<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1996
REGISTRATION NUMBER 333-14635
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DANIEL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 3824 74-1547355
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
9753 PINE LAKE DRIVE
HOUSTON, TEXAS 77055
(713) 467-6000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
JAMES M. TIDWELL
VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER
DANIEL INDUSTRIES, INC.
9753 PINE LAKE DRIVE
HOUSTON, TEXAS 77055
(713) 467-6000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Charles H. Still
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
(713) 651-5151
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: Upon consummation of the Merger described herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PER UNIT (2) PRICE (2) FEE
- ----------------------------------------------------------------------------------------------------------------------------
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Common Stock, $1.25 par value . . . . . . . . 5,023,633 Not Applicable $61,712,724 $18,701
============================================================================================================================
</TABLE>
(1) Represents the maximum number of shares of Common Stock issuable upon
consummation of the Merger described herein and includes related
preferred share purchase rights.
(2) Pursuant to Rule 457(f) under the Securities Act of 1933, the proposed
maximum offering price is calculated as $61,712,724 (representing
8,661,435 shares of Bettis Corporation common stock, $.01 par value,
multiplied by $7.125, which is the average of the high and low sale
price for such stock on October 18, 1996)
(3) Of such filing fee, $18,319 has been paid, leaving a net fee of $382
paid herewith.
--------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
DANIEL INDUSTRIES, INC.
Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K
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ITEM OF FORM S-4 LOCATION IN THE PROSPECTUS
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1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus . . . . . . . . . . . Cover of Registration Statement; Cross Reference
Sheet; Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus . . . . . . . . . . . . . . . . . . . . . Inside Front Cover Page of Prospectus; Available
Information; Table of Contents; Incorporation of
Certain Documents by Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information . . . . . . . . . . . . . . . . Summary
4. Terms of the Transaction . . . . . . . . . . . . . . The Merger; Terms of the Merger; Comparative
Rights of Stockholders of Daniel and Bettis
5. Pro Forma Financial Information . . . . . . . . . . . Unaudited Pro Forma Financial Information
6. Material Contacts with the Company Being Acquired . . Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters . . . . Not Applicable
8. Interests of Named Experts and Counsel . . . . . . . Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities . . . Not Applicable
10. Information with Respect to S-3 Registrants . . . . . Management's Discussion and Analysis of Financial
Condition and Results of Operations--Daniel;
Description of Business--Daniel
11. Incorporation of Certain Information by Reference . . Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or S-3 Registrants . Not Applicable
13. Incorporation of Certain Information by Reference . . Not Applicable
14. Information with Respect to Registrants Other Than
S-3 or S-2 Registrants . . . . . . . . . . . . . . . Not Applicable
15. Information with Respect to S-3 Companies . . . . . . Not Applicable
</TABLE>
<PAGE> 3
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16. Information with Respect to S-2 or S-3 Companies . . Not Applicable
17. Information with Respect to Companies Other Than
S-3 or S-2 Companies . . . . . . . . . . . . . . . . Bettis Selected Financial Information;
Management's Discussion and Analysis of Financial
Condition and Results of Operations--Bettis;
Market Price of Common Stock and Dividend
Information; Description of Business--Bettis;
Bettis Corporation Financial Statements
18. Information if Proxies, Consents or Authorizations
are to be Solicited . . . . . . . . . . . . . . . . Incorporation of Certain Documents by Reference;
General Information About the Meetings; The
Merger--Interests of Certain Persons in the
Merger; Management; Executive Compensation and
Other Information of Bettis
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer . . Not Applicable
</TABLE>
<PAGE> 4
[Daniel Letterhead]
November 6, 1996
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders
(the "Special Meeting") of Daniel Industries, Inc. ("Daniel") to be held at
2:00 p.m. on Thursday, December 12, 1996, at The Ritz Carlton Hotel, 1919
Briar Oaks Lane, Houston, Texas.
At the Special Meeting, you will be asked to consider and vote upon
the approval of an Agreement and Plan of Merger (the "Merger Agreement") and
the business combination of Bettis Corporation ("Bettis") and Daniel through a
merger of a wholly-owned subsidiary of Daniel with and into Bettis (the
"Merger"), as provided in the Merger Agreement. The Merger Agreement provides
that, upon completion of the Merger, each outstanding share of Bettis common
stock will be converted into .58 of a share of Daniel common stock. After the
Merger, Bettis will be a wholly-owned subsidiary of Daniel. At the Special
Meeting, you will also be asked to approve an amendment to Daniel's Certificate
of Incorporation to increase the number of authorized shares of Daniel's common
stock to 40,000,000.
A summary of the basic terms and conditions of the Merger, certain
financial and other information relating to Daniel and Bettis and a copy of the
Merger Agreement are set forth in the enclosed Joint Proxy
Statement/Prospectus. Please review and consider the enclosed materials
carefully. In connection with its approval of the Merger on September 16,
1996, the Board of Directors received and took into account the opinion of
Simmons & Company International ("Simmons"), an investment banking firm
retained by Daniel, that, as of that date, the common stock exchange ratio of
.58 was fair to the stockholders of Daniel from a financial point of view.
Simmons subsequently delivered its written opinion updated as of the date of
the Joint Proxy Statement/Prospectus that, as of that date, the exchange ratio
was fair to the stockholders of Daniel from a financial point of view. A copy
of the Simmons opinion is included in the accompanying Joint Proxy
Statement/Prospectus as Appendix B.
The Board of Directors has approved the Merger Agreement and the
related transactions. THE BOARD OF DIRECTORS AND MANAGEMENT BELIEVE THAT THE
PROPOSED MERGER IS IN THE BEST INTERESTS OF DANIEL AND THE STOCKHOLDERS OF
DANIEL AND UNANIMOUSLY RECOMMEND THAT YOU VOTE FOR ITS APPROVAL. THE BOARD OF
DIRECTORS ALSO RECOMMENDS THAT YOU VOTE FOR THE AMENDMENT TO THE CERTIFICATE OF
INCORPORATION.
The Board of Directors appreciates and encourages stockholder
participation in Daniel's affairs. WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING, IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED.
ACCORDINGLY, WE ASK THAT YOU MARK, DATE, SIGN AND RETURN YOUR PROXY AT YOUR
EARLIEST CONVENIENCE IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. If you have multiple stockholder accounts and
receive more than one set of these materials, please be sure to vote each proxy
and return it in the respective postage-paid envelope provided.
If you have any questions regarding the proposed Merger, please feel
free to contact Daniel's Investor Relations Department at (713) 467-6000.
Thank you for your continued interest and cooperation.
Very truly yours,
W. A. Griffin, III
---------------------------------------
President and Chief Executive Officer
<PAGE> 5
[DANIEL INDUSTRIES LOGO]
DANIEL INDUSTRIES, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Notice is hereby given that a Special Meeting of Stockholders of
Daniel Industries, Inc. ("Daniel") will be held at 2:00 p.m. on Thursday,
December 12, 1996, at The Ritz Carlton Hotel, 1919 Briar Oaks Lane, Houston,
Texas, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated September 17, 1996 (the
"Merger Agreement") among Daniel, Blue Acquisition, Inc., a
wholly-owned subsidiary of Daniel ("Sub"), and Bettis
Corporation ("Bettis"), providing for the merger of Sub with
and into Bettis and pursuant to which each outstanding share
of Bettis common stock, $.01 par value, will be converted into
the right to receive .58 of a share of Daniel's common stock,
$1.25 par value ("Common Stock");
2. To consider and vote upon a proposal to approve an amendment
to Daniel's Certificate of Incorporation to increase the
number of authorized shares of Common Stock to 40,000,000; and
3. To consider and take action upon any other matter that may
properly come before the Special Meeting, or any adjournment
or postponement thereof.
Holders of record of Common Stock at the close of business on
November 5, 1996 will be entitled to notice of, and to vote at, the Special
Meeting or any adjournment or postponement thereof. A list of the holders of
record of Common Stock as of November 5, 1996 will be available at Daniel's
offices at 9753 Pine Lake Drive, Houston, Texas, during ordinary business
hours, after December 2, 1996 for the examination by any such stockholder
for any purpose germane to the Special Meeting.
By order of the Board of Directors,
MICHAEL R. YELLIN
Secretary
November 6, 1996
IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
EVEN IF YOU PLAN TO BE PRESENT, YOU ARE URGED TO MARK, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE IN THE ENVELOPE PROVIDED, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL
MEETING, YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY.
<PAGE> 6
[Bettis Letterhead]
November 6, 1996
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders
(the "Special Meeting") of Bettis Corporation ("Bettis") to be held at 9:00
a.m. on Thursday, December 12, 1996, at the Omni Houston Hotel, Four Riverway,
Houston, Texas.
At the Special Meeting, you will be asked to consider and vote upon
the approval of an Agreement and Plan of Merger (the "Merger Agreement") and
the business combination of Bettis and Daniel Industries, Inc. ("Daniel")
through a merger of a wholly-owned subsidiary of Daniel with and into Bettis
(the "Merger"), as provided in the Merger Agreement. The Merger Agreement
provides that, upon completion of the Merger, each outstanding share of Bettis
common stock will be converted into .58 of a share of Daniel common stock.
After the Merger, Bettis will be a wholly-owned subsidiary of Daniel.
A summary of the basic terms and conditions of the Merger, certain
financial and other information relating to Daniel and Bettis and a copy of the
Merger Agreement are set forth in the enclosed Joint Proxy Statement/Prospectus.
Please review and consider the enclosed materials carefully. In connection with
its approval of the Merger on September 16, 1996, the Board of Directors
received and took into account the opinion of Jefferies & Company, Inc.
("Jefferies"), an investment banking firm retained by Bettis, that, as of that
date, the common stock exchange ratio of .58 was fair to the stockholders of
Bettis from a financial point of view. Jefferies subsequently delivered its
written opinion updated as of the date of the Joint Proxy Statement/Prospectus
that, as of that date, the exchange ratio was fair to the stockholders of Bettis
from a financial point of view. A copy of the Jefferies opinion is included in
the accompanying Joint Proxy Statement/Prospectus as Appendix C.
The Board of Directors has approved the Merger Agreement and the
related transactions. THE BOARD OF DIRECTORS AND MANAGEMENT BELIEVE THAT THE
PROPOSED MERGER IS IN THE BEST INTERESTS OF BETTIS AND THE STOCKHOLDERS OF
BETTIS AND UNANIMOUSLY RECOMMEND THAT YOU VOTE FOR ITS APPROVAL.
The Board of Directors appreciates and encourages stockholder
participation in Bettis' affairs. WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING, IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED.
ACCORDINGLY, WE ASK THAT YOU MARK, DATE, SIGN AND RETURN YOUR PROXY AT YOUR
EARLIEST CONVENIENCE IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. If you have multiple stockholder accounts and
receive more than one set of these materials, please be sure to vote each proxy
and return it in the respective postage-paid envelope provided.
If you have any questions regarding the proposed Merger, please feel
free to contact Wilfred M. Krenek, Secretary, at (713) 463-5100.
Thank you for your continued interest and cooperation.
Very truly yours,
W. Todd Bratton
President
<PAGE> 7
[LOGO]
BETTIS CORPORATION
18703 GH CIRCLE
WALLER, TEXAS 77484
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 12, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
of Bettis Corporation ("Bettis"), a Delaware corporation, on December 12, 1996.
The meeting will be held at the Omni Houston Hotel, Four Riverway, Houston,
Texas at 9:00 a.m., Houston time. As described in the accompanying Joint Proxy
Statement/Prospectus, the meeting will be held for the following purposes:
1. To consider and vote upon a proposal to approve and
adopt an Agreement and Plan of Merger dated as of September 17, 1996,
(the "Merger Agreement") by and among Daniel Industries, Inc.
("Daniel"), Blue Acquisition, Inc. ("Sub"), a wholly-owned subsidiary
of Daniel, and Bettis, pursuant to which, among other things, (a) Sub
would be merged with and into Bettis (the "Merger"), and (b) each
issued and outstanding share of Bettis common stock (other than shares
held directly or indirectly by Daniel, Sub or Bettis) would be
converted into the right to receive .58 of a share of Daniel common
stock, all as more fully described in the accompanying Joint Proxy
Statement/Prospectus and the Merger Agreement, a copy of which is
attached as Appendix A.
