistance. Seller shall execute and deliver to Buyer, at Closing or thereafter, any other instrument which may be requested by Buyer and which is reasonably appropriate to perfect or evidence any of the sales, assignments, transfers or conveyances contemplated by this Agreement or to transfer any Purchased Assets identified after Closing. Section 6.6 Tax Returns. Seller shall duly file all tax returns related to taxes of any nature with respect to the Business or the Purchased Assets for all periods ending on or prior to the Closing Date and pay all taxes due with respect to such periods. Seller shall remain responsible for, and pay to Buyer upon receipt of invoice therefor, its pro-rata share of the personal property and real estate taxes shown thereon for 1995 (other than any thereof that are Accrued Liabilities). The parties agree to file an election under Section 167 of the Excise Tax Act (Canada) such that no Goods and Services Tax ("GST") will be payable upon the transfer of the Canadian assets from Dan Can to Purchaser. Section 6.7 Employee Termination; COBRA Matters. On or prior to January 1, 1996, Buyer agrees to secure, for the benefit of employees of Seller and Dan Can who become employees of Buyer on or after the Closing Date, health, life insurance, dental and major medical plans that provide substantially similar benefits as those provided by the Seller's and Dan Can's plans referred to in Section 3.3(b) hereof, which plans of Buyer shall have no exclusion or minimum qualification period for pre-existing conditions. Buyer further agrees to forward copies of such plans or specimen plan documents to Seller on or prior to January 1, 1996. From the Closing Date to January 1, 1996, Buyer will not terminate any of its employees who were employed by Seller or Dan Can immediately prior to the Closing, except for cause and upon prior written notice to Seller. Section 6.8 Transition Employees, etc. For a period of two months following the Closing Date, Seller shall make available to Buyer, at Seller's expense, the services of the employees of Seller listed on Schedule 6.8 hereto (provided that they continue to be employees of Seller or Daniel) during regular business hours, including physical visits by such persons to the Houston Facilities, up to a maximum of 16 hours per week per individual. For a three month period following the Closing Date, Seller agrees to cooperate with Buyer with respect to providing information not included in the Purchased Assets that is required by Buyer to operate the Purchased Assets; provided, however, that any information or assistance requested by Buyer shall be provided by Seller or its employees at Seller's reasonable convenience and shall in no way unreasonably disrupt the ongoing operations of Seller or Daniel or the day-to-day duties of their employees. Buyer shall be entitled to use the assistance of employees and systems of Seller's computer services in Canada for a period not to exceed six months following the Closing Date and will pay in cash to Seller a mutually acceptable fee for such services. In addition, until August 15, 1996, Buyer will be entitled to store Inventory at Seller's leased facility on Jensen Drive, Houston, Texas, at no charge. Section 6.9 Representation Agreements. Seller agrees that on or before the Closing Date, it will give written notice of cancellation of all agency and other representation agreements 30 37 to which it is a party or otherwise bound with respect to sales of its Inventory, except for the agreement relating to the representation of the Seller's products with Mr. Jack Jerry of Jerry Co. Section 6.10 Necessary Certificates. Seller shall be responsible for the costs of obtaining any necessary permit, consent, approval, authorization, qualification, or certificate of occupancy, required for the conduct of the Business by Seller or its ownership or operation of the Business at any Facility. ARTICLE VII INDEMNIFICATION Section 7.1 Seller's Indemnity Obligations. (a) General. Each Seller Party, jointly and severally, shall indemnify and hold Buyer (including its affiliates, controlling persons, officers, directors, shareholders, employees and agents, and their respective heirs, legal representatives, successors and assigns) from and against any and all claims, actions, causes of action, arbitrations, proceedings, losses, damages, liabilities, judgments and expenses (including, without limitation, reasonable attorneys' fees) ("Indemnified Amounts") incurred by Buyer as a result of (1) any error, inaccuracy, breach or misrepresentation in any of the representations and warranties made by any Seller Party in this Agreement, (2) any violation, breach or default by any Seller Party of or under any covenant made or undertaken under the terms of this Agreement, (3) any Retained Liability, (4) any product liability claims with respect to (i) products sold by Seller prior to the Closing Date or (ii) Inventory that has been manufactured, assembled and tested as of the Closing, and (5) any debts, liabilities or obligations of Seller, direct or indirect, fixed, contingent or otherwise, that are not expressly assumed by Buyer in this Agreement; provided, that the Seller Parties, collectively, shall not have any obligation to indemnify Buyer from and against any Indemnified Amounts for matters set forth in clauses (1), (2), (4) or (5) above until Buyer has suffered losses by reason of (i) any such matter in excess of $5,000 or (ii) all such matters in excess of $30,000 (after either of which point the Seller Parties will be obligated to provide indemnification from and against the full amount of Indemnified Amounts). (b) Environmental. The sole indemnity obligation of the Seller Parties with respect to any Environmental Claim or any other matter arising under or related to any Environmental Law is set forth in this Section 7.1(b). (i) Subject to paragraph (iii) below, the Seller Parties, jointly and severally, shall protect, defend, indemnify, and hold harmless Buyer (including its officers, directors, shareholders, agents and employees and their respective heirs, legal representatives, successors and assigns. Buyer and all such other persons and entities being referred to herein individually as an "Indemnitee" and 31 38 collectively as "Indemnitees") from and against all Costs, which at any time may be imposed upon any Facility, the Indemnitees, or any of them, arising out of or in connection with (1) any failure to comply with Requirements of Environmental Law; (2) Environmental Claims; (3) the failure of the Seller Parties, to obtain, maintain, or comply with any Environmental Permit required for operation of any Facility; (4) the failure of the Seller Parties to comply with the terms and provisions of the Environmental Remediation Agreement, in substantially the form attached hereto as Exhibit "B"; and/or (5) any error, inaccuracy, breach or misrepresentation in any of the representations and warranties made by any Seller Party in Section 4.28 of this Agreement. (ii) Without limiting the obligations of the Seller Parties in subparagraph (i), in the event that any investigation, site monitoring, containment, cleanup, removal, restoration or other remedial work of any kind or nature (the "Remedial Work") is necessary or desirable as defined in this Agreement, the Seller Parties shall commence and complete, at the sole cost and expense of Seller Parties, all such Remedial Work in a reasonable, timely and professional manner, consistent with standard industry practices and in compliance with applicable Requirements of Environmental Law. All Remedial Work shall be performed by one or more contractors, approved in advance in writing by Buyer, which approval shall not be withheld unreasonably. Any Indemnitee, at its own cost and expense, shall have the right to monitor or review such Remedial Work. In the event the Seller Parties shall fail to commence, or cause to be commenced, or fail to diligently complete, such Remedial Work, Buyer may, but shall not be required to, cause such Remedial Work to be performed and all Costs shall become an Environmental Claim hereunder. As used herein, Remedial Work shall be deemed "necessary or desirable" if contamination of the soil, groundwater or other affected media by a Hazardous Substance exceeds the concentration or level of such Hazardous Substance which is permitted to remain in the affected media under Risk Reduction Standard Number 2 as promulgated by the Texas Natural Resource Conservation Commission ("TNRCC") (30 Tex. Admin. Code Sections 335.555 through 335.566 and other applicable provisions) as such standard may be modified from time to time unless a different or more stringent standard is imposed by the TNRCC or other governmental authority having jurisdiction over the Remedial Work. However, the use of Risk Reduction Standard Number 2 as a standard under this Agreement for determining that Remedial Work is "necessary or desirable" does not preclude the use of either Risk Reduction Standard Number 1 or Risk Reduction Standard Number 3 for purposes of completing the Remedial Work, provided that Seller Parties shall remain responsible for any and all post closure care, monitoring or engineering controls required by the TNRCC in connection with a Risk Reduction Standard Number 3 closure. 