2. To transact such other business as may properly come
before the meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on November 5,
1996, as the record date for the determination of stockholders entitled to
receive notice of and to vote at the meeting or any adjournment or postponement
thereof. A complete list of such stockholders will be available for
examination at the meeting and at the office of Bettis for the ten days prior
to the meeting.
THE BOARD OF DIRECTORS OF BETTIS HAS CAREFULLY CONSIDERED THE TERMS OF
THE PROPOSED MERGER AGREEMENT AND THE MERGER AND BELIEVES THAT THE MERGER IS
FAIR TO, AND IN THE BEST INTERESTS OF, BETTIS AND ITS STOCKHOLDERS. THE BOARD
OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE MERGER.
November 6, 1996 By Order of the Board of Directors
Wilfred Krenek
Secretary
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING
REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. PLEASE PROMPTLY COMPLETE, SIGN
AND MAIL THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE, WHETHER OR NOT YOU
INTEND TO BE PRESENT AT THE SPECIAL MEETING. THE PROXY IS REVOCABLE AT ANY
TIME PRIOR TO ITS USE AT THE SPECIAL MEETING.
YOU SHOULD NOT RETURN CERTIFICATES FOR BETTIS COMMON STOCK WITH THE
ENCLOSED PROXY. YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES UNTIL YOU HAVE
RECEIVED A LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
<PAGE> 8
[LOGO] [LOGO]
DANIEL INDUSTRIES, INC. BETTIS CORPORATION
JOINT PROXY STATEMENT
SPECIAL MEETINGS OF STOCKHOLDERS
DANIEL INDUSTRIES, INC.
PROSPECTUS
This Joint Proxy Statement/Prospectus is being furnished to
stockholders of Daniel Industries, Inc., a Delaware corporation ("Daniel"), in
connection with the solicitation of proxies by its Board of Directors for use at
the Special Meeting of Stockholders of Daniel (the "Daniel Special Meeting")
scheduled to be held on Thursday, December 12, 1996, at 2:00 p.m., at The Ritz
Carlton Hotel, 1919 Briar Oaks Lane, Houston, Texas, and any adjournment or
postponement thereof, and to stockholders of Bettis Corporation, a Delaware
corporation ("Bettis"), in connection with the solicitation of proxies by its
Board of Directors for use at the Special Meeting of Stockholders of Bettis (the
"Bettis Special Meeting") scheduled to be held on Thursday, December 12, 1996,
at 9:00 a.m., at the Omni Houston Hotel, Four Riverway, Houston, Texas, and any
adjournment or postponement thereof.
At the Daniel Special Meeting and the Bettis Special Meeting, the
holders of the common stock of Daniel ("Daniel Common Stock"), and the holders
of the common stock of Bettis ("Bettis Common Stock"), respectively, will be
asked to consider and vote upon a proposal to approve and adopt the business
combination of Daniel and Bettis through a merger of a wholly-owned subsidiary
of Daniel ("Sub") with and into Bettis (the "Merger"), with Bettis continuing
as a wholly-owned subsidiary of Daniel, and the Agreement and Plan of Merger
dated September 17, 1996 (the "Merger Agreement") among Daniel, Sub and Bettis,
providing for the Merger. Such approvals are a condition to consummating the
Merger. As a result of the Merger, Bettis stockholders will receive .58 of a
share of Daniel Common Stock for each share of Bettis Common Stock that they
own. See "Terms of the Merger". A copy of the Merger Agreement is attached as
Appendix A. The stockholders of Daniel also will be asked to approve and adopt
an amendment to Daniel's Certificate of Incorporation to increase the number of
authorized shares of Daniel Common Stock to 40,000,000. It is anticipated that
the Merger will be effected as soon as practicable following the Special
Meetings.
This Joint Proxy Statement/Prospectus also constitutes the prospectus
of Daniel pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the issuance of up to 5,023,633 shares of Daniel Common
Stock in connection with the Merger.
This Joint Proxy Statement/Prospectus is first being mailed to
stockholders of Daniel and to stockholders of Bettis on or about November 8,
1996.
On November 5, 1996, the closing prices of Daniel Common Stock
and Bettis Common Stock, as reported on the New York Stock Exchange and the
Nasdaq National Market, respectively, were $12.75 and $7.13.
THE SHARES OF DANIEL COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE MERGER
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOVEMBER 6, 1996.
<PAGE> 9
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY DANIEL OR BETTIS. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS
OR A SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR TO ANY PERSON WHOM,
IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
HEREOF NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF DANIEL OR BETTIS SINCE THE DATE HEREOF OR THAT THE INFORMATION IN
THIS JOINT PROXY STATEMENT/PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
AVAILABLE INFORMATION
Daniel and Bettis are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Daniel and Bettis with the Commission
can be inspected at the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
Regional Offices of the Commission at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60621-2511, and Seven World Trade Center, 13th
Floor, New York, New York 10048. Such reports, proxy statements and other
information filed by Daniel may also be inspected at the offices of the New York
Stock Exchange ("NYSE"), 22 Broad Street, New York, New York 10006. Copies of
such material of Daniel and Bettis may be obtained from the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains an
Internet Website that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission (http://www.sec.gov).
Daniel has filed with the Commission a Registration Statement on Form
S-4 (herein, together with all amendments and exhibits thereto, referred to as
the "Registration Statement") under the Securities Act with respect to the
securities offered hereby. This Joint Proxy Statement/Prospectus constitutes
the prospectus of Daniel filed as part of the Registration Statement and does
not contain all the information contained in the Registration Statement,
certain portions of which are omitted as permitted by the rules and regulations
of the Commission. For further information with respect to Daniel and the
securities offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, which may be inspected at the Commission's
offices, without charge, or copies of which may be obtained from the Commission
upon payment of prescribed fees. Statements contained in this Joint Proxy
Statement/Prospectus as to the contents of any contract or other document filed
as an exhibit to the Registration Statement are not necessarily complete, and
in each instance reference is hereby made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. All information herein with
respect to Daniel and its affiliates, including Sub, has been furnished by
Daniel, and all information herein with respect to Bettis and its affiliates
has been furnished by Bettis.
-2-
<PAGE> 10
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Daniel with the Commission
are incorporated by reference herein:
(a) Annual Report on Form 10-K for the fiscal year ended September
30, 1995;
(b) Quarterly Reports on Form 10-Q for the quarters ended December
31, 1995, March 31, 1996, and June 30, 1996;
(c) Current Report on Form 8-K dated December 12, 1995, as amended
by Form 8-K/A dated October 7, 1996;
(d) The description of the Daniel Common Stock contained in its
Registration of Securities of Certain Successor Issuers on
Form 8-B dated May 5, 1988; and
(e) The description of Daniel's Preferred Share Purchase Rights
contained in its Registration Statement on Form 8-A filed June
5, 1990.
All documents filed by Daniel with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Joint
Proxy Statement/Prospectus and before the date of the Daniel Special Meeting
shall be deemed to be incorporated by reference in this Joint Proxy
Statement/Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in this Joint Proxy Statement/Prospectus or
in a document incorporated or deemed to be incorporated by reference in this
Joint Proxy Statement/Prospectus shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained in this Joint Proxy Statement/Prospectus or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Joint Proxy Statement/Prospectus.
The Joint Proxy Statement/Prospectus incorporates documents by
reference that are not presented herein or delivered herewith. Daniel will
provide without charge to each person to whom a copy of this Joint Proxy
Statement/Prospectus has been delivered, upon request, a copy of any or all of
the documents incorporated by reference herein, other than the exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
the information that this Joint Proxy Statement/Prospectus incorporates.
Requests for copies should be directed to Daniel Industries, Inc., 9753 Pine
Lake Drive, Houston, Texas 77055, Attention: Investor Relations, telephone
number (713) 467-6000. In order to ensure timely delivery of the documents,
any request should be made by December 5, 1996.
-3-
<PAGE> 11
TABLE OF CONTENTS
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AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . 2 NOTES TO UNAUDITED PRO FORMA FINANCIAL
STATEMENTS . . . . . . . . . . . . . . . . . . . 57
INCORPORATION OF CERTAIN DOCUMENTS BY Basis of Presentation . . . . . . . . . . . . . 57
REFERENCE . . . . . . . . . . . . . . . . . . . . . . 3 Pro forma adjustments . . . . . . . . . . . . . 57
Pro forma earnings (loss) per share . . . . . . 58
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Companies . . . . . . . . . . . . . . . . . . . . 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
The Special Meetings . . . . . . . . . . . . . . . . 5 FINANCIAL CONDITION AND RESULTS OF
The Merger and the Merger Agreement . . . . . . . . . 6 OPERATIONS . . . . . . . . . . . . . . . . . . 59
Comparative Rights of Stockholders of Daniel and Bettis 11 Daniel . . . . . . . . . . . . . . . . . . . . 59
Amendment to Daniel's Certificate of Incorporation . . 11 Results of Operations . . . . . . . . . . . 59
Market Price and Dividend Information . . . . . . . . 12 Impact of Inflation . . . . . . . . . . . . 61
Daniel Selected Financial Information . . . . . . . . 13 Liquidity and Capital Resources . . . . . . 61
Bettis Selected Financial Information . . . . . . . . 14 Bettis . . . . . . . . . . . . . . . . . . . . 63
Daniel and Bettis Combined . . . . . . . . . . . . . 15 Results of Operations . . . . . . . . . . . 63
Operating Results . . . . . . . . . . . . . . . . 15 Liquidity and Capital Resources . . . . . . 64
Balance Sheet Information . . . . . . . . . . . . 15
Comparative Per Share Information . . . . . . . . . . 16 MARKET PRICE OF COMMON STOCK AND DIVIDEND
INFORMATION . . . . . . . . . . . . . . . . . . 67
GENERAL INFORMATION ABOUT THE MEETINGS . . . . . . . . . 17
Date, Time and Place of Special Meetings . . . . . . 17 DESCRIPTION OF BUSINESS . . . . . . . . . . . . . . 68
Record Date and Outstanding Shares . . . . . . . . . 17 Daniel . . . . . . . . . . . . . . . . . . . . 68
Purposes of the Special Meetings . . . . . . . . . . 17 Acquisitions . . . . . . . . . . . . . . . . 68
Vote Required . . . . . . . . . . . . . . . . . . . . 17 Description of Products . . . . . . . . . . 68
Voting and Revocation of Proxies . . . . . . . . . . 18 Foreign Operations . . . . . . . . . . . . 70
Solicitation of Proxies . . . . . . . . . . . . . . . 18 Raw Materials . . . . . . . . . . . . . . . 70
Other Matters . . . . . . . . . . . . . . . . . . . . 18 Customers . . . . . . . . . . . . . . . . . 70
Patents and Research . . . . . . . . . . . 70
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . 19 Employees . . . . . . . . . . . . . . . . . 71
General Description of the Merger . . . . . . . . . . 19 Environmental Compliance . . . . . . . . . 71
Background of the Merger . . . . . . . . . . . . . . 19 Other Business Conditions and Regulations . 71
Daniel's Reasons for the Merger . . . . . . . . . . . 20 Bettis . . . . . . . . . . . . . . . . . . . . 72
Recommendation of Daniel's Board of Directors . . . . 21 Background . . . . . . . . . . . . . . . . 72
Bettis' Reasons for the Merger . . . . . . . . . . . 21 General . . . . . . . . . . . . . . . . . . 72
Recommendation of Bettis' Board of Directors . . . . 22 Recent Acquisitions . . . . . . . . . . . . 73
Opinions of Financial Advisors . . . . . . . . . . . 23 Products . . . . . . . . . . . . . . . . . 73
Certain U.S. Federal Income Tax Consequences . . . . 31 Sales and Marketing . . . . . . . . . . . . 74
Accounting Treatment . . . . . . . . . . . . . . . . 32 Competition . . . . . . . . . . . . . . . . 75
Governmental and Regulatory Approvals . . . . . . . . 32 Unfilled Orders . . . . . . . . . . . . . . 75
NYSE Listing . . . . . . . . . . . . . . . . . . . . 33 Employees . . . . . . . . . . . . . . . . . 75
Interests of Certain Persons in the Merger . . . . . 33 Properties . . . . . . . . . . . . . . . . 75
Restrictions on Resales by Affiliates . . . . . . . . 34 Legal Proceedings . . . . . . . . . . . . . 76
No Dissenters' Rights . . . . . . . . . . . . . . . . 34
MANAGEMENT . . . . . . . . . . . . . . . . . . . . 76
TERMS OF THE MERGER . . . . . . . . . . . . . . . . . . . 35 Directors and Executive Officers . . . . . . . 76
Effective Time of the Merger . . . . . . . . . . . . 35 Daniel . . . . . . . . . . . . . . . . . . 76
Manner and Basis of Converting Shares. . . . . . . . . 35 Bettis . . . . . . . . . . . . . . . . . . 78
Bettis Options . . . . . . . . . . . . . . . . . . . 36 Stock Ownership of Certain Beneficial Owners and
Employee Matters . . . . . . . . . . . . . . . . . . 36 Management . . . . . . . . . . . . . . . . 78
Conditions to the Merger . . . . . . . . . . . . . . 37 Daniel . . . . . . . . . . . . . . . . . . 78
Representations and Warranties of Daniel and Bettis . 38 Bettis . . . . . . . . . . . . . . . . . . 80
Conduct of Business of Daniel and Bettis Prior to
Merger . . . . . . . . . . . . . . . . . . . . . 38 EXECUTIVE COMPENSATION AND OTHER
Conduct of Business of the Combined Company Following INFORMATION OF BETTIS . . . . . . . . . . . . . 82
Merger . . . . . . . . . . . . . . . . . . . . . . 40 Renumeration of Executive Officers . . . . . . . 82
No Solicitation by Bettis . . . . . . . . . . . . . . 41 Stock Options . . . . . . . . . . . . . . . . . 83
Payments in the Event of Certain Takeover Proposals. . 41 Employment Agreement . . . . . . . . . . . . . 83
Termination or Amendment of Merger Agreement . . . . 42 Severance Agreements . . . . . . . . . . . . . 83
Indemnification . . . . . . . . . . . . . . . . . . . 43 Renumeration of Directors . . . . . . . . . . . 83
Expenses . . . . . . . . . . . . . . . . . . . . . . 43
PROPOSAL TO AMEND DANIEL'S CERTIFICATE OF
COMPARATIVE RIGHTS OF STOCKHOLDERS OF DANIEL INCORPORATION . . . . . . . . . . . . . . . . . 84
AND BETTIS . . . . . . . . . . . . . . . . . . . . . 43
Special Vote Required for Certain Combinations . . . . 44 RELATIONSHIPS WITH INDEPENDENT
Vote Required for Corporate Transactions and Other ACCOUNTANTS . . . . . . . . . . . . . . . . . . 85
Matters . . . . . . . . . . . . . . . . . . . . . 45
Disposition of Assets . . . . . . . . . . . . . . . . 45 LEGAL MATTERS . . . . . . . . . . . . . . . . . . . 85
Power to Amend By-laws . . . . . . . . . . . . . . . 45
Quorum Requirements for Directors' Meetings . . . . . 46 EXPERTS . . . . . . . . . . . . . . . . . . . . . . 85
Removal of Directors . . . . . . . . . . . . . . . . 46
Director Elections, Qualifications and Number . . . . 46 STOCKHOLDERS' PROPOSALS . . . . . . . . . . . . . . 85
DANIEL SELECTED FINANCIAL INFORMATION . . . . . . . . . . 47 INDEX TO FINANCIAL STATEMENTS OF
BETTIS CORPORATION . . . . . . . . . . . . . . . F-1
BETTIS SELECTED FINANCIAL INFORMATION . . . . . . . . . . 48
APPENDIX A: AGREEMENT AND PLAN OF MERGER . . . . . A-1
UNAUDITED PRO FORMA FINANCIAL INFORMATION . . . . . . . . 49
APPENDIX B: OPINION OF SIMMONS & COMPANY
INTERNATIONAL . . . . . . . . . . . . . . . . . . B-1
APPENDIX C: OPINION OF JEFFERIES & COMPANY , INC. C-1
</TABLE>
4
<PAGE> 12
SUMMARY
The following is a summary of certain information contained elsewhere
in this Joint Proxy Statement/Prospectus. This summary does not contain a
complete statement of all material information relating to the Merger and the
Merger Agreement and is subject and qualified in its entirety by reference to
the more detailed information and financial statements contained elsewhere or
incorporated by reference in this Joint Proxy Statement/Prospectus, the Merger
Agreement, which is attached hereto and incorporated herein by reference, and
the other appendices attached hereto. As used in this Joint Proxy
Statement/Prospectus, unless the context otherwise requires, the term "Daniel"
means Daniel Industries, Inc. and its consolidated subsidiaries and the term
"Bettis" means Bettis Corporation and its consolidated subsidiaries. Certain
capitalized terms used in this summary are defined elsewhere in this Joint
Proxy Statement/Prospectus.
THE COMPANIES
DANIEL AND SUB. Daniel is engaged in providing products and systems
used primarily by producers, refiners and transporters of oil and natural gas.
Daniel manufactures a variety of measurement devices including orifice,
turbine, ultrasonic and oval gear meters and a wide range of electronic
instruments used in conjunction with flow measurement products. These
measurement devices are used to measure rates of flow and accumulated volumes
of fluids, primarily oil and natural gas. Daniel also designs, fabricates and
assembles, automated flow measurement systems to meet specific needs and
applications. In addition, Daniel manufactures and sells pipeline valves.
Sub is a wholly-owned subsidiary of Daniel incorporated in Delaware in
September 1996 for the purpose of effecting the Merger pursuant to the Merger
Agreement. The principal executive offices of Daniel and Sub are located at
9753 Pine Lake Drive, Houston, Texas 77055, and their telephone number at that
address is (713) 467-6000.
BETTIS. Bettis manufactures pneumatic, hydraulic and electric valve
actuators and control systems used worldwide for the automation of valves in
numerous energy and industrial markets. Bettis operates manufacturing
facilities in Waller, Texas, Cincinnati and Mansfield, Ohio, Fareham, England,
Edmonton, Canada, and Villemomble, France. The principal executive offices of
Bettis are located at 18703 GH Circle, Waller, Texas 77484, and its telephone
number at that address is (713) 463-5100.
THE SPECIAL MEETINGS
TIME, DATE, PLACE AND PURPOSE. The Daniel Special Meeting will be held
at 2:00 p.m., on Thursday, December 12, 1996, at The Ritz Carlton Hotel, 1919
Briar Oaks Lane, Houston, Texas, for the purpose of approving and adopting the
Merger and the Merger Agreement and approving an amendment to Daniel's
Certificate of Incorporation that would increase the number of authorized
shares of Daniel Common Stock. The Bettis Special Meeting will be held at 9:00
a.m., on Thursday, December 12, 1996, at the Omni Houston Hotel, Four Riverway,
Houston, Texas, for the purpose of approving and adopting the Merger Agreement.
RECORD DATE AND VOTE REQUIRED. The Boards of Directors of Daniel and
Bettis have fixed the close of business on November 5, 1996 as the record
date ("Record Date") for the determination of stockholders entitled to notice
of, and to vote at, the Special Meetings and any adjournments thereof. Only
holders of record of Daniel Common Stock and holders of record of Bettis Common
Stock at the close of business on the Record Date are entitled to
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notice of, and to vote at, the Daniel Special Meeting and the Bettis Special
Meeting, respectively.
Under Daniel's listing agreement with the NYSE, approval and adoption
of the Merger and the Merger Agreement require the affirmative vote of the
holders of a majority of the shares of Daniel Common Stock represented, in
person or by proxy, and entitled to vote at the Daniel Special Meeting. Under
Delaware law, approval and adoption of the Merger Agreement require the
affirmative vote of the holders of a majority of the shares of Bettis Common
Stock outstanding and entitled to vote thereon. Under Daniel's Certificate of
Incorporation, approval of the amendment thereto to increase the number of
authorized shares of Daniel Common Stock will require the affirmative vote of
the holders of two-thirds of the shares of Daniel Common Stock outstanding and
entitled to vote thereon.
At the close of business on the Record Date, there were 12,139,813
shares of Daniel Common Stock outstanding and entitled to vote at the Daniel
Special Meeting, of which the directors and officers of Daniel and their
affiliates held 1,662,648 shares, representing approximately 13.7% of the
outstanding shares. Such persons have indicated to Daniel that they intend to
vote their shares in favor of the approval and adoption of the Merger and the
Merger Agreement.
At the close of business on the Record Date, there were 8,483,435
shares of Bettis Common Stock outstanding and entitled to vote at the Bettis
Special Meeting. At the close of business on the Record Date, the directors
and officers of Bettis and their affiliates held 334,837 shares,
representing approximately 3.9% of the outstanding shares. Such persons have
indicated to Bettis that they intend to vote their shares in favor of the
approval and adoption of the Merger Agreement.
THE MERGER AND THE MERGER AGREEMENT
TERMS OF THE MERGER. At the Effective Time (as hereinafter defined),
the businesses of Bettis and Daniel will be combined by a merger of Sub with
Bettis, with Bettis becoming the surviving corporation. Each outstanding share
of Bettis Common Stock will be converted into the right to receive .58 of a
share of Daniel Common Stock. After the Merger, Bettis will be a wholly-owned
subsidiary of Daniel.
Based upon the number of shares of Daniel Common Stock and Bettis
Common Stock outstanding as of the Record Date, 17,060,205 shares of Daniel
Common Stock will be outstanding immediately following the Effective Time, of
which 4,920,392 shares, representing 28.8% of the total, will be held by
former holders of Bettis Common Stock.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS. THE DANIEL BOARD OF
DIRECTORS BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST
INTERESTS OF, DANIEL AND THE HOLDERS OF DANIEL COMMON STOCK AND UNANIMOUSLY
RECOMMENDS THAT THE HOLDERS OF DANIEL COMMON STOCK APPROVE AND ADOPT THE MERGER
AND THE MERGER AGREEMENT. See "The Merger -- Background of the Merger", "--
Daniel's Reasons for the Merger" and "-- Recommendation of Daniel's Board of
Directors".
THE BETTIS BOARD OF DIRECTORS BELIEVES THAT THE TERMS OF THE MERGER
ARE FAIR TO, AND IN THE BEST INTERESTS OF, BETTIS AND THE HOLDERS OF BETTIS
COMMON STOCK AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF BETTIS COMMON STOCK
APPROVE AND ADOPT THE
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<PAGE> 14
MERGER AGREEMENT. See "The Merger -- Background of the Merger", "-- Bettis'
Reasons for the Merger" and "-- Recommendation of Bettis' Board of Directors".
OPINIONS OF FINANCIAL ADVISORS. The Daniel Board of Directors has
received a written opinion from Simmons & Company International ("Simmons") to
the effect that the exchange ratio to be used in the Merger is fair to the
holders of Daniel Common Stock from a financial point of view, and the Bettis
Board of Directors has received a written opinion from Jefferies & Company,
Inc. ("Jefferies") to the effect that the consideration to be received by the
holders of Bettis Common Stock in the Merger is fair from a financial point of
view to such holders.
In connection with Simmons' services as financial advisor to Daniel,
Daniel has agreed to pay Simmons as compensation for its services a fee in the
amount of 1% of the "transaction value" upon completion of the
Merger. Daniel has also agreed to reimburse Simmons for reasonable
out-of-pocket expenses and to indemnify Simmons and certain related persons
against certain liabilities and expenses relating to or arising out of its
engagement, including certain liabilities under the federal securities laws.
Pursuant to an engagement letter with Jefferies, Bettis has agreed to
pay Jefferies contingent fees totalling 1% of the "aggregate consideration"
upon consummation of the Merger. Bettis has paid Jefferies a retainer
of $50,000 and an additional $125,000 at the time Jefferies delivered its
fairness opinion to the Board, both of which will be credited against such
contingent fees. Bettis has also agreed to reimburse Jefferies for certain
expenses incurred in connection with its engagement and to indemnify Jefferies
and certain related persons against certain liabilities and expenses relating
to or arising out of its engagement, including certain liabilities under the
federal securities laws.