32 39 (iii) Notwithstanding anything to the contrary set forth in this Agreement, the liability of the Seller Parties under this Agreement shall arise only from the matters described in (i) above which occur or are in existence on or prior to the Closing Date or which constitute a failure of the Seller Parties to comply with the terms and provisions of the Environmental Remediation Agreement. (iv) This Indemnification, and all rights and obligations hereunder shall survive (1) the Closing; (2) acquisition of any Facility by Buyer; and (3) transfer of all of Buyer's rights in any Facility. (v) Nothing contained in this Agreement shall prevent or in any way diminish or interfere with any rights or remedies, including, without limitation, the right to contribution, which any Indemnitee may have against the Seller Parties or any other party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (codified at Title 42 U.S.C. Section 9601, et seq.), as it may be amended from time to time, or any other applicable federal, state, foreign or local laws, or the common law, all such rights being hereby expressly reserved. (vi) The obligation of the Seller Parties to indemnify Buyer or any other Indemnitee for environmental matters shall be limited to Costs arising out of or in connection with (a) matters discovered by Buyer in connection with the normal and customary operations of the Business (including without limitation any expansion thereof), (b) matters discovered as a result of environmental assessment activities required by a third party, including any lender of Buyer or (c) a claim or demand by a governmental authority or third party, which claim or demand does not originate or result from the actions of Buyer except as otherwise provided in subsection (a) or (b) hereof. (c) Binding Effect This Indemnification shall run with each of the Facilities and constitute the binding obligation of all parties having a legal ownership interest in any of the Facilities (as distinguished from only an equitable or mortgage interest or any interest of a secured creditor including as an owner). All such parties shall be deemed a Seller under this Agreement. This Agreement or a memorandum thereof, at Indemnitee's option, may be placed of record against any of the Facilities to impart notice of this Agreement to all parties in ownership of any of the Facilities. (d) Liability of Seller. The liability of the Seller Parties under this Agreement shall in no way be limited or impaired by the provisions of any other documents executed in connection with this transaction. In addition, the liability of the Seller Parties under this Agreement shall in no way be limited or impaired by any sale, assignment, or transfer of all or any part of any of the Facilities or any interest therein. 33 40 (e) Waiver. The Seller Parties agree that any payments required to be made hereunder shall become due on demand. The Seller Parties expressly waive and relinquish all rights and remedies accorded by applicable law to indemnitors or guarantors, except any rights of subrogation that the Seller Parties may have, provided that the indemnity provided for hereunder shall neither be contingent upon the existence of any such rights of subrogation nor subject to any claims or defenses whatsoever that may be asserted in connection with the enforcement or attempted enforcement of such subrogation rights, including, without limitation, any claim that such subrogation rights were abrogated by any acts or omissions of Buyer. (f) Definitions. For purposes of this Indemnification, the following terms shall have the following meanings: (i) "Environmental Claim" shall mean a claim, demand, action, cause of action, suit, loss, cost, damage, fine, penalty, expense, liability, judgment, proceeding, or injury asserted or incurred for (1) the presence of Hazardous Substances at, on, under or within any Facility on the Closing Date; (2) any Hazardous Substances at, on, under or within any Facility as of the Closing Date which migrate from any Facility after the Closing Date; (3) the removal, remediation or containment of Hazardous Substances existing on the Closing Date at, on or under or within any Facility or any property located adjacent thereto onto which such Hazardous Substances have migrated from the Facility; and (4) a third party claim for personal injury or property damage arising from or related to the use, release or disposal of Hazardous Substances at any Facility or at an offsite disposal site occurring prior to the Closing Date. (ii) "Environmental Permit" means any permit, license, approval, or other authorization with respect to any activities, operations, or businesses conducted by Seller on or in relation to the Facility under any applicable Environmental Law. (iii) Except as provided in the Environmental Remediation Agreement in substantially the form attached as Exhibit "B", "Costs" shall mean all liabilities, losses, costs, damages, expenses, claims, attorneys' fees, experts' fees, consultants' fees and disbursements of any kind or of any nature whatsoever. For the purposes of this definition, such losses, costs and damages shall include, without limitation, remedial, removal, response, abatement, cleanup, legal, investigative and monitoring costs and related costs, expenses, losses, damages, penalties, fines, obligations, defenses, judgments, suits, proceedings and disbursements. (iv) "Requirements of Environmental Law" means all requirements imposed under Environmental Law. 34 41 Section 7.2 Buyer's Indemnity Obligations. Buyer shall indemnify and hold each Seller Party (including their affiliates, controlling persons, officers, directors, employees or agents) harmless from and against any and all Indemnified Amounts incurred by such Seller Party as a result of (a) any error, inaccuracy, breach or misrepresentation in any of the representations or warranties made by Buyer in this Agreement, the Notes, the Security Agreements or the Deed of Trust, (b) any violation, breach or default by Buyer of or under any covenant made or undertaken by it under the terms of this Agreement, the Notes, the Security Agreements or the Deed of Trust, (c) the presence, remediation or clean-up of, or exposure to, Hazardous Substances relating to or located at, on, within or under the Purchased Assets or any Facility or any failure to comply with Requirements of Environmental Law to the extent that the same is based upon any act or omission of any party except Seller Parties or their contractors or agents occurring after the Closing Date, (d) any Assumed Liabilities or (e) the operation of the Business or the Purchased Assets following the Closing (except to the extent such claim or liability constitutes a Retained Liability or is subject to indemnification by Seller hereunder); provided, that Buyer shall not have any obligation to indemnify the Seller Parties from and against any Indemnified Amounts for matters set forth in clause (a), (b), (c) or (e) above until the Seller Parties shall have, collectively, suffered losses by reason of (i) any such matter in excess of $5,000, or (ii) all such matters in excess of $30,000 (after either of which point the Buyer will be obligated to provide indemnification from and against the full amount of Indemnified Amounts.) Section 7.3 Indemnification Procedures. All claims for indemnification under this Agreement shall be asserted and resolved as follows: (a) A party claiming indemnification under this Agreement (an "Indemnified Party") shall with reasonable promptness (i) notify the party from whom indemnification is sought (the "Indemnifying Party") of any third-party claim or claims asserted against the Indemnified Party ("Third Party Claim") for which indemnification is sought and (ii) transmit to the Indemnifying Party a copy of all papers served with respect to such claim (if any) and a written notice ("Claim Notice") containing a description in reasonable detail of the nature of the Third Party Claim, and the basis of the Indemnified Party's request for indemnification under this Agreement. Within 20 days after receipt of any Claim Notice (the "Election Period"), the Indemnifying Party shall notify the Indemnified Party whether the Indemnifying Party disputes its potential liability to the Indemnified Party with respect to such Third Party Claim. If the Indemnifying Party does not dispute its potential liability to the Indemnified Party within the Election Period, the Indemnified Party shall give the Indemnifying Party an opportunity to control negotiations toward resolution of such claim without the necessity of litigation, and if litigation ensues, to defend the same with counsel reasonably acceptable to the Indemnified Party, at the Indemnifying Party's expense, and the Indemnified Party shall extend reasonable cooperation in connection with such 35 42 defense. The Indemnified Party shall be entitled to participate in, but not to control, the defense of any Third Party Claim resulting in litigation, at its own cost and expense; provided, however, that if the parties to any suit or proceeding shall include the Indemnifying Party as well as the Indemnified Party and the Indemnified Party shall have been advised by counsel that one or more legal defenses may be available to it that may not be available to the Indemnifying Party resulting in a conflict of interest, then the Indemnified Party shall be entitled to participate in the defense of such suit or proceeding along with the Indemnifying Party, but the Indemnifying Party shall be obligated to bear the reasonable fees and expenses of one counsel of the Indemnified Party, which shall be selected by the Indemnified Party and reasonably acceptable to the Indemnifying Party. If the Indemnifying Party does not dispute its potential liability to the Indemnified Party within the Election Period and the Indemnifying Party fails to assume control of the negotiations prior to litigation or to defend such action within a reasonable time, the Indemnified Party shall be entitled, but not obligated, to assume control of such negotiations or defense of such action, and the Indemnifying Party shall be liable to the Indemnified Party for its expenses reasonably incurred or amounts paid in connection therewith. If the Indemnifying Party disputes its potential liability to the