The full text of the Simmons and Jefferies opinions are attached to
this Joint Proxy Statement/Prospectus as Appendices B and C, respectively. See
"The Merger -- Opinions of Financial Advisors".
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES. Daniel and Bettis have
each received an opinion of its counsel to the effect that the Merger will be
treated for U.S. federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). In addition, counsel for Daniel has opined that no gain or loss will
be recognized by Daniel, Bettis or Sub as a result of the Merger. Counsel for
Bettis has opined that each of Bettis, Daniel and Sub are parties to the
reorganization and that no gain or loss will be recognized by the stockholders
of Bettis upon the receipt by them of shares of Daniel Common Stock in exchange
for their shares of Bettis Common Stock pursuant to the Merger, except with
respect to cash received in lieu of fractional shares of common stock. See
"The Merger -- Certain U.S. Federal Income Tax Consequences".
ACCOUNTING TREATMENT. Daniel has been advised by Price Waterhouse
LLP, Daniel's independent accountants, that, subject to customary
qualifications, the Merger will be properly accounted for as a pooling of
interests in conformity with generally accepted accounting principles. See
"The Merger -- Accounting Treatment".
GOVERNMENTAL AND REGULATORY APPROVALS. Consummation of the Merger is
conditioned upon the expiration or termination of the waiting period applicable
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). On October 2, 1996, Daniel and Bettis filed notification reports
under the HSR Act with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Department of Justice").
The required waiting period under the HSR Act expired on November 1, 1996.
See "The Merger -- Governmental and Regulatory Approvals". Daniel
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<PAGE> 15
and Bettis are aware of no other governmental or regulatory approvals required
for the consummation of the Merger, other than compliance with applicable
securities laws of the various states.
EFFECTIVE TIME OF THE MERGER. The Merger will become effective at the
effective time set forth in the certified copy of the Certificate of Merger
issued by the Secretary of State of the State of Delaware with respect to the
Merger (the "Effective Time"). Assuming all conditions to the Merger contained
in the Merger Agreement are satisfied or waived prior thereto, it is
anticipated that the Effective Time will occur as soon as practicable following
the Daniel Special Meeting and the Bettis Special Meeting. See "Terms of the
Merger -- Effective Time of the Merger".
EXCHANGE OF BETTIS STOCK CERTIFICATES. As soon as practicable after
the Effective Time, Wachovia Bank of North Carolina, N.A. (the "Exchange
Agent") will mail a letter of transmittal and other information to each holder
of record of Bettis Common Stock immediately before the Effective Time for use
in exchanging certificates formerly representing shares of Bettis Common Stock
for certificates representing shares of Daniel Common Stock and cash in lieu of
any fractional shares. SHARE CERTIFICATES SHOULD NOT BE SURRENDERED FOR
EXCHANGE BY STOCKHOLDERS OF BETTIS PRIOR TO THE APPROVAL OF THE MERGER
AGREEMENT AND THE RECEIPT OF A LETTER OF TRANSMITTAL. See "Terms of the
Merger -- Manner and Basis of Converting Shares".
ASSUMPTION OF BETTIS OPTIONS. Immediately after the Effective Time,
each Bettis Option (as hereinafter defined) that remains unexercised in whole
or in part will be replaced by a substitute option to purchase a number of
shares of Daniel Common Stock equal to the number of shares of Bettis Common
Stock subject to such Bettis Option multiplied by .58 with a per share option
price equal to the per share option price of the Bettis Option divided by .58.
See "Terms of the Merger -- Bettis Options".
EMPLOYEE MATTERS. Pursuant to the Merger Agreement, Daniel has agreed
that, to the extent Daniel maintains an employee benefit plan of the same type,
if Daniel terminates or discontinues any Bettis employee benefit plan following
the Effective Time, it will permit the Bettis employees participating therein to
participate in the similar Daniel benefit plan. If the Bettis employee benefit
plan so terminated or discontinued is a group health plan, Daniel further agreed
that coverage under the similar Daniel plan will be effective immediately, that
the employee will be credited with any deductibles and copayments already
incurred for such plan year and that any preexisting condition restrictions will
be waived to the extent they were satisfied under the Bettis plan. See "Terms
of the Merger -- Employee Matters".
OTHER CONDITIONS TO THE MERGER. In addition to the approval and
adoption of the Merger and the Merger Agreement by the requisite votes of
Daniel and Bettis stockholders and the receipt of regulatory approvals, the
respective obligations of Daniel and Bettis to effect the Merger are subject to
the satisfaction or waiver, where permissible, of certain other conditions,
including (a) confirmation of the tax opinions and accountants' advice that the
transaction will be accounted for as a pooling of interests, (b) the receipt by
each party of various legal opinions, certificates and consents, (c) the fact
that the opinions of the financial advisors shall not have been withdrawn, (d)
the accuracy as of the date of the Merger Agreement and as of the Closing Date
in all material respects of the representations and warranties of Daniel and
Bettis and compliance in all material respects with all agreements and
covenants by each party to be performed on or before the Closing Date, and (e)
no material adverse change having occurred with respect to Daniel or Bettis
since the date of the Merger Agreement. There can be no assurance that all of
the conditions set forth in the Merger Agreement will be satisfied. See "Terms
of the Merger -- Conditions to the Merger".
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<PAGE> 16
MANAGEMENT AFTER THE MERGER. Upon consummation of the Merger, two
members of Daniel's Board of Directors will resign, and Nathan M. Avery and
Thomas J. Keefe will be elected to fill the vacancies created thereby.
Additionally, W. Todd Bratton, the President and Chief Executive Officer of
Bettis, will be elected an Executive Vice President of Daniel. See "Terms of
the Merger -- Conduct of Business of the Combined Company Following Merger",
"Terms of the Merger -- Employee Matters" and "Management -- Directors and
Executive Officers".
NO SOLICITATION. The Merger Agreement provides that Bettis will not,
and will not permit any of its subsidiaries to, authorize or permit any of its
or their officers, directors, employees, investment bankers, attorneys or other
advisors, agents or representatives to, directly or indirectly, (a) solicit,
initiate, encourage the submission of, or enter into any agreement with respect
to, any proposal or offer from any person (other than Daniel or any of its
affiliates) for a merger or other business combination, acquisition of a
material amount of its assets or acquisition of more than 20% of its
outstanding voting stock, or (b) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, the making
of any proposal that constitutes, or may reasonably be expected to lead to, any
such transaction. Notwithstanding the foregoing, prior to the vote of its
stockholders for approval and adoption of the Merger Agreement,
to the extent Bettis' Board of Directors determines, in good faith after
consultation with outside counsel, that such actions are required by its
fiduciary obligations, Bettis may furnish information to a third party in
response to an unsolicited request therefor and may engage in discussion with
such third party for the limited purpose of determining whether such proposal
is a superior proposal. Either party may subsequently terminate the Merger
Agreement if Bettis' Board of Directors withdraws or modifies its approval or
recommendation of the Merger Agreement or the Merger due to a superior proposal
to the Merger. See "Terms of the Merger -- No Solicitation by Bettis".
PAYMENT IN THE EVENT OF CERTAIN TAKEOVER PROPOSALS. Pursuant to the
Merger Agreement, Bettis has agreed to pay Daniel a fee of $2,000,000 promptly
(a) upon the termination of the Merger Agreement by either Daniel or Bettis as
a result of the withdrawal or modification by Bettis' Board of Directors of its
approval or recommendation of the Merger Agreement due to a
superior proposal to the Merger, or (b) if the stockholders of Bettis do not
approve the Merger, and, after the date of the Merger Agreement and before its
termination or within six months following the date of termination of the
Merger Agreement, a takeover proposal for Bettis shall have been made, which
takeover is ultimately consummated. In the event the Board of Directors of
Daniel receives a takeover proposal involving Daniel because of which, in the
exercise of its fiduciary obligations, the Daniel Board determines, in good
faith after consultation with outside counsel, that it is necessary to withdraw
or modify its approval or recommendation of the Merger Agreement or the Merger,
the Merger Agreement provides that Daniel may terminate the Merger Agreement,
provided the stockholders of Daniel shall not yet have voted upon the Merger
and Daniel shall have paid $2,000,000 to Bettis. Daniel further agreed to pay
$2,000,000 to Bettis if the stockholders of Daniel do not approve the Merger as
a result of a hostile takeover of Daniel after the date of the Merger
Agreement.
TERMINATION OR AMENDMENT OF MERGER AGREEMENT. In addition to
circumstances involving a takeover proposal of Bettis or Daniel as set forth
above, the Merger Agreement may be terminated: (a) by mutual consent of Daniel
and Bettis; (b) by either party if the stockholders of either Bettis or Daniel
fail to approve the Merger and Merger Agreement; (c) by either party if the
Merger is not effected on or before January 31, 1997; or (d) by either party if
there has been a breach by the other party of any representation or warranty or
a failure by the other party to perform in any material respect any of its
covenants, agreements or
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<PAGE> 17
obligations set forth in the Merger Agreement. The Merger Agreement may be
amended or supplemented by an instrument in writing signed on behalf of each
party, provided that after the Merger Agreement has been approved and adopted
by the stockholders of Daniel and Bettis, it may be amended only as may be
permitted under applicable law. See "Terms of the Merger -- Termination or
Amendment of Merger Agreement".
INDEMNIFICATION. The Merger Agreement provides that all rights to
indemnification for acts or omissions occurring prior to the Effective Time in
favor of the current or former directors or officers of Bettis and its
subsidiaries as provided in their respective certificates of incorporation or
by-laws and indemnity agreements will continue in full force and effect in
accordance with their terms as an obligation of the Surviving Corporation for a
period of not less than five years from the Effective Time. Daniel also has
agreed to cause to be maintained for a period of five years from the Effective
Time (or such shorter period of time as shall be agreed to by certain named
representatives of the indemnified parties) Bettis' directors' and officers'
insurance to the extent that it provides coverage for events occurring at or
prior to the Effective Time for all persons who were directors and officers of
Bettis on September 17, 1996, or to cause to be provided a comparable
arrangement. See "Terms of the Merger -- Indemnification".
CONDUCT OF BUSINESS PRIOR TO THE MERGER Prior to the Effective Time,
Daniel and Bettis have agreed to operate their respective businesses in the
usual, regular and ordinary course in substantially the same manner as
previously conducted and to use all reasonable efforts to preserve intact their
current business organizations. Bettis also has agreed to certain restrictions
on its activities prior to the Effective Time, including certain restrictions
with respect to (a) paying dividends or other distributions with respect to its
capital stock, (b) issuing, delivering, selling, pledging or otherwise
encumbering shares of its capital stock, (c) acquiring its own capital stock,
(d) amending its certificate of incorporation or by-laws, (e) incurring
obligations for borrowed money, (f) paying or discharging any liabilities or
obligations other than in the ordinary course of business, (g) changing any
material accounting principle, and (h) selling, leasing, mortgaging, pledging,
granting a lien or otherwise encumbering or disposing of properties or assets,
with certain exceptions. In addition, Daniel has agreed to certain
restrictions on its activities prior to the Effective Time, including certain
restrictions with respect to (a) paying dividends or other distributions with
respect to its capital stock, other than regular quarterly dividends,
consistent with past practice, (b) issuing, delivering, selling, pledging or
otherwise encumbering shares of its capital stock, (c) amending its certificate
of incorporation or by-laws, and (d) changing any material accounting
principle. See "Terms of the Merger -- Conduct of Business of Daniel and
Bettis Prior to Merger."
INTERESTS OF CERTAIN PERSONS. In considering the recommendation of
the Board of Directors of Bettis with respect to the Merger, Bettis'
stockholders should be aware that certain members of the Board of Directors and
officers of Bettis have certain interests respecting the Merger separate from
their interests as holders of Bettis Common Stock. See "The Merger --
Interests of Certain Persons in the Merger".
EXPENSES. Each of Daniel and Bettis has agreed to pay or reimburse
the other for its reasonable fees and expenses specifically related to the
Merger, up to $300,000, if the Merger Agreement is terminated because (a) the
stockholders of Daniel or Bettis, respectively, fail to approve the Merger and
the Merger Agreement or (b) there has been a breach by Daniel or Bettis,
respectively, of any representation or warranty or a failure by it to perform
in any material respect any of its covenants, agreements or obligations set
forth in the Merger Agreement.
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<PAGE> 18
NO DISSENTERS' RIGHTS. Delaware law does not provide holders of
Bettis Common Stock who object to the Merger and who vote against or abstain
from voting in favor of the Merger and the Merger Agreement with any appraisal
rights or the right to receive cash for their shares of Bettis Common Stock,
and Bettis does not intend to make available any such rights to its
stockholders. See "The Merger -- No Dissenters' Rights".
COMPARATIVE RIGHTS OF STOCKHOLDERS OF DANIEL AND BETTIS
The rights of holders of Bettis Common Stock are currently governed by
Delaware law, Bettis' Certificate of Incorporation and Bettis' By-laws. Upon
consummation of the Merger, holders of Bettis Common Stock will become holders
of Daniel Common Stock, and their rights as holders of Daniel Common Stock will
still be governed by Delaware law, but will then be governed by Daniel's
Certificate of Incorporation and Daniel's By-laws, each as amended. There are
various differences between the rights of Bettis stockholders and the rights of
Daniel stockholders, including, among others, the required vote for certain
business combinations and other significant matters. See "Comparative Rights
of Stockholders of Daniel and Bettis".
AMENDMENT TO DANIEL'S CERTIFICATE OF INCORPORATION
The Board of Directors of Daniel has recommended the adoption of an
amendment to Daniel's Certificate of Incorporation that will increase the
authorized shares of Daniel Common Stock from 20,000,000 shares to 40,000,000
shares. Based upon the number of shares of Daniel Common Stock and Bettis
Common Stock outstanding on the Record Date, upon consummation of the Merger,
17,060,205 shares of Daniel Common Stock will be outstanding, including
4,920,392 shares issued to former Bettis stockholders, and 1,932,662 shares will
be reserved for issuance in connection with Bettis stock options assumed by
Daniel or pursuant to options or stock awards granted or to be granted by Daniel
under existing employee or director-based plans, leaving only 1,007,133 shares
of Daniel Common Stock authorized, unissued and available for future issuance if
Daniel's Certificate of Incorporation is not amended as proposed hereby.
Although Daniel has no present intention of issuing any of the unissued and
unreserved shares of Daniel Common Stock, the Board of Directors believes that
the proposed increase in the number of authorized shares would provide Daniel
the flexibility to take advantage of potential future opportunities as they
arise. See "Proposal to Amend Daniel's Certificate of Incorporation".
-11-
<PAGE> 19
MARKET PRICE AND DIVIDEND INFORMATION
Daniel Common Stock is traded on the NYSE under the symbol "DAN", and
Bettis Common Stock is traded on the Nasdaq National Market under the symbol
"BETT". The following table sets forth the range of high and low sale prices
for Daniel Common Stock and Bettis Common Stock for the periods indicated, as
reported on the NYSE and Nasdaq National Market, respectively.
<TABLE>
<CAPTION>
Daniel Bettis(1)
------------------------------------- ---------------------
Dividends
High Low Paid High Low
-------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
TWELVE MONTHS ENDED SEPTEMBER 30, 1995
Quarter ended December 31, 1994 . . . $ 13.75 $ 11.63 $ .045 $ 4.00 $ 2.63
Quarter ended March 31, 1995 . . . . 15.50 12.63 .045 3.88 2.75
Quarter ended June 30, 1995 . . . . . 16.50 13.75 .045 3.88 2.75
Quarter ended September 30, 1995 . . 16.25 13.88 .045 4.38 3.50
TWELVE MONTHS ENDED SEPTEMBER 30, 1996
Quarter ended December 31, 1995 . . . 15.13 13.00 .045 5.38 3.88
Quarter ended March 31, 1996 . . . . 15.38 12.50 .045 5.63 4.75
Quarter ended June 30, 1996 . . . . . 16.63 13.38 .045 5.88 4.88
Quarter ended September 30, 1996 . . 14.88 12.75 .045 7.50 5.00
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
Quarter ended December 31, 1996
(through November 5) . . . . . . 13.13 12.63 7.38 7.00
</TABLE>
- ---------------
(1) No cash dividends were declared or paid on the Bettis Common Stock
during any of the calendar quarters indicated. If the Merger is not
consummated, Bettis currently intends to retain any future earnings
to fund operations and the continued development of its business,
and, therefore, would not intend to pay any cash dividends in the
forseeable future.
On September 16, 1996, the last trading day prior to the announcement
by Daniel and Bettis that they had reached an agreement concerning the Merger,
the closing sale prices of Daniel Common Stock as reported by the NYSE and of
Bettis Common Stock as reported by the Nasdaq National Market were $13.00 and
$6.88 per share, respectively. Applying the .58 exchange ratio to Daniel's
closing price of $13.00, each share of Bettis Common Stock would be valued at
$7.54.
On November 5, 1996, the closing sale prices of Daniel Common Stock
as reported by the NYSE and of Bettis Common Stock as reported by the Nasdaq
National Market were $12.75 and $7.13 per share, respectively.
Following the Merger, Daniel Common Stock will continue to be traded
on the NYSE under the symbol "DAN"; Bettis Common Stock will cease to be traded
and there will be no further market for such stock.
-12-
<PAGE> 20
DANIEL SELECTED FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT PER SHARE DATA AND RATIOS)
<TABLE>
<CAPTION>
Nine Months
Ended June 30, Year Ended September 30,
--------------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues . . . . . . . . . . . . . $120,295 $123,063 (2) $168,560 (2) $203,766 $180,249 $210,362 $201,744
Net income (loss) . . . . . . . 7,496(1) (7,823)(3) (12,792)(3) 1,324 5,025 8,373 (1,969)
Net income (loss) per common share . .62 (.65) (1.06) .11 .42 .70 (.18)
Cash dividends per share . . . . . .135 .135 .18 .18 .18 .18 .18
Weighted average shares outstanding 12,097 12,036 12,048 12,030 11,991 11,960 10,925
OTHER INFORMATION:
Capital expenditures, excluding
acquisitions . . . . . . . . . $4,159 $3,612 $4,794 $13,631 $11,793 $8,758 $11,538
</TABLE>
<TABLE>
<CAPTION>
September 30,
June 30, -------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Working capital . . . . . . . . . $ 50,572 $ 65,386 $ 65,990 $ 67,209 $ 77,735 $ 78,792
Total assets . . . . . . . . . . 180,576 164,468 187,337 178,068 177,079 192,091
Long-term debt (excluding current
portion) . . . . . . . . . . . 5,715 8,572 11,429 14,286 17,143 20,000
Stockholders' equity . . . . . . 113,715 109,320 121,880 121,050 120,427 113,343
Current ratio . . . . . . . . . 1.9 (4) 2.5 2.4 2.8 3.3 2.5
</TABLE>
- -----------------------------------
(1) Net income for the nine months ended June 30, 1996 includes $1,288
attributable to gains on sales of non-manufacturing properties in
Germany.
(2) On November 28, 1995, Daniel disposed of a product line, which for the
nine months ended June 30, 1995 and for the year ended September 30,
1995 represented revenues of $20,362 and $27,746, respectively.
(3) The net losses for the nine months ended June 30, 1995 and fiscal 1995
were affected by charges for restructuring and other charges, inventory
writedowns and losses on divestitures of assets aggregating $12,170 and
$19,539, respectively. Additionally, on November 28, 1995, Daniel
disposed of a product line, which, for the nine months ended June 30,
1995 and for the year ended September 30, 1995 represented net income
(loss) of $1,155 and $(4,627), respectively.
(4) Reflects the acquisition of Spectra-Tek International Limited by Daniel
in May 1996, the consideration for which was funded by short-term bank
borrowing.
-13-
<PAGE> 21
BETTIS SELECTED FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT PER SHARE DATA AND RATIOS)
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31, (1)
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues . . . . . . . . . . . . . . . $ 29,814 $ 26,394 $ 55,142 $ 51,974 $ 52,699 $ 55,574 $ 58,594
Net income . . . . . . . . . . . . . . 1,018 973 2,280 2,067 3,737 5,068 5,238
Net income per common share . . . . . 0.13 0.11 0.27 0.24 0.44 0.60 0.62
Weighted average shares outstanding . . 8,611 8,499 8,536 8,480 8,480 8,480 8,480
OTHER INFORMATION
Capital expenditures, excluding
acquisitions . . . . . . . . . . . $461 $546 $1,826 $1,816 $1,831 $1,279 $3,806
</TABLE>
<TABLE>
<CAPTION>
December 31, (1)
June 30, ------------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------- -------- -------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Working capital . . . . . . . . . $ 12,781 $ 9,089 $ 9,183 $ 3,520 $ 2,139 $ 1,788
Total assets . . . . . . . . . . 60,448 45,876 44,625 39,278 36,285 44,621
Long-term debt (excluding current
portion) (2) . . . . . . . . . 16,730 9,898 12,667 927 1,910 2,803
Stockholders' equity . . . . . . 21,933 20,809 18,461 19,891 17,337 17,999
Current ratio . . . . . . . . . 1.6 1.6 1.7 1.2 1.1 1.1
</TABLE>
- -----------------------
(1) Through May 20, 1994, Bettis was a wholly-owned subsidiary of
Galveston-Houston Company ("GH"). On such date GH distributed to its
stockholders 100% of the common stock of Bettis.
(2) The increase in long-term debt at June 30, 1996 resulted from
borrowings to fund acquisitions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Bettis --
Liquidity and Capital Resources".
-14-
<PAGE> 22
DANIEL AND BETTIS COMBINED
(IN THOUSANDS EXCEPT PER SHARE DATA)
The following unaudited pro forma financial information of Daniel and
Bettis has been derived from the Daniel and Bettis Unaudited Pro Forma
Financial Statements and related notes included elsewhere in this Joint Proxy
Statement/Prospectus. See "Unaudited Pro Forma Financial Information".
OPERATING RESULTS:
<TABLE>
<CAPTION>
Nine Months Ended
June 30, Year Ended September 30,
------------------------ -------------------------------------
1996 1995 1995 1994 1993
--------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . $ 181,169 $160,376 $ 218,961 $ 255,740 $ 232,948
Net income (loss) . . . . . . . . . 8,010 (7,706) (6,075) 3,391 8,762
Net income (loss) per common
share . . . . . . . . . . . . . . .47 (.45) (.36) .20 .52
Weighted average common shares
outstanding . . . . . . . . . . 17,091 16,965 16,999 16,949 16,910
</TABLE>
BALANCE SHEET INFORMATION:
<TABLE>
<CAPTION>
June 30,
1996
-----------
<S> <C>
Total assets . . . . . . . . . . . . . . . . . $ 259,530
Long-term debt (excluding current portion) . . 35,645
Stockholders' equity . . . . . . . . . . . . . 135,648
</TABLE>
-15-
<PAGE> 23
COMPARATIVE PER SHARE INFORMATION
The following table sets forth (a) the historical income per common share,
the historical book value per share data and the historical cash dividends per
share for Daniel Common Stock; (b) the historical income per common and common
equivalent share and the historical book value per share data of Bettis Common
Stock (since becoming a public company, Bettis has not paid cash dividends on
its common stock); (c) the unaudited pro forma income per share and the
unaudited pro forma book value per share data for Daniel after giving effect to
the proposed Merger on a pooling of interests basis; and (d) the unaudited pro
forma income per common and common equivalent share and the unaudited pro forma
book value per share attributable to .58 of a share of Daniel Common Stock that
will be received by Bettis stockholders for each share of Bettis Common Stock.
The information presented in the table should be read in conjunction with the
unaudited pro forma financial statements and the separate historical
consolidated financial statements of Daniel and Bettis and the related notes
contained elsewhere or incorporated by reference in this Joint Proxy
Statement/Prospectus. See "Daniel and Bettis Unaudited Pro Forma Financial
Information", "Incorporation of Certain Documents by Reference" and the Bettis
Consolidated Financial Statements.