Indemnified Party within the Election Period, then the Indemnified Party shall be entitled to assume control of such negotiations or defense of action and the liability for the expense thereof, as well as any liability with respect to such Third Party Claim, shall be determined as provided in Section 7.4 below. Neither the Indemnifying Party nor the Indemnified Party shall settle, compromise, or make any other disposition of any Third Party Claim which would or might result in any liability to the other party under this Article VII without the written consent of such other party. (b) In the event any Indemnified Party should have a claim against any Indemnifying Party hereunder that does not involve a Third Party Claim, the Indemnified Party shall transmit to the Indemnifying Party a written notice (the "Indemnity Notice") describing in reasonable detail the nature of the claim, an estimate of the amount of damages attributable to such claim to the extent feasible (which estimate shall not be conclusive of the final amount of such claim) and the basis of the Indemnified Party's request for indemnification under this Agreement. If the Indemnifying Party does not notify the Indemnified Party within 30 days from its receipt of the Indemnity Notice that the Indemnifying Party disputes such claim, the claim specified by the Indemnified Party in the Indemnity Notice shall be deemed a liability of the Indemnifying Party hereunder. Section 7.4 Arbitration of Disputes. If the Indemnifying Party disputes, either as to the amount or liability, that any claim described in a Claim Notice or an Indemnity Notice, as the case may be, is covered by such Indemnifying Party's covenant to indemnify contained in this Article VII, then the Indemnifying Party and the Indemnified Party agree to promptly negotiate in good faith to resolve their differences and to mutually agree upon an amount (an "Agreed Amount"), if any, owed to Indemnified Party by the Indemnifying Party hereunder. If Indemnifying Party and Indemnified Party fail to agree within 30 days thereafter, the dispute shall be resolved (a "Final Determination") by binding and final arbitration conducted in 36 43 Houston, Texas by three arbitrators in accordance with the rules of commercial arbitration of the American Arbitration Association. Subject to the foregoing, either Party may give notice of arbitration, which notice shall name an arbitrator. Within ten days after the receipt of such notice, the other Party shall name the second arbitrator, or failing to do so, the arbitrator named in such notice shall name the second. The two arbitrators so appointed shall name the third. Notwithstanding the foregoing, if the Parties mutually agree, any dispute subject to arbitration hereunder may be heard and determined by a single arbitrator selected by the Parties. Each arbitrator selected to act hereunder shall be qualified by education and experience to pass on the particular question in dispute. The arbitrators shall promptly hear and determine (after due notice of hearing and giving the Parties a reasonable opportunity to be heard) the question submitted and shall render their decision within 45 days after appointment of the third arbitrator. If within such period a decision is not rendered by the arbitrators, or a majority thereof, new arbitrators may be named and shall act hereunder at the election of either Party. The decision of the arbitrators, or a majority thereof, made in writing, shall be final and binding upon the Parties hereto as to the questions submitted, and the Parties hereto agree to abide by and comply with such decision. Any amount which is described in a Claim Notice which is not disputed by the Indemnifying Party shall be paid promptly (in cash or by offset, if applicable) upon receipt of the Claim Notice by the Indemnifying Party. Section 7.5 General. The rights of the parties to indemnification under this Article VII shall not be limited due to any investigations heretofore or hereafter made by such parties or their representatives. Section 7.6 Right of Offset. Each of the Notes is subject to offset in whole or in part by any amounts due from any Seller Party to Buyer, based on any Final Determination or any non-disputed Claim Notice, in accordance with the terms of this Agreement. Any sale or assignment or other transfer of either of the Notes shall be expressly subject to Buyer's rights of offset, each of such Notes shall bear an appropriate legend referencing Buyer's rights of offset pursuant hereto, and any such buyer, assignee or other transferee of either of the Notes shall execute an agreement satisfactory to Buyer in the exercise of its reasonable judgment agreeing to Buyer's continued right of offset. Section 7.7 Survival of Representations. (a) The representations and warranties of the Seller Parties in Sections 4.1, 4.3, 4.4, 4.6, 4.8, 4.10, 4.11, 4.12, 4.14, 4.15, 4.16, 4.19, 4.20, 4.21, 4.23, 4.24, 4.26, 4.27, 4.30, 4.31, 4.32, and 4.35 shall expire upon the second anniversary of the Closing Date. All other representations and warranties shall survive for the maximum period permitted by applicable law, provided that if a claim has been made with respect to a breach of a representation or warranty prior to the expiration thereof, and such claim has not been finally resolved as of the expiration thereof, such representation or warranty shall survive until the final resolution of such claim. 37 44 (b) The representations and warranties of the Buyer in Sections 5.1, 5.3 and 5.4, shall survive Closing and will expire upon the second anniversary of the Closing Date. All other representations and warranties shall survive for the maximum period permitted by applicable law, provided that if a claim has been made with respect to a breach of a representation or warranty prior to the expiration thereof, and such claim has not been finally resolved as of the expiration thereof, such representation or warranty shall survive until the final resolution of such claim. ARTICLE VIII CONDITIONS PRECEDENT TO CLOSING: TERMINATION Section 8.1 General Conditions Precedent. (a) Conditions to Obligation of Buyer to Close. The obligation of Buyer to effect the closing of the transactions contemplated by this Agreement is subject to the satisfaction prior to or at the Closing of the following conditions: (i) Representations and Warranties. The representations and warranties of each Seller Party under this Agreement shall be true and correct in all material respects as of the Closing Date with the same effect as though made on and as of the Closing Date. (ii) Observance and Performance. Each Seller Party shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed and complied with by either of them prior to or as of the Closing Date. (iii) No Adverse Change. There shall have occurred no material adverse change in the Purchased Assets as a whole or in the Business, financial condition, prospects, operations of the Business or results of operations since September 30, 1995. (iv) Officers' Certificate. Each Seller Party shall have delivered to Buyer a certificate, dated the Closing Date, executed by the President and the senior financial officer of Seller and certifying to the satisfaction of the conditions specified in Sections 8.1(a) (i), (ii), and (iii). (v) Consents of Third Parties. Buyer shall have received duly executed copies of all material consents and agreements necessary to effect the transfer of the Purchased Assets to Buyer. Buyer hereby agrees to use reasonable efforts to assist Seller in obtaining such consents and agreements. 38 45 (vi) Legal Opinion. Buyer shall have received an opinion, dated the Closing Date, from Thomas L. Sivak, counsel to the Seller, to the effect that: (1) Each of the Seller and Daniel is duly organized, validly existing, and in good standing under the laws of the state of their respective incorporation and each has all corporate power to own all of its properties and assets and to carry on its business as it is now being conducted; (2) This Agreement has been duly authorized, executed, and delivered by the Seller and Daniel and constitutes the valid and binding obligation of Seller and Daniel, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and similar laws affecting creditors' rights generally, and the effect of general principles of equity, whether applied by a court of law or equity; (3) To his best knowledge, no order, authorization, consent, or approval of, or registration, declaration, or filing with, any governmental authority is required in connection with the consummation by the Seller, Daniel of the transactions contemplated by this Agreement; (4) The execution, delivery, and performance of this Agreement by the Seller and Daniel and the consummation of the transactions contemplated hereby will not constitute a breach or violation of or default under the Articles of Incorporation or Bylaws of such parties; (5) Upon consummation of the transactions which are the subject of this Agreement in accordance with its terms, Buyer will be vested with good and indefeasible title to all of the Purchased Assets, except the Houston Facility, free and clear of any claims, liens, charges, or encumbrances whatsoever, except such liens created by Buyer as a result of the transactions set forth herein and Permitted Liens; and (6) Such counsel knows of no suit or proceeding pending or threatened against the Seller other than those listed on Schedule 4.6 which would materially and adversely affect the financial condition, business, or operations of the Seller taken as a whole. (vii) Copies of Documents. Buyer shall have received, to the extent reasonably requested by Buyer, copies of all documents and instruments listed in any of the Exhibits or Schedules to this Agreement. (viii) Closing Documents. Buyer shall have received