<TABLE>
<CAPTION>
Historical Unaudited Pro Forma
---------- -------------------------------
Bettis
Pro Forma
Equivalent
Daniel Bettis Combined Per Share
------ --------- ------------ ---------------
<S> <C> <C> <C> <C>
INCOME (LOSS) PER COMMON SHARE:
Nine months ended June 30, 1996 . . . . . . . $ .62 $ .20 $ .47 $ .27
Year ended September 30 for Daniel and
December 31 for Bettis,
1995 . . . . . . . . . . . . . . . . . . . (1.06) .27 (.36) (.21)
1994 . . . . . . . . . . . . . . . . . . . .11 .24 .20 .12
1993 . . . . . . . . . . . . . . . . . . . .42 .44 .52 .30
BOOK VALUE PER SHARE AS OF:
June 30, 1996 . . . . . . . . . . . . . . $ 9.40 $ 2.55 $ 7.94 $ 4.61
September 30, 1995 for Daniel and
December 31, 1995 for Bettis . . . . . . 9.07 2.44 7.66 4.44
DIVIDENDS PER SHARE:
Nine months ended June 30, 1996 . . . . . . $ .135 -- $ .135 $ .078
Fiscal year ended September 30,
1995 . . . . . . . . . . . . . . . . . . .18 -- .18 .104
1994 . . . . . . . . . . . . . . . . . . .18 -- .18 .104
1993 . . . . . . . . . . . . . . . . . . .18 -- .18 .104
</TABLE>
-16-
<PAGE> 24
GENERAL INFORMATION ABOUT THE MEETINGS
DATE, TIME AND PLACE OF SPECIAL MEETINGS
The Daniel Special Meeting will be held at 2:00 p.m. on Thursday,
December 12, 1996, at The Ritz Carlton Hotel, 1919 Briar Oak Lane, Houston,
Texas. The Bettis Special Meeting will be held at 9:00 a.m., on Thursday,
December 12, 1996, at the Omni Houston Hotel, Four Riverway, Houston, Texas.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Daniel Common Stock and holders of record of
Bettis Common Stock at the close of business on November 5, 1996 are entitled
to notice of, and to vote at, the Daniel Special Meeting and the Bettis
Special Meeting, respectively.
At the close of business on the Record Date, there were 1,199
holders of record of Daniel Common Stock with 12,139,813 shares issued and
outstanding and 1,468 holders of record of Bettis Common Stock with
8,483,435 shares issued and outstanding. Each share of Daniel Common Stock and
Bettis Common Stock entitles the holder thereof to one vote on each matter
submitted for stockholder approval.
PURPOSES OF THE SPECIAL MEETINGS
The purposes of the Daniel Special Meeting are to consider and vote
upon (i) a proposal to approve the Merger and the Merger Agreement, (ii) a
proposal to approve an amendment to the Daniel Certificate of Incorporation to
increase the authorized shares of Daniel Common Stock to 40,000,000 shares, and
(iii) such other matters as may properly be brought before the Daniel Special
Meeting. The purposes of the Bettis Special Meeting are to consider and vote
upon (i) a proposal to approve the Merger Agreement and (ii) such other matters
as may properly be brought before the Bettis Special Meeting.
VOTE REQUIRED
DANIEL. Daniel's By-laws provide that the presence at the Daniel
Special Meeting, in person or by proxy, of the holders of a majority of the
outstanding shares of Daniel Common Stock entitled to vote at the meeting will
constitute a quorum for the transaction of business. Under Daniel's listing
agreement with the NYSE, approval and adoption of the Merger Agreement requires
the affirmative vote of the holders of a majority of the shares of Daniel
Common Stock present, in person or by proxy, and entitled to vote at the Daniel
Special Meeting. Under Daniel's Certificate of Incorporation, approval of the
amendment to Daniel's Certificate of Incorporation to increase the number of
authorized shares of Daniel Common Stock requires the affirmative vote of the
holders of two-thirds of the shares of Daniel Common Stock outstanding on the
Record Date. The amendment to Daniel's Certificate of Incorporation will not
be effected unless the Merger and the Merger Agreement are approved and adopted
by the stockholders of Daniel and the stockholders of Bettis. At the close of
business on the Record Date, the directors and officers of Daniel and their
affiliates held 1,662,648 shares of Daniel Common Stock, representing
approximately 13.7% of the outstanding shares. Such persons have indicated to
Daniel that they intend to vote their shares in favor of the approval and
adoption of the Merger and the Merger Agreement and the amendment to the
Certificate of Incorporation.
BETTIS. Bettis' By-laws provide that the presence at the Bettis
Special Meeting, in person or by proxy, of the holders of a majority of the
Bettis Common Stock issued and outstanding and entitled to vote at the meeting
will constitute a quorum for the transaction of business. Under Delaware law,
approval and adoption of the Merger Agreement require the affirmative vote of
the holders of a majority of the shares of Bettis Common Stock outstanding on
the Record Date, or 4,241,718 shares. At the close of business
-17-
<PAGE> 25
on the Record Date, the directors and officers of Bettis and their affiliates,
held 334,837 shares of Bettis Common Stock, representing approximately
3.9% of the outstanding shares. Such persons have indicated to Bettis that
they intend to vote their shares in favor of the approval and adoption of the
Merger Agreement.
VOTING AND REVOCATION OF PROXIES
All properly executed proxies that are not revoked will be voted at
the Daniel Special Meeting and the Bettis Special Meeting, as applicable, in
accordance with the instructions contained therein. If a holder of Daniel
Common Stock or a holder of Bettis Common Stock executes and returns a proxy
and does not specify otherwise, the shares represented by such proxy will be
voted "FOR" approval and adoption of the Merger and the Merger Agreement in
accordance with the recommendation of the Daniel Board of Directors and the
Bettis Board of Directors, respectively, and, in the case of Daniel, "FOR"
approval of the amendment to Daniel's Certificate of Incorporation. Checking
the abstention box on the proxy card or failing to return the proxy card has
the same effect as voting against the proposals. A stockholder of Daniel or
stockholder of Bettis who has executed and returned a proxy may revoke it at
any time before it is voted at the respective Special Meeting by executing and
returning a proxy bearing a later date, by filing written notice of such
revocation with the Secretary of Daniel or Bettis, as appropriate, stating that
the proxy is revoked or by attending the Special Meeting and voting in person.
Under applicable stock exchange rules, brokers will not be permitted
to submit proxies authorizing a vote on the Merger and the Merger Agreement in
the absence of specific instructions from beneficial owners. Broker non-votes
and abstentions will have the effect of votes against the Merger and the
Merger Agreement. Under Delaware law, both abstentions and broker non-votes
contained on a returned proxy card will be considered present for purposes of
determining the existence of a quorum at the Daniel Special Meeting or the
Bettis Special Meeting.
SOLICITATION OF PROXIES
In addition to solicitation by mail, the directors, officers and
employees of each of Daniel and Bettis may solicit proxies from their
respective stockholders by personal interview, telephone, facsimile or
otherwise. Daniel and Bettis will each bear the costs of the solicitation of
proxies from their respective stockholders. Arrangements also will be made
with brokerage firms and other custodians, nominees and fiduciaries who hold
the voting securities of record for the forwarding of solicitation materials to
the beneficial owners thereof. Daniel and Bettis will reimburse such brokers,
custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses
incurred by them in connection therewith. Daniel and Bettis also have engaged
the services of Morrow & Co., a proxy solicitation firm, to distribute proxy
solicitation materials to brokers, banks and other nominees and to assist in
the solicitation of proxies from their respective stockholders for an
anticipated fee of approximately $6,000 from each company, plus out-of-pocket
expenses.
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, the Daniel
Board of Directors and the Bettis Board of Directors do not know of any
business to be presented at their respective Special Meetings other than as set
forth in the notices accompanying this Joint Proxy Statement/Prospectus. If
any other matters should properly come before the respective Special Meetings,
it is intended that the shares represented by proxies will be voted with
respect to such matters in accordance with the judgment of the persons voting
such proxies.
-18-
<PAGE> 26
THE MERGER
GENERAL DESCRIPTION OF THE MERGER
The Merger Agreement provides that, at the Effective Time, Sub will
merge with and into Bettis, with Bettis becoming the surviving corporation (the
"Surviving Corporation"). Each outstanding share of Bettis Common Stock will
be converted into the right to receive .58 of a share of Daniel Common Stock.
After the Merger, Bettis will be a wholly-owned subsidiary of Daniel. See
"Terms of the Merger -- Manner and Basis of Converting Shares".
Based upon the number of shares of Daniel Common Stock and Bettis
Common Stock outstanding as of the Record Date, 17,060,205 shares of Daniel
Common Stock will be outstanding immediately following the Effective Time, of
which 4,920,392 shares, representing 28.8% of the total, will be held by former
holders of Bettis Common Stock.
BACKGROUND OF THE MERGER
Over the past two years, Daniel has been in the process of carrying
out a strategic plan and reorganization, which has included eliminating
operating costs by reducing the number of employees and consolidating operating
functions. The strategic plan has also included the sale of several of
Daniel's non-core and underperforming operations and product lines.
As part of the strategic plan, beginning in 1995 and continuing into
1996, Daniel began to pursue actively an acquisition program to add strategic
operations. Daniel looked at many potential acquisitions of various sizes
primarily involved in the manufacture of valves, pumps or meters. In February
1996, Daniel acquired Oilfield Fabricating & Machine, Inc., a Texas-based valve
repair operation, and in May 1996, Daniel acquired Spectra-Tek International
Limited, a U.K.-based supplier of data acquisition monitoring and control
systems for worldwide industrial markets. In early 1996, William A. Griffin,
III, President and Chief Executive Officer of Daniel, discussed with Simmons a
potential merger with Bettis. Simmons also discussed a merger of Daniel and
Bettis with Nathan M. Avery, Chairman of the Board of Bettis.
In May 1996, Ronald C. Lassiter, Chairman of the Board of Daniel, and
Mr. Avery had several discussions about a merger of the two companies and the
strategic operating reasons for such a merger.
On June 7, 1996, Messrs. Lassiter and Avery and Simmons met to discuss
the earnings and balance sheet impact of a merger on Daniel and Bettis as
well as the potential impact on Daniel Common Stock and the market for its
shares. Later in June and continuing into July 1996, there were subsequent
meetings and discussions between Messrs. Lassiter, Griffin, Avery and W. Todd
Bratton, Chief Executive Officer of Bettis, about the strategic benefits of the
proposed merger. Simmons also made presentations to members of the Boards of
Daniel and Bettis to review the financial impact of a merger on Daniel's
current and projected income statement and balance sheet.
On July 29, 1996, Simmons made a detailed presentation to Daniel's
Board of Directors. The presentation included a review of the operations,
markets and financial performance of Bettis and the financial and operational
impact of a merger with Bettis. At its meeting on July 30, 1996, Daniel's
Board of Directors unanimously approved that Messrs. Lassiter and Griffin
continue to attempt to negotiate a transaction.
-19-
<PAGE> 27
During the first week of August 1996, discussions were held among
Messrs. Lassiter, Griffin, Avery and Bratton and Simmons to explore in more
detail a potential merger between the companies and to discuss valuation
issues.
On August 21, 1996, the Board of Directors of Bettis met to discuss a
term sheet delivered by Simmons on behalf of Daniel indicating that Daniel was
interested in discussing a possible merger with Bettis pursuant to which Bettis
stockholders would receive Daniel Common Stock. Simmons indicated that Daniel
was proposing a transaction whereby Daniel would exchange .54 of a share of
Daniel Common Stock for each share of Bettis Common Stock. The ratio was
determined initially by Daniel based on discussions with Simmons. At the
August 21 meeting, the Board of Directors of Bettis retained Jefferies to act
as its financial advisor to undertake an analysis of the proposal. Mr. Bratton
was authorized and directed to discuss with representatives of Daniel and
Simmons the terms of an agreement. Mr. Avery directed Bettis' financial and
legal advisors to evaluate the proposal and report to the Board of Directors
the results of their evaluation for further consideration by the Board of
Directors.
During the last week of August and the first two weeks of September,
representatives of Simmons and Jefferies exchanged information with respect to
the companies and the legal advisors of Daniel and Bettis met to negotiate the
terms of an agreement. During the second week of September, Messrs. Avery and
Lassiter discussed increasing the proposed exchange ratio from .54 to .58.
On September 16, 1996, the Board of Directors of Bettis again met with
its financial and legal advisors to discuss the draft of the Merger Agreement
and the revised proposal by Daniel whereby Daniel would exchange .58 of a share
of Daniel Common Stock for each share of Bettis Common Stock. At such meeting
the Board of Directors received the oral opinion of Jefferies (subsequently
confirmed in writing) that, as of such date, the consideration to be received by
the holders of Bettis Common Stock pursuant to the Merger was fair to such
holders from a financial point of view. Bettis' Board of Directors unanimously
approved the execution of the Merger Agreement, which provided that the Merger
was subject to Daniel and Bettis satisfactorily completing due diligence.
On September 16, 1996, Daniel's Board of Directors met to consider and
to vote on entering into the Merger Agreement and received the oral opinion of
Simmons (subsequently confirmed in writing) that, as of such date, the exchange
ratio to be used in the Merger was fair to the holders of Daniel Common Stock
from a financial point of view. Daniel's Board of Directors unanimously approved
the execution of the Merger Agreement.
DANIEL'S REASONS FOR THE MERGER
As previously discussed in "--Background of the Merger", Daniel has,
from time to time, sought to identify suitable acquisitions to strengthen and
expand its operations. Daniel's Board believes that the combination with
Bettis will add a new and strategic product line into Daniel's marketing
organization as well as open new marketing avenues for Daniel's existing
product lines through Bettis' distribution network. Daniel's Board believes
that the Merger will generate earnings and financial results that will enhance
the overall value of Daniel for its stockholders and employees.
Daniel's Board believes that the increased size of the combined
company should provide increased market float for the Daniel Common Stock,
expanded coverage by investment analysts and greater interest on the part of
investors.
In reaching its decision to approve the Merger Agreement, the Daniel
Board considered the following factors, among others: (i) the recent and
historical performance of the Daniel
-20-
<PAGE> 28
Common Stock and the Bettis Common Stock, (ii) certain historical and
prospective financial information of Bettis, (iii) an analysis of recent
acquisitions in comparable industries and (iv) the terms of the Merger
Agreement. Prior to taking action on the Merger Agreement, the Daniel Board
received presentations from, and reviewed the terms and conditions of the
Merger Agreement with, Daniel's management, legal counsel, and outside
financial advisor. The Daniel Board considered a number of factors in addition
to those discussed above and did not quantify or otherwise attempt to assign
relative weights to the specific factors considered.
RECOMMENDATION OF DANIEL'S BOARD OF DIRECTORS
For the reasons set forth under "--Background of the Merger" and
"--Daniel's Reasons for the Merger", Daniel's Board of Directors believes that
the terms of the Merger are fair to, and in the best interests of, Daniel and
the holders of Daniel Common Stock. DANIEL'S BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AND THE MERGER AGREEMENT AND RECOMMENDS THAT
THE HOLDERS OF DANIEL COMMON STOCK VOTE "FOR" ADOPTION AND APPROVAL OF THE
MERGER AND THE MERGER AGREEMENT.
In analyzing the Merger and the Merger Agreement, Daniel's Board of
Directors was assisted and advised by Simmons, and, at the September 16, 1996
special meeting, the Daniel Board received an oral opinion, subsequently
confirmed in writing, from Simmons that, as of the date of such opinion, the
exchange ratio to be used in the Merger was fair, from a financial point of
view, to the holders of Daniel Common Stock. See "--Opinions of Financial
Advisors".
BETTIS' REASONS FOR THE MERGER
The Board of Directors of Bettis believes that the terms of the Merger
are fair to, and in the best interests of, Bettis and its stockholders and has
unanimously approved the Merger Agreement and recommends its approval and
adoption by Bettis' stockholders.
In reaching its conclusion, the Bettis Board considered, among other
factors;
(i) Information concerning the financial performance and
condition, business operations and prospects of each of Bettis
and Daniel, and Bettis' projected future performance and
prospects as a separate entity and on a combined basis with
Daniel.
(ii) The relatively low valuation multiples of Bettis Common Stock
relative to other oil service companies. In this regard,
Jefferies presented to the Board of Directors of Bettis
various trading multiples of small, middle and large
capitalization oil service companies, noting that middle and
large capitalization companies trade at higher multiples on
average than companies with market capitalization of less than
$100 million, such as Bettis. Daniel and Bettis combined
would have a substantially larger market capitalization that
should benefit from higher trading multiples.
(iii) Recent and prior market prices of the Bettis Common Stock and
the Daniel Common Stock.
(iv) Bettis' current total debt-to-total capitalization ratio of
approximately 65% which the Board of Directors of Bettis
believes may adversely affect Bettis' ability to fund its
future growth prospects. Daniel and Bettis combined would
have a total debt-to-total capitalization ratio of
approximately 35%. The Board believes that this increased
financial flexibility would substantially improve Bettis'
ability to pursue growth opportunities.
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(v) The fact that, based on the exchange ratio and recent prices
of Daniel Common Stock, the Merger would provide holders of
Bettis Common Stock with the opportunity to receive a premium
over prior market prices for the Bettis Common Stock.
(vi) The larger size of the combined entity relative to Bettis'
current market capitalization which should allow the current
stockholders of Bettis significantly more liquidity in their
investment in Bettis Common Stock.
(vii) The terms of the Merger Agreement that permit the Bettis Board
of Directors, in the exercise of its fiduciary duties and
subject to certain conditions, to respond to inquiries
regarding potential business combination transactions, to
provide information to, and engage in discussions with, third
parties making an unsolicited proposal to acquire Bettis in
such a transaction and to terminate the Merger Agreement if
the Bettis Board determines to recommend an alternative
business combination transaction that it determines is
superior to the Merger. In that regard, the Bettis Board of
Directors noted that the Merger Agreement provides that if,
under certain circumstances, the Merger Agreement is
terminated, Bettis will be obligated to pay Daniel a
$2,000,000 fee if a competing acquisition proposal is
consummated. The Bettis Board did not view the termination
fee provision of the Merger Agreement as unreasonably impeding
any interested third party from proposing a superior
transaction. See "Terms of the Merger -- Payments in the
Event of Certain Takeover Proposals."
(viii) The expectation that the Merger will afford the stockholders
of Bettis the opportunity to receive Daniel Common Stock in a
transaction that is non-taxable for federal income tax
purposes.
(ix) The financial analyses and opinion of Jefferies described
below.
In determining the Merger was fair to and in the best interest of
Bettis' stockholders, the Bettis Board of Directors considered the factors
above as a whole and did not assign specific or relative weights to such
factors. The Bettis Board believes that the Merger is an opportunity for
Bettis' stockholders to participate in a combined enterprise that has
significantly greater business and financial resources than Bettis would have
absent the Merger and to receive, on a tax-deferred basis, a premium for their
Bettis Common Stock based on recent market prices.
RECOMMENDATION OF BETTIS' BOARD OF DIRECTORS
For the reasons set forth under "--Background of the Merger" and
"--Bettis' Reasons for the Merger", Bettis' Board of Directors believes that the
terms of the Merger are fair to, and in the best interests of, Bettis and the
holders of Bettis Common Stock. BETTIS' BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AND THE MERGER AGREEMENT AND RECOMMENDS THAT THE HOLDERS
OF BETTIS COMMON STOCK VOTE "FOR" ADOPTION AND APPROVAL OF THE MERGER AGREEMENT.
In analyzing the Merger and the Merger Agreement, Bettis' Board of
Directors was assisted and advised by Jefferies, and, at the September 16, 1996
special meeting, the Bettis Board received an oral opinion, subsequently
confirmed in writing, from Jefferies that, as of the date of such opinion,
consideration to be received by the holders of Bettis Common Stock pursuant to
the Merger was fair, from a financial point of view, to such holders. See "--
Opinions of Financial Advisors".
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OPINIONS OF FINANCIAL ADVISORS
DANIEL
At its meeting on September 16, 1996, the Board of Directors of Daniel
received the oral opinion of Simmons, which was subsequently confirmed in
writing, to the effect that, as of such dates, the exchange ratio to be used in
the Merger was fair to the holders of shares of Daniel Common Stock from a
financial point of view. A copy of the opinion of Simmons is attached hereto
as Appendix B. Holders of Daniel Common Stock are urged to read the opinion in
its entirety for an explanation of the assumptions made, matters considered and
limits of the Simmons review.
In connection with rendering its oral advice and its subsequent
written opinion, Simmons reviewed and analyzed, among other things, the
following: (i) the Merger Agreement; (ii) the financial statements and other
information concerning Daniel, including the Annual Reports on Form 10-K for
each of the years in the three-year period ended September 30, 1995, the
Quarterly Reports on Form 10-Q of Daniel for the quarters ended December 31,
1995, March 31, 1996 and June 30, 1996 and the Current Report on Form 8-K of
Daniel related to events occurring on November 28, 1995; (iii) certain other
internal information, primarily financial in nature, concerning the business
and operations of Daniel furnished by Daniel for purposes of Simmons' analysis;
(iv) certain publicly available information concerning the trading of, and the
trading market for, Daniel Common Stock; (v) certain publicly available
information concerning Bettis, including the Annual Reports on Form 10-K of
Bettis for each of the fiscal years in the two-year period ended December 31,
1995, the Quarterly Reports on Form 10-Q of Bettis for the quarters ended March
31, 1996 and June 30, 1996, and the Current Reports on Form 8-K related to
events occurring on June 20, 1996, as amended, and July 9, 1996, as amended;
(vi) certain other internal information, primarily financial in nature,
concerning the business and operations of Bettis furnished by Bettis for
purposes of Simmons' analysis; (vii) certain publicly available information
concerning the trading of, and the trading market for, Bettis Common Stock;
(viii) certain publicly available information with respect to certain other
companies that Simmons believed to be comparable to Daniel or Bettis and the
trading markets for certain of such other companies' securities; (ix) certain
publicly available information concerning the estimates of the future operating
and financial performance of Daniel, Bettis and the comparable companies
prepared by industry experts unaffiliated with either Daniel or Bettis; and (x)
certain publicly available information concerning the nature and terms of
certain other transactions considered relevant to the inquiry. Further,
Simmons made such other analyses and examinations as deemed necessary or
appropriate. Simmons also met with certain officers and employees of Daniel
and Bettis to discuss the foregoing, as well as other matters believed relevant
to the inquiry.
In arriving at its opinion, Simmons assumed and relied upon the
accuracy and completeness of all of the financial and other information
provided by Daniel and Bettis, or publicly available, and did not attempt
independently to verify any of such information. Based on the terms set forth
in the Merger Agreement, Simmons also assumed that the proposed Merger would be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368 of the Code and would be treated as a pooling of interests for
accounting purposes. Simmons did not conduct a detailed physical inspection of
any of the assets, properties or facilities of Daniel or Bettis, nor did
Simmons make or obtain any independent evaluations or appraisals of any of such
assets, properties or facilities.
In conducting its analysis and arriving at its opinion, Simmons
considered such financial and other factors as it deemed appropriate under the
circumstances including, among others, the following: (i) the historical and
current financial position and results of operations of Daniel and Bettis; (ii)
the business prospects of Daniel and Bettis; (iii) the historical and
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current market for Daniel Common Stock, for Bettis Common Stock and for the
equity securities of certain other companies believed to be comparable to
Daniel or Bettis; (iv) the respective contributions in terms of various
financial measures of Daniel and Bettis to the combined company, and the
relative pro forma ownership of Daniel after the proposed Merger by the current
holders of Daniel Common Stock and Bettis Common Stock; and (v) the nature and
terms of certain other acquisition transactions that Simmons believed to be
relevant. Simmons also took into account its assessment of general economic,
market and financial conditions and its experience in connection with similar
transactions and securities valuation generally. Simmons' opinion necessarily
was based upon conditions as they existed and could be evaluated on, and on the
information made available at, the dates of its oral advice and written
opinion.
In evaluating the exchange ratio to be used in the Merger, Simmons
conducted a variety of financial analyses with respect to Daniel and Bettis,
including those described below:
Valuation Multiple Analysis. Management of Bettis provided certain
income statement information for Bettis which permitted the adjustment of
Bettis' results for the trailing 12 month period ("TTM") period ended June 30,
1996 for the full-year effect of three acquisitions which occurred during 1996.