such bills of sale, assignments and other documents of transfer reasonably required to transfer to 39 46 Buyer the interests of Seller in the Purchased Assets and the Business consistent with the terms of this Agreement. (ix) No Legal Actions. No court or governmental authority of competent jurisdiction shall have issued an order, not subsequently vacated, restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement, and no action or proceeding shall have been instituted, which shall not have been subsequently dismissed, seeking to restrain, enjoin or prohibit the consummation of the transactions contemplated by this Agreement or seeking damages in respect thereof. (x) Proceedings and Documents. All corporate and other proceedings and actions taken, and all certificates, opinions, agreements, instruments and documents to be delivered, in connection with the transactions contemplated hereby shall be reasonably satisfactory in form and substance to Buyer and its counsel. (xi) Real Property Matters. The Buyer shall have received the Title Commitment described in Section 4.7, copies of all instruments referred to in the Title Commitment, and shall have been satisfied that the issuer of the Title Commitment has been paid by Seller to issue, and is irrevocably committed to issue, on the policy of Chicago Title Insurance Company, a Texas Standard Form Owner's Title Insurance Policy, dated as of the Closing Date, subject only to the Permitted Encumbrances and taxes for 1995. (xii) Termination of Financing Statements. If requested by Buyer, Seller shall have received properly executed terminations of all financing statements filed by any person as secured party against Seller as debtor. (xiii) Remediation Agreement. Seller and Buyer shall have entered into an Environmental Remediation Agreement in substantially the form attached hereto as Exhibit "B". (xiv) Governmental Approvals. Each party shall have obtained and made all governmental or other authorizations, approvals, consents, waivers and filings, the lack of which prior to the Closing, under any applicable law, rule or regulation (i) would render legally impermissible the purchase hereunder by Buyer, or the sale hereunder by Seller, of the Purchased Assets or (ii) have a material adverse effect on the Purchased Assets or Buyer. 40 47 (b) Conditions to Obligation of Seller to Close. (i) Representations and Warranties. The representations and warranties of Buyer under this Agreement shall be true and correct as of the Closing Date with the same effect as though made on and as of the Closing Date. (ii) Observance and Performance. Buyer shall have performed and complied with all covenants and agreements required by this Agreement to be performed and complied with by it prior to or as of the Closing Date. (iii) Officers' Certificate. Buyer shall have delivered to Seller a certificate, dated the Closing Date, executed by the President and the senior financial officer of Buyer and certifying to the satisfaction of the conditions specified in Sections 8(b)(i) and (ii) hereof. (iv) Legal Opinion. Seller shall have received an opinion, dated the Closing Date, from Winstead Sechrest & Minick P.C., counsel to Buyer, to the effect that: (1) Buyer is duly organized, validly existing, and in good standing under the laws of the State of Texas and has all corporate power to own its properties and to conduct its business as it is now being conducted; (2) This Agreement, the Notes, the Security Agreements, the Deed of Trust and the Subordination Agreement (the "Purchase Documents") have been duly authorized, executed and delivered by Buyer and constitute the valid and binding obligation of Buyer, enforceable against Buyer in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights generally, and the effect of general principles of equity, whether applied by a court of law or equity; (3) To such counsel's knowledge, no order, authorization, consent or approval of, or registration, declaration or filing with, any governmental authority is required in connection with the consummation by Buyer of the transactions contemplated by this Agreement; (4) The execution, delivery and performance by Buyer of the Purchase Documents, the borrowings by Buyer pursuant thereto and the granting of the Liens contemplated thereby, do not violate, result in a breach of, or constitute a default under, the Articles of Incorporation or 41 48 by-laws of Buyer or, to such counsel's knowledge, any agreement to which Buyer is a party; (5) The Security Agreements grant the Seller Parties a valid security interest in the "Collateral" (as defined therein). The filing of Buyer's financing statements in the Office of the Secretary of State of Texas perfects the security interest of the Seller Parties in the Collateral that consists of accounts, general intangibles, inventory, mobile goods and equipment, excluding certificated motor vehicles (as each term is defined in Section 9.105 of the Texas Business and Commerce Code) on the date of the filing of such financing statements; (6) Such counsel knows of no suit or proceeding pending or threatened against or affecting the Buyer which would materially and adversely affect the financial condition, business, or operations of Buyer upon completion of the transactions contemplated by this Agreement. (v) No Legal Actions. No court or governmental authority of competent jurisdiction shall have issued an order, not subsequently vacated, restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement, and no action or proceeding shall have been instituted, which shall not have been subsequently dismissed, seeking to restrain, enjoin or prohibit the consummation of the transactions contemplated by this Agreement or seeking damages in respect thereof. (vi) Governmental Approvals. Each party shall have obtained and made all governmental or other authorizations, approvals, consents, waivers and filings, the lack of which prior to the Closing, under any applicable law, rule or regulation (i) would render legally impermissible the purchase hereunder by Buyer, or the sale hereunder by Seller, of the Purchased Assets or (ii) have a material adverse effect on the Purchased Assets or Seller. (vii) Other Documents and Instruments. Buyer and the other parties thereto shall have executed and delivered to Seller the Notes and the Security Agreements, in substantially the form of each of which is set forth in Exhibit "A" hereto, the Deed of Trust, in substantially the form of which is set forth in Exhibit "C" hereto, the Subordination Agreement in substantially the form of which is set forth in Exhibit "F" hereto and such other financial statements and security documents as may be, in Seller's reasonable opinion, necessary or advisable to effect and perfect Seller's security interest in the Purchased Assets. (viii) Proceedings and Documents. All corporate and other proceedings and actions taken in connection with the transactions contemplated hereby and all certificates, opinions, agreements, instruments and documents mentioned herein 42 49 or incident to any such transaction shall be reasonably satisfactory in form and substance to Seller and its counsel. (ix) Credit Agreements. Buyer and its bank lender shall have entered into a Loan Agreement, in substantially the form set forth in Exhibit "G" hereto. Section 8.2 Reasons for Termination. This Agreement may be terminated and abandoned upon prompt notice to the other party or parties: (a) By mutual written consent of the parties hereto at any time prior to the Closing; (b) By the Buyer if any of the conditions precedent to Buyer's obligations hereunder as provided in Section 8.1(a) hereof have not been satisfied and have not been waived in writing by Buyer, upon written notice of such termination to the Seller; (c) By Seller if any of the conditions precedent to the obligations of the Seller as provided in Section 8.1(b) hereof have not been satisfied on or prior to the Closing Date and have not been waived in writing by Seller, upon written notice of such termination to Buyer. (d) By either Buyer or Seller if the Closing has not occurred on or before December 10, 1995, provided, however, that no party hereto can so terminate this Agreement if the Closing has failed to occur because of a material default hereunder by such party, or if the parties have not received any required governmental approval. . (e) By either Buyer or any Seller Party if any court or governmental agency shall have issued an order, judgment or decree or taken any other action materially challenging, delaying, restraining, enjoining, prohibiting or invalidating the consummation of any of the transactions contemplated herein. Section 8.3 Effect of Termination. In the event this Agreement is terminated pursuant to Section 8.2, all further obligations of the parties hereunder shall terminate, except that the obligations set forth in Section 11.1 and this Article VIII shall survive; provided, however, that if this Agreement is so terminated by one party pursuant to Section 8.2(b) or 8.2(c) because one or more of the conditions to such party's obligations hereunder is not satisfied as a result of the other party's failure to comply with its obligations under any provision of this Agreement, it is expressly agreed and understood that an aggrieved party's right to pursue all legal remedies for breach of contract or otherwise, including, without limitation, damages relating thereto, shall also survive such termination unimpaired. The remedies specifically provided in this Article VIII shall constitute the exclusive remedies under this Agreement or otherwise for any failure to close or for any termination of this Agreement. 43 50 ARTICLE IX ACTIONS TO BE TAKEN AT CLOSING Section 9.1 Actions to be Taken by Seller at the Closing. Seller shall take the following actions and shall deliver to Buyer at the Closing: (a) copies certified by its Secretary of resolutions duly adopted by the boards of directors of each of the Seller and Daniel and the partners of Dan Can, and where required, by the shareholders of Seller, authorizing and approving the execution and delivery of this Agreement, including the Exhibits and Schedules hereto, and the consummation of the transactions contemplated herein. (b) bills of sale, in form and substance satisfactory to Buyer, for all personal property constituting a part of the Purchased Assets; (c) assignments, in form and substance satisfactory to Buyer, of all intangibles constituting a part of the Purchased Assets and all contracts, licenses, appurtenances and other rights of Seller relating to the Facilities; (d) with respect to the Houston Facility, a special warranty deed, a form of which is included as Exhibit "D", subject only to the Permitted Encumbrances hereto; (e) with respect to the Houston Facility, a title policy obtained at Seller's sole cost and expense and in Buyer's name, in the form described in Section 4.7 hereof, dated the Closing Date, in the amount reasonably allocable to such parcel (as determined by Buyer), showing Buyer to be the owner in fee simple subject only to Permitted Encumbrances and other exceptions acceptable to Buyer in Buyer's sole discretion, together with any certificate or affidavits required by the title company issuing the title policy, including, without limiting the foregoing, a certificate of non-foreign status and Seller shall deliver such instruments, documents, payments, indemnities, releases and agreements as the title company shall reasonably require in order to issue said policies and endorsements; (f) such other instrument or instruments of transfer as shall be necessary or appropriate to vest in Buyer good and indefeasible title to the Purchased Assets; (g) such keys, lock and safe combinations, back-up computer files, and other similar items as Buyer shall require to obtain full occupation, possession and control of the Houston Facility and the Purchased Assets; (h) an assignment of Leases covering certain of the Facilities, as set forth on Schedule 2.1(h); 44 51 (i) estoppel certificates and consents in form and substance reasonably satisfactory to Buyer executed by the landlords under each of the Leases and by the other parties to the Contracts to the extent received as of the Closing Date; and (j) Pursuant to Article XII hereof, Seller and Daniel shall execute and deliver a Non-Competition Agreement ("Non-Competition Agreement") with Buyer in form mutually satisfactory to Buyer and Seller. Section 9.2 Actions to be Taken by Buyer at the Closing. The Buyer shall take the following actions at the Closing: (a) The Buyer shall deliver to Seller a copy certified by its Secretary of resolutions duly adopted by its boards of directors authorizing and approving the execution and delivery of this Agreement, the Note Documents and the other exhibits and schedules hereto, the issuance of the Notes, and the consummation of the transactions contemplated herein. (b) Buyer shall make the payment of funds specified for payment at Closing under Section 2.2 above. (c) Buyer shall execute and deliver to Seller the Notes, the Security Agreements, the Deed of Trust, the Subordination Agreement and such other financing statements and security documents as may be, in Seller's reasonable opinion, necessary or advisable to effect and perfect Seller's security interest in the Purchased Assets. Section 9.3 Further Assurances. At and after the Closing, at the request of Buyer, Seller shall deliver such further instruments of transfer and take all commercially reasonable action as may be necessary or appropriate (i) to vest in Buyer good and indefeasible title to the Purchased Assets, and (ii) to transfer to Buyer all licenses, agreements and permits necessary for the operation of the Business, and (iii) to aid and assist Buyer in collecting and reducing to possession any or all of the Purchased Assets (including Accounts Receivable). ARTICLE X COVENANTS OF BUYER The parties hereto acknowledge that, in connection with the transactions contemplated by this Agreement, Buyer will enter into a loan agreement (the "Loan Agreement") and promissory note, security agreement, deed of trust, and subordination agreement in favor of Texas Commerce Bank National Association. Buyer agrees with the Seller Parties that it will fully comply with all covenants and agreements undertaken by Buyer in the Loan Agreement and related agreements, as any of such may be amended, modified, waived or otherwise enforced hereinafter. 45 52 ARTICLE XI GENERAL PROVISIONS Section 11.1 Confidentiality. After the Closing, Seller will not, directly or indirectly, disclose or provide to any other person any non-public information of a confidential nature concerning the Business or the Purchased Assets, except as is required in governmental filings or judicial, administrative or arbitration proceedings; provided that Seller may disclose or provide such information to its agents, accountants and attorneys who need to know such information; and provided, further, that Seller shall be liable for any breach of such confidentiality obligations by any such agent, accountant or attorney. Section 11.2 Expenses. Except as otherwise provided herein, the Buyer and Seller shall pay their own respective expenses, including the fees and disbursements of their respective counsel in connection with the negotiation, preparation and execution of this Agreement and the consummation of the transactions contemplated herein. Buyer shall pay for all filing fees in connection with the transactions contemplated herein. Section 11.3 Entire Agreement. This Agreement, including all schedules and exhibits hereto, constitutes the entire agreement of the parties with respect to the subject matter hereof, and may not be modified, amended or terminated except by a written instrument specifically referring to this Agreement signed by all the parties hereto. Section 11.4 Waivers and Consents. All waivers and consents given hereunder shall be in writing. No waiver by any party hereto of any breach or anticipated breach of any provision hereof by any other party shall be deemed a waiver of any other contemporaneous, preceding or succeeding breach or anticipated breach, whether or not similar. Section 11.5 Notices. Any notice or communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon delivery, if delivered in person or by any expedited delivery service which provides proof of delivery, upon telecopy, facsimile or similar telecommunication or on the third business day after mailing, if mailed by certified or registered mail, postage prepaid, return receipt requested, addressed as follows, or in such other manner or to such other address as any party shall hereafter designate by notice in writing to the other parties hereto, viz: (a) If to Buyer to: DAN-LOC Bolt & Gasket, Inc. 725 N. Drennan Houston, Texas 77003 and 46 53 P.O. Box 292 Houston, Texas 77001-0292 Attn: Russell E. Ginn With copies to: (i) Winstead Sechrest & Minick P.C. 910 Travis, Suite 1700 Houston, Texas 77002 Attn: Arthur S. Berner (ii) CCG Venture Partners, LLC 14450 T.C. Jester Boulevard, Suite 170 Houston, Texas 77014 Attn: Mark E. Leyerle (b) If to any Seller Party, to: Daniel Industries, Inc. 9753 Pine Lake Drive Houston, Texas 77055 Attn: W.A. Griffin III With a copy to: Daniel Industries, Inc. 9753 Pine Lake Drive Houston, Texas 77055 Attn: Thomas L. Sivak Section 11.6 Successors and Assigns. No party to this agreement may assign or delegate any of its rights or obligations under this Agreement or any part hereof without the prior written consent of the non-assigning party. Any assignment or delegation without any consent contemplated by this Section 11.6 shall be void. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective permitted successors, legal representatives and assigns. No third party shall have any rights under any provision hereof. Section 11.7 Compliance with Bulk Sales Laws. Buyer and Seller waive compliance with the requirements of any applicable bulk sales laws of any jurisdiction. Each Seller Party shall indemnify Buyer against any and all liabilities or expenses Buyer may incur as a result of any noncompliance by Seller with any bulk sales laws as they relate to this transaction. Buyer will discharge the liabilities it assumes hereunder. 47 54 Section 11.8 Captions. The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement. Section 11.9 Governing Law; Settlement of Disputes. This Agreement and the other documents delivered pursuant hereto and the legal actions between the parties shall be governed and construed in accordance with the laws of the State of Texas, without giving effect to principles of conflicts of laws. All disputes arising out of this Agreement shall be resolved in accordance with the procedure set forth in Section 7.4 hereof. Section 11.10 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party hereto. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties hereto as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. Section 11.11 Further Assurances. Each party agrees to execute such further instruments or documents as any other party may from time to time reasonably request in order to confirm or carry out the transactions contemplated by this Agreement. Section 11.12 Counterparts. This Agreement may be executed in any number of counterparts, each of which, when so executed, shall be deemed an original but all of which together shall constitute one and the same instrument. ARTICLE XII COVENANTS NOT TO COMPETE Section 12.1 Agreements. (a) Seller and Daniel shall each enter into a Non-Competition Agreement in the form attached as Exhibit "E" hereto. (b) Mr. Pat Bullard shall not compete with Buyer for as long as Bullard is an employee or consultant with or for any of the Seller Parties or their Affiliates. Section 12.2 Relinquishment of Name. From the Closing, the Seller Parties each agree to forever forego conducting business operations under the name of "Daniel Industrial, Inc." and "Daniel Bolt & Gasket, Inc." The Seller Parties also agree that Buyer shall be entitled to 48 55 provide general, and specific notification, that it has acquired certain assets related to the Business of Daniel Industrial, Inc., Daniel Bolt & Gasket, Inc., and the bolt, flange and gasket business of Daniel Bolt & Gasket Ltd. and Daniel Industries Canada. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written. DAN-LOC BOLT & GASKET, INC. By: ______________________________ Name: Russell E. Ginn Title: President DANIEL INDUSTRIES, INC. By: ______________________________ Name: W. A. Griffin, III Title: President DANIEL INDUSTRIAL, INC. By: ______________________________ Name: H. G. Schopfer, III Title: Vice President DANIEL INDUSTRIES CANADA By: Daniel Bolt & Gasket, Ltd. Daniel Flow Products, Ltd. Partners By: ____________________________________ Name: W. A. Griffin, III Authorized Signatory 49 EX-10.6 5 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 1 Exhibit 10.6 DANIEL INDUSTRIES, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ARTICLE 1 PURPOSE The purpose of this Deferred Compensation Plan (the "Plan") is to provide a means whereby Daniel Industries, Inc., a Delaware corporation (the "Company"), may afford additional financial security to a select group of key management employees of the Company who have rendered and continue to render valuable services to the Company, constituting an important contribution towards the Company's continued growth and success, by providing for additional future compensation to such employees so that they may be retained and their productive efforts encouraged. The Plan is intended to qualify for the exemptions under Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") for plans that are unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees 1 2 ARTICLE 2 DEFINITIONS AND CERTAIN PROVISIONS Actual Contribution. "Actual Contribution" means for each Participant, the product of the Participant's Target Contribution multiplied by the Employer Contribution and divided by four times the Target Aggregate Contribution. Age at Enrollment. "Age at Enrollment" means a Participant's age nearest (rounded to the nearest whole number) at the beginning of the first Plan Year for which the Participant is a Participant. Average Compensation. "Average Compensation" means the average of the Participant's Compensation over the most recent 36 Months of Plan Participation, or if a Participant has less than 36 Months of Plan Participation, the average of the Participant's Compensation since the Participant became a Participant. Board. "Board" means the board of directors of the Company. Compensation. "Compensation" means a Participant's cash compensation including base salary and any cash bonus or cash incentive. Calculation of "Compensation" for this Plan shall 2 3 be prior to any reduction for, or deferral to the Company's 401(k) Plan. Declared Rate. "Declared Rate" means with respect to any Plan Year the interest rate used to calculate the amount of interest that will be credited during such Plan Year to a Participant's Deferral Account prior to Retirement. The Declared Rate for each Plan Year shall be determined by the Committee, in its complete and sole discretion, and will be announced on or before January 1 of the applicable Plan Year (except in the initial Plan Year when the Declared Rate shall be 7.5%). Deferral Account. "Deferral Account" means the account maintained on the books of account of the Company for each Participant pursuant to Section 4.2. Eligible Employee. "Eligible Employee" means each of those key management Employees selected by the Company to participate in the Plan. Employee. "Employee" means any person employed by the Employer on a regular full-time salaried basis, including officers of the Employer, other than employees covered by a collective bargaining agreement between the Employer and a union. 3 4 Employer. "Employer" means the Company and any subsidiary or affiliate of the Company. Employer Contribution. "Employer Contribution" means the credit to a Participant's Deferral Account pursuant to Section 4.2. The amount of the Employer Contribution for all Participants shall be determined by the Board, in its complete and sole discretion, and will be announced on or before January 1 of the applicable Plan Year (except in the initial Plan Year when the Employer Contribution shall be $290,046.62). Participant. "Participant" means an Eligible Employee participating in the Plan in accordance with the provisions of Article 4. Plan Year. "Plan Year" means the calendar year, except that the initial Plan Year shall begin July 1, 1995, and end December 31, 1995. Retirement. "Retirement" means the termination of a Participant's employment with the Employer, for reasons other than death or disability, on or after the date as of which the Participant has both attained age 65 and has 10 or more Years of Plan Participation. 4 5 Retirement Rate. "Retirement Rate" means with respect to any Plan Year the rate of interest used to calculate the payments to the Participants whose benefits begin in such Plan Year. The Retirement Rate for each Plan Year shall be the average of the Declared Rate for the ten (10) immediately preceding Plan Years, or the total number of Plan Years if less than ten (10). Target Aggregate Contribution. "Target Aggregate Contribution" means the sum of the Target Contributions for all Participants. Target Contribution. "Target Contribution" means for each Participant, the product of the Participant's Compensation for the calendar quarter and the Participant's Target Percentage. Target Percentage. "Target Percentage" means for each Participant, the Percentage on the attached Schedule A which corresponds to the Participant's Age at Enrollment. Termination. "Termination" means the termination of employment with the Employer for reasons other than Retirement, death, or disability. Vested Percentage. "Vested Percentage" means the percentage to be multiplied by the Deferral Account, such product to be 5 6 used to adjust the value of the Deferral Account upon Termination of the Participant. A Participant's Vested Percentage shall be determined by dividing the Participant's Months of Plan Participation by the number of months from the time the Participant became a Participant until the Participant would have been eligible for Retirement, including the month in which the Participant attains eligibility for Retirement. Months of Plan Participation. "Months of Plan Participation" means the number of consecutive months during which a Participant is employed by the Employer after being designated as a Participant. Years of Plan Participation. "Years of Plan Participation" means the number of consecutive Plan Years during which a Participant is employed by the Employer after being designated as a Participant. ARTICLE 3 ADMINISTRATION OF THE PLAN The Board shall appoint a plan administration committee (the "Committee") composed of not less than three (3) members which shall administer the Plan. Subject to the provisions of the foregoing sentence, the Board may fix or change the number of members of the Committee at any time at its discretion. Each 6 7 member of the Committee shall serve until he resigns, retires or becomes unable to serve due to death or disability, or until he is removed by the Board. The Committee shall establish, adopt, or revise such rules and regulations as it may deem necessary or advisable for the administration of the Plan. All decisions of the Committee shall be by vote of a majority of its members and shall be final and binding unless the Board should determine otherwise. Members of the Committee who are otherwise Eligible Employees shall be eligible to participate in the Plan while serving as a member of the Committee, but a member of the Committee shall not vote or act upon any matter which relates solely to such member as a Participant. ARTICLE 4 PARTICIPATION 4.1 Participation. As soon as practical following adoption of the Plan, the Board shall designate those Employees who shall be Participants in the initial Plan Year. Then, any Eligible Employee will automatically be a Participant in the Plan beginning with the Plan Year following the Participant's designation as an Eligible Employee. Each Participant shall complete an enrollment agreement which shall be in a form prescribed by the Committee. 7 8 4.2 Deferral Account. The Committee shall establish and maintain a separate Deferral Account for each Participant. An amount equal to the Actual Contribution shall be credited by the Employer to the Participant's Deferral Account no later than the last day of each calendar quarter following a Participant's enrollment in the Plan and such Deferral Account shall be debited by the amount of any payments made by the Employer to the Participant or the Participant's beneficiary pursuant to this Plan. 4.3 Pre-Retirement Interest. The Deferral Account of a Participant shall be deemed to bear interest from the date such Deferral Account was established through the date his employment with the Company terminates, at a rate equal to the Declared Rate as in effect from time-to-time. Such interest shall be credited each month at one-twelfth (1/12) of the Declared Rate on the balance in the Participant's Deferral Account as of the beginning of the Plan Year plus the Employer Contributions made to the Participant's Deferral Account during such Plan Year, and prior to the beginning of the month. Interest will be compounded annually. 4.4 Valuation of Accounts. The value of a Deferral Account as of any date shall equal the amounts theretofore credited and debited to such account plus the interest deemed to be earned 8 9 on such account in accordance with Section 4.3 through the day preceding such date. 4.5 Statement of Accounts. The Committee shall submit to each Participant, within a reasonable period of time after the close of each Plan Year, a statement in such form as the Committee deems desirable setting forth the balance standing to the credit of each Participant in his Deferral Account. ARTICLE 5 BENEFITS 5.1 Retirement Benefit. Upon Retirement, the Employer shall pay a Participant's benefits in a lump sum amount, or in equal installments, the amount, timing and duration of which will be determined based upon the retirement option selected by such Participant pursuant to Section 5.2. 5.2 Retirement Option. If no other valid election is made, then following Retirement a Participant shall receive equal monthly payments for 180 months, the present value of which, discounted using the Retirement Rate equals the value of the Participant's Deferral Account upon Retirement. The Participant may elect with respect to the manner of payment of his benefits at Retirement one of the following options, such 9 10 election to be made no later than the first day of the Plan Year preceding the Plan Year in which Retirement occurs: (a) To receive equal monthly payments for a fixed period of not less than one (1) year nor more than twenty (20) years, the present value of which, discounted using the Retirement Rate, equals the value of the Participant's Deferral Account upon Retirement. (b) To receive payment in a lump sum equal to the value of the Participant's Deferral Account upon Retirement. (c) To receive payment in any other manner that is the actuarial equivalent of the value of the Participant's Deferral Account upon Retirement and that is approved by the Committee. 5.3 Termination Benefit. In the event of any termination of a Participant's employment prior to eligibility for Retirement other than by reason of death or disability, the Employer shall maintain a Deferral Account for such terminated Participant in an amount equal to the value of his Deferral Account as of the date of termination multiplied by the Vested Percentage based on the Participant's completed months of Plan Participation, until such Participant would have been eligible to receive a Retirement benefit. During this period, interest will be credited at the rate of sixty percent (60%) of the Declared Rate for each Plan Year following termination until Retirement eligibility is attained. At that time, the Employer 10 11 will pay to the Participant a Retirement benefit as described in Article 5.1. Following termination of employment a Participant shall not be eligible for any other benefits. 5.4 Survivor Benefits. (a) If at the time of his enrollment, a Participant is found to be insurable at rates acceptable to the Company, then: If the Participant dies prior to commencement of payment of any Retirement Benefit under the Plan, the Employer will pay to the Participant's beneficiary, beginning on the first day of the month following the month of death (i) a monthly benefit equal to one hundred percent (100%) of the Participant's monthly Average Compensation at the time of death, payable for twelve (12) months, followed by (ii) a monthly benefit equal to fifty percent (50%) of the Participant's Average Compensation at the time of death, payable for one hundred sixty-eight (168) months. If the present value of the payments determined in this Section 5.4(a), discounted using the Retirement Rate, is less than the Participant's Deferral Account as of the date of the Participant's death, then the amount of such payments shall be increased by the amount necessary to cause the present value of the increased payments, discounted using the Retirement Rate, to equal the value of the Participant's Deferral Account as of the date of the Participant's death. 11 12 (b) If at the time of his enrollment, a Participant is found not to be insurable at a rate acceptable to the Company, then: If the Participant dies prior to commencement of payment of any Retirement Benefit under the Plan, the Employer will pay to the Participant's beneficiary a benefit as if the Participant had been eligible for Retirement and retired on the date of his death. The Participant shall be 100% vested at the time of his death. However, the Board, in its sole discretion, may at any time after the Participant's enrollment choose to extend the Survivor Benefit described in Section 5.4(a) to the Participant. (c) If a Participant dies after the commencement of the payment of any Retirement Benefit under the Plan, the payments, if any to be made to the Participant's beneficiary shall be a continuation of the payments that otherwise would have been made to the Participant. 5.5 Disability. If a Participant is deemed to be disabled pursuant to the Daniel Industries, Inc. Long Term Disability Plan, he will be deemed to have incurred a disability for purposes of this Plan. During any period that a Participant is considered to be disabled, the Committee shall have the discretion to distribute the Participant's vested account balance to the Participant. If the vested account balance is not distrib- 12 13 uted, the Employer shall maintain a Deferral Account for such disabled Participant in an amount equal to the value of his Deferral Account as of the date on which the disability commenced, and such Deferral Account shall continue to be credited with interest in accordance with the provisions of Section 4.3 of the Plan. However, except as herein specifically provided, no Employer Contributions shall be made to a Participant's Deferral Account during any period that such Participant is considered to be disabled. A Participant will cease to be disabled under this Plan, upon the happening of the earliest of the following: (a) the Participant's recovery from disability as determined under the Daniel Industries, Inc. Long Term Disability Plan; (b) the Participant's death; (c) the Participant's attainment of eligibility for Retirement had he been actively employed. If a Participant's disability terminates pursuant to (a) above, the Participant shall be treated as terminating employment with the Employer on the date of his recovery unless within sixty (60) days thereafter he returns to status as an Employee. Upon return to status as an Employee, the Employer 13 14 shall resume crediting to the Deferral Account the Employer's Contribution pursuant to Section 4.2. If a Participant's disability terminates by reason of his death, the rights of his beneficiary shall be determined pursuant to Section 5.4. If the Participant's disability terminates by reason of (c) above, the Participant shall be treated as having retired with respect to the Plan on the date of termination of disability and shall be entitled to a Retirement Benefit determined pursuant to Section 5.1. 5.6 Withholding; Unemployment Taxes. To the extent required by the law in effect at the time payments are made, the Employer shall withhold from payments made hereunder the taxes required to be withheld by the federal or any state or local government. 5.7 Non-vested Benefits. Notwithstanding anything in Article 5 to the contrary, any amount credited to the Participant's Deferral Account which is not vested pursuant to the provisions of the Plan at the date a Participant's employment is terminated, for a reason other than Retirement, death or disability, shall be forfeited. 14 15 ARTICLE 6 BENEFICIARY DESIGNATION Each Participant shall have the right, at any time, to designate any person or persons as his beneficiary or beneficiaries to whom payment under this Plan shall be paid in the event of his death prior to complete distribution to the Participant of the benefits due him under the Plan. Each beneficiary designation shall become effective only when filed in writing with the Committee during the Participant's lifetime on a form prescribed by the Committee. The filing of a new beneficiary designation form will cancel all beneficiary designations previously filed. Any finalized divorce or marriage (other than a common law marriage) of a Participant subsequent to the date of filing of a beneficiary designation form shall revoke such designation. The spouse of a married Participant domiciled in community property jurisdiction shall join in any designation of beneficiary or beneficiaries other than the spouse. If a Participant fails to designate a beneficiary as provided above, or if his beneficiary designation is revoked by marriage, divorce, or otherwise without execution of a new designation, or if all designated beneficiaries predecease the Participant, then in the event of the Participant's death prior 15 16 to the complete distribution of the benefits due him under the Plan, the Committee shall direct the distribution of such benefits to the Participant's spouse, if living, or if not, the executor, administrator or other personal representative of the Participant's estate. If any beneficiary who is receiving benefits under the terms of the Plan dies prior to receiving all of the benefits due him, then any remaining benefits due him shall be paid to his estate. Notwithstanding any provision of this Plan to the contrary, any beneficiary designation may be changed by a Participant by the written filing of such change on a form prescribed by the Committee. ARTICLE 7 AMENDMENT AND TERMINATION OF PLAN 7.1 Amendment. The Board, in its discretion, may at any time amend the Plan in whole or in part, provided, however, that no amendment shall be effective to decrease the benefits then in pay status under the Plan as of the date of such amendment or if not in pay status, to less than the Termination Benefit, pursuant to Section 5.3, as of such date. Written 16 17 notice of any amendment shall be given each Employee then participating in the Plan. 7.2 Termination. (a) Employer's Right to Terminate. The Board may, in its discretion, at any time terminate the Plan. (b) Payments Upon Termination. Upon any termination of the Plan under this Section 7.2, the Participants who are not receiving benefit payments under the Plan will be deemed to have terminated employment for purposes of the Plan as of the date of such termination. The Employer will pay to each such Participant in one lump sum the Participant's Vested Percentage of the value of the Participant's Deferral Ac count, determined as if such Participant had terminated employment on the date of termination of the Plan (except that the Vested Percentage of a Participant who is eligible for Retirement or who is disabled shall be 100%). In the case, however, of Participants or their beneficiaries who are receiving benefit payments under the Plan on the date of any termination of the Plan, the Committee, in its sole discretion, shall have the option of either (1) continuing the unpaid installments to the Participants or their beneficiaries as though the Plan had not been terminated or (2) making a lump sum payment to each Participant or his beneficiary that is the actuarial equivalent of the unpaid installments due such Participant or beneficiary. 17 18 ARTICLE 8 MISCELLANEOUS 8.1 Unsecured General Creditor. Participants and their beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, interest, or claims in any property or assets of the Employer, and shall be unsecured general creditors of the Employer with respect to amounts claimed under the Plan. Any and all of the Employer's assets shall be, and remain, the general unpledged, unrestricted assets of the Employer. The Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Employer to pay money in the future. 8.2 Obligations to Employer. If a Participant becomes entitled to a distribution of benefits under the Plan, and if at such time the Participant has outstanding any debt, obligation, or other liability representing an amount owing to the Employer, then the Employer may offset such amount owing it against the amount of benefits otherwise distributable. Such determination shall be made by the Committee. 8.3 Nonassignability. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, 18 19 hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 8.4 Employment Not Guaranteed. Nothing contained in this Plan nor any action taken hereunder shall be construed as a contract of employment or as giving any Employee any right to be retained in the employ of the Employer. 8.5 Protective Provisions. A Participant will cooperate with the Employer by furnishing any and all information requested by the Employer, in order to facilitate the payment of benefits hereunder, taking such physical examinations as the Employer may deem necessary and taking such other relevant action as may be requested by the Employer. If a Participant refuses to so cooperate, the Committee shall have no further obligation to the Participant under the Plan. If a Participant commits suicide during the two (2) year period beginning on the later of (a) the effective date of this Plan or (b) the first day of the first Plan Year of such Participant's participation 19 20 in the Plan, or if the Participant makes any material misstatement of information or nondisclosure of medical history, then no benefits will be payable hereunder to such Participant or his beneficiary. However, in the Committee's sole discretion, benefits may be payable in reduced amount. 8.6 Gender, Singular and Plural. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person or persons may require. As the context may require, the singular may be read as the plural and the plural as the singular. 8.7 Captions. The captions of the articles, sections, and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 8.8 Validity. In the event any provision of this Plan is held invalid, void, or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan. 8.9 Notice. Any notice or filing required or permitted to be given to the Committee under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the principal office of the Employer, 20 21 directed to the attention of the President of the Employer. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or receipt for registration or certification. 8.10 Arbitration. Any controversy or claim arising out of or relating to the Plan, or the breach thereof, shall be settled by arbitration in accordance with the rules of the American Arbitration Association, and judgment on the award rendered may be entered in any court having jurisdiction thereof. 8.11 Applicable Law. This Plan shall be governed and construed in accordance with the laws of the State of Texas. 8.12 Claims Procedure. If a Participant believes that he has not received all benefits to which he is entitled under the Plan, he may make a claim for such benefits by filing a written claim with the Committee. The Committee will respond to the claim within a reasonable period of time, but not later than ninety days after the claim is filed (or one hundred eighty days if special circumstances cause a delay). If the claim is denied or reduced for any reason, the Committee will notify the claimant in writing, setting forth the specific reasons for denial or reduction of the claim, and any additional information which is necessary to perfect the claim. The notification 21 22 will also inform the claimant as to the steps necessary to submit the claim for further review. Any claim for review must be submitted within sixty days after receipt of the written notification. A claimant must be given the opportunity for a full hearing and review. The Committee must render a decision in writing within sixty days (or one hundred twenty days if special circumstances cause a delay) after the hearing or request for a review. Executed this _____ day of ___________________, 1995. Daniel Industries, Inc. by: ----------------------------------- 22 23 Schedule A
Age at Enrollment Target Percentage 35 9.04% 36 9.53% 37 10.06% 38 10.64% 39 11.26% 40 11.93% 41 12.66% 42 13.46% 43 14.34% 44 15.30% 45 16.36% 46 17.54% 47 18.86% 48 20.34% 49 20.98% 50 23.80% 51 26.63% 52 29.45% 53 32.28% 54 35.10% 55 and older 37.93%
23 EX-10.7 6 CONSULTING AGREEMENT - RALPH H. CLEMONS, JR. 1 EXHIBIT 10.7 WRITTEN DESCRIPTION OF CONSULTING AGREEMENT BETWEEN THE COMPANY AND R. H. CLEMONS, JR. Effective July 1, 1994, R. H. Clemons, Jr. entered into a two-year Consulting Agreement with the Company under which he provides services primarily in the area of product development and marketing. Under the Consulting Agreement, the Company pays Mr. Clemons, Jr. a fee of $85,000 per year and reimburses him for certain expenses. EX-10.8 7 CONSULTING AGREEMENT - W. A. GRIFFIN 1 EXHIBIT 10.8 WRITTEN DESCRIPTION OF CONSULTING AGREEMENT BETWEEN THE COMPANY AND W. A. GRIFFIN Effective February 3, 1995, W. A. Griffin entered into a two-year Consulting Agreement with the Company under which he provides services and advice on business matters as requested by the Chief Executive Officer. Under the Consulting Agreement the Company pays a fee of $135,000 per year and reimburses him for certain expenses. EX-10.9 8 KEY EMPLOYEE'S INCENTIVE COMPENSATION PLAN 1 EXHIBIT 10.9 DANIEL INDUSTRIES, INC. KEY EMPLOYEES' INCENTIVE COMPENSATION PLAN Incentive compensation in the form of cash bonuses and stock options is generally linked to the achievement of key financial and operational objectives by the Company, but amounts awarded for any fiscal year are not based on the application of any formula. The Board of Directors recently approved the Stock Award Plan pursuant to which awards of Company Common Stock, with limitations on vesting and transferability, may be awarded in lieu of a portion of the cash bonus. EX-21 9 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY --------------------------- Jurisdiction of Name of Subsidiary Incorporation ------------------ --------------- Daniel Bolt and Gasket, Ltd. Canada Daniel de Mexico, S.A. Mexico Daniel En-Fab Systems, Inc. Delaware Daniel Flow Products, Inc. Delaware Daniel Flow Products, Ltd. Canada Daniel Industrial, Inc. Delaware Daniel Industries Foreign Sales Corporation U.S. Virgin Islands Daniel Industries Limited United Kingdom Daniel Messtechnik GmbH Babelsberg Germany Daniel Valve Company Delaware Danmasa, S.A. de C.V. Mexico EX-23 10 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in (i) the Registration Statement on Form S-8 (SEC File No. 2- 65288), (ii) the Registration Statement on Form S-8 (SEC File No. 2-79399), (iii) the Registration Statement on Form S-8 (SEC File No. 2-79660), (iv) the Registration Statement on Form S-8 (SEC File No. 33-000162) and (v) the Registration Statement on Form S-8 (SEC File No. 33-63063), including all Post-Effective Amendments thereto filed prior to the date of this consent, of Daniel Industries, Inc. of our report dated November 21, 1995, appearing on page 18 of this Annual Report on Form 10-K. PRICE WATERHOUSE LLP Houston, Texas December 14, 1995 EX-27 11 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. EXHIBIT 27
5 000026821 DANIEL INDUSTRIES 1000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 3,895 0 34,905 98 35,889 108,779 52,677 0 164,468 43,393 0 15,104 0 0 94,216 164,468 168,560 168,560 105,524 105,524 79,525 0 2,028 (18,515) (5,723) (12,792) 0 0 0 (12,792) (1.06) (1.06) Amount is comprised of restructuring and other charges, losses on divestitures of non-core assets, depreciation and amortization, and research and development expenses.
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