Bettis management also provided 1996 projections adjusted to reflect the
full-year effect of the three acquisitions, as well as balance sheet
information which permitted the adjustment of Bettis' balance sheet to give
effect to one acquisition which was completed after the date of the balance
sheet in Bettis' most recent publicly available results. Simmons also
determined the implied consideration to be received by the holders of Bettis
Common Stock in the Merger (the "Implied Consideration") (obtained by
multiplying the closing stock price for Daniel Common Stock of $13.00 on
September 10, 1996 by the exchange ratio to be used in the Merger). Simmons
calculated multiples of the Implied Consideration to Bettis' TTM earnings and
cash flow per share and to its estimated earnings and cash flow per share for
fiscal years 1996 and 1997, as estimated by Bettis' management, and multiples
of Bettis' "Adjusted Market Value" (defined as the market value of the common
equity plus the book value of total debt, less excess cash and cash
equivalents) (for Bettis, this was calculated using the Implied Consideration)
to its TTM revenues and its TTM earnings before depreciation, interest and
taxes ("EBDIT"). For this purpose, cash flow per share was defined as earnings
per share plus depreciation and amortization per share. These calculations
resulted in ratios of the Implied Consideration to TTM earnings per share of
18.5x; to TTM cash flow per share of 8.4x; to projected fiscal 1996 earnings
per share of 15.1x; to projected fiscal 1996 cash flow per share of 7.5x; to
projected fiscal 1997 earnings per share of 11.2x; and to projected fiscal 1997
cash flow per share of 6.5x. Based on the Implied Consideration, the ratio of
Adjusted Market Value to TTM revenues was 1.3x and the ratio of Adjusted Market
Value to TTM EBDIT was 7.9x.
Analysis of Selected Publicly-Traded Comparable Companies. Simmons
reviewed certain publicly available financial information as of the most
recently reported periods and stock market information as of September 10, 1996
for certain selected publicly traded companies in the oilfield service and
equipment industry with revenues in the range of $75 to $800 million. For each
comparable company, Simmons calculated multiples of stock price to TTM earnings
and cash flow per share, and estimated earnings and cash flow per share for
1996 and 1997 (derived from estimates prepared by industry experts unaffiliated
with Daniel or Bettis) and multiples of Adjusted Market Value to TTM revenues
and EBDIT. An analysis of the multiples of stock price to TTM earnings per
share, to estimated 1996 earnings per share and to estimated 1997 earnings per
share yielded for Bettis 18.5x, 15.1x and 11.2x, respectively, at the Implied
Consideration, and ranges of 11.9x to 37.4x, 12.2x to 24.3x, and 10.6x to
17.8x, respectively, for the comparable oilfield service and equipment
companies. An analysis of the multiples of Adjusted Market Value to TTM
revenues and EBDIT yielded 1.3x and 7.9x,
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respectively, for Bettis at the Implied Consideration, with ranges of 0.5x to
2.0x, and 5.7x to 15.2x, respectively, for the comparable oilfield service and
equipment companies.
Simmons also calculated multiples of Daniel's stock price at closing
on September 10, 1996 to TTM earnings and cash flow per share, and estimated
earnings and cash flow per share for 1996 and 1997, as estimated by Daniel
management, and multiples of Adjusted Market Value to TTM revenues and EBDIT.
An analysis of stock price to TTM earnings per share, to estimated 1996
earnings per share and to estimated 1997 earnings per share yielded 20.6x,
16.3x and 14.1x, respectively, for Daniel. Simmons compared these results with
the ratios of the Implied Consideration to the TTM earnings per share, to
estimated 1996 earnings per share and to estimated 1997 earnings per share
which yielded 18.5x, 15.1x and 11.2x, respectively, for Bettis. An analysis of
stock price to Daniel's TTM cash flow per share, to estimated 1996 cash flow
per share and to estimated 1997 cash flow per share yielded 11.0x, 9.6x and
8.7x, respectively. Simmons compared these results to the ratios of the
Implied Consideration to the TTM cash flow per share, to the estimated 1996
cash flow per share, and to the estimated 1997 cash flow per share which
yielded 8.4x, 7.5x and 6.5x, respectively, for Bettis. An analysis of Adjusted
Market Value to Daniel's TTM revenues and EBDIT yielded 1.1x and 8.8x,
respectively. Simmons compared these results to the ratios of Adjusted Market
Value at the Implied Consideration to TTM revenues and EBDIT which yielded 1.3x
and 7.9x, respectively, for Bettis.
Analysis of Selected Comparable Acquisition Transactions. Simmons
reviewed transactions involving certain oil service companies. Simmons
calculated the multiples of acquisition price to TTM revenues, TTM EBDIT,
"Adjusted Book Value" (defined as the book value of shareholders' equity, plus
the book value of total debt, less excess cash and cash equivalents) and TTM
net income for such companies. These calculations yielded a range of
acquisition price to TTM revenues of 0.5x to 1.9x, a range of acquisition price
to TTM EBDIT of 5.6x to 14.9x, a range of acquisition price to Adjusted Book
Value of 0.6x to 3.5x, and a range of acquisition price to TTM net income of
9.2x to 34.7x. Simmons compared the results of these calculations to multiples
of Bettis' TTM revenues, TTM EBDIT, Adjusted Book Value and TTM net income
(calculated using the Implied Consideration) which yielded 1.3x, 7.9x, 1.7x and
18.5x, respectively.
Analysis of Valuation Multiples After Consolidation Benefits. Simmons
adjusted the estimated revenues, EBDIT, net income and cash flow for 1996 and
1997, as provided by the managements of Daniel and Bettis, to reflect various
levels of consolidation benefits from $1.0 to $3.0 million. Simmons calculated
multiples of the Implied Consideration to adjusted estimated 1996 net income
per share, to adjusted estimated 1997 net income per share, to adjusted
estimated 1996 cash flow per share and to adjusted estimated 1997 cash flow per
share: yielding 13.3x, 10.1x, 7.0x and 6.1x, respectively, with $1.0 million in
consolidation savings; yielding 11.8x, 9.2x, 6.6x and 5.8x, respectively, with
$2.0 million in consolidation savings; and yielding 10.6x, 8.5x, 6.2x and 5.5x,
respectively, with $3.0 million in consolidation savings. Simmons also
calculated the ratio of Adjusted Market Value at the Implied Consideration to
adjusted estimated 1996 revenues, to adjusted estimated 1997 revenues, to
adjusted estimated 1996 EBDIT and to adjusted estimated 1997 EBDIT: yielding
1.2x, 1.2x, 6.7x and 5.7x, respectively, with $1.0 million of consolidation
savings; yielding 1.2x, 1.2x, 6.3x and 5.4x, respectively, with $2.0 million of
consolidation savings; and yielding 1.2x, 1.2x, 6.0x and 5.1x, respectively,
with $3.0 million of consolidation savings. Simmons compared these results to
the valuation multiples of Daniel, to the valuation multiples of the selected
publicly-traded comparable companies and to the valuation multiples of the
selected comparable acquisition transactions discussed above.
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Pro Forma Combination Analysis. Simmons analyzed the effect of the
Merger, assuming pooling of interests accounting treatment, on Daniel's
estimated earnings per share and cash flow per share for 1996 and 1997. The
analysis yielded earnings per share accretion and cash flow per share accretion
for estimated 1996 of $0.12 per share and $0.22 per share, respectively, with
$3.0 million of consolidation savings. The analysis yielded earnings per share
accretion and cash flow per share accretion for estimated 1997 in the ranges of
$0.14 to $0.21 per share and $0.22 to $0.29 per share, respectively, with $3.0
million of consolidation savings.
Premium Analysis. Simmons calculated the premium to holders of Bettis
Common Stock of the Implied Consideration to the closing stock price for Bettis
Common Stock of $5 7/8 on September 10, 1996. Simmons calculated a premium to
holders of Bettis Common Stock equal to 28.3% of the closing stock price for
Bettis Common Stock on September 10, 1996.
Simmons also analyzed average acquisition premiums for acquisitions of
public companies in the period January 1, 1991 through September 10, 1996,
focusing on completed transactions in the $50 to $200 million range. The
average premium to the last closing price prior to announcement of such
transactions during any year ranged from a low of 23.7% to a high of 38.8%,
with the weighted average being 32.7%. Simmons compared these results with the
premium for the Merger of 28.3%, based on a closing price of $5 7/8 per share
for Bettis Common Stock and $13 per share for Daniel Common Stock on September
10, 1996.
Relative Contribution Analysis. Simmons analyzed the relative
contributions of Bettis and Daniel to the combined revenues, EBDIT, operating
income, net income, and cash flow of the two companies, assuming completion of
the Merger, based on TTM results and estimated results for 1996 and 1997
(without giving effect to any transaction adjustments). Simmons calculated
contributions by Daniel to the various financial measures which ranged from a
low of 63% to a high of 74% with a mean of 68%. Simmons also calculated the
percentage of the combined companies' equity that would be held by current
Daniel stockholders, assuming completion of the Merger, as 72% (using the
exchange ratio to be used in the Merger) and compared such percentage with the
foregoing contribution percentages.
Exchange Ratio Profile. Simmons performed an analysis of the ratio of
the market price of Bettis Common Stock to the market price of Daniel Common
Stock during the period from June 1, 1996 through September 10, 1996. Simmons
calculated the ratio of the Bettis Common Stock closing price for the last
trading day of each week during that period to the Daniel Common Stock closing
price for such day. This analysis implied an exchange ratio ranging from a high
of 0.48 shares of Daniel Common Stock for each share of Bettis Common Stock to a
low of 0.18 shares of Daniel Common Stock for each share of Bettis Common Stock,
with an average during the TTM period ended September 10, 1996 of 0.37 shares of
Daniel Common Stock for each share of Bettis Common Stock. Simmons also
calculated the ratio of the Bettis Common Stock closing price on September 10,
1996 ($5 7/8 per share) to the Daniel Common Stock closing price on such day
($13 per share). This implied an exchange ratio of 0.45 shares of Daniel Common
Stock for each share of Bettis Common Stock.
The foregoing summary does not purport to be a complete description of
the analyses performed by Simmons or its presentations to the Daniel Board.
The preparation of financial analyses and fairness opinions is a complex
process and is not necessarily susceptible to partial analysis or summary
description. Simmons believes that its analyses (and the summary set forth
above) must be considered as a whole, and that selecting portions of such
analyses and of the factors considered by Simmons, without considering all of
such analyses and factors, could create an incomplete view of the processes
underlying the analyses conducted by Simmons and its opinion. Simmons made no
attempt to assign specific weights to particular
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<PAGE> 34
analyses. Any estimates contained in Simmons' analyses are not necessarily
indicative of actual values, which may be significantly more or less favorable
than as set forth herein.
The Daniel Board selected Simmons as its financial advisor because
Simmons is a nationally recognized investment banking firm specializing in
service to the energy services industry with substantial experience in
transactions similar to the Merger and is familiar with Daniel and its
business. As part of its investment banking business, Simmons is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes.
Pursuant to an engagement letter dated as of September 16, 1996, a fee
of 1% of the transaction value, which is defined as all cash, notes, stock and
other securities paid to Bettis stockholders in the Merger plus the amount of
Bettis debt for borrowed money at the Effective Time, will be payable to Simmons
upon consummation of the Merger for its services as financial advisor to Daniel
in connection with the Merger. In addition, in the event that the Merger is not
consummated because of a takeover proposal received by Bettis, Daniel has
agreed to pay Simmons one-third of the $2,000,000 fee received by Daniel from
Bettis (as described below). Daniel has also agreed to reimburse Simmons for
its reasonable out-of-pocket expenses and to indemnify Simmons and certain
related persons against certain liabilities, including certain liabilities
under the federal securities laws, related to or arising out of its engagement
as financial advisor or its role in connection therewith.
Simmons has previously rendered investment banking services to Daniel
with respect to: performing a Strategic Study of the operating performance,
competitive position and market outlook for Daniel's divisions and
recommendations for an acquisition strategy; an attempted hostile takeover by
Moorco International; the divestiture of Daniel Industrial, Inc. and certain
non-core product lines and the acquisition of Spectra-Tek International Limited
and of a valve manufacturer and refurbisher. Simmons received fees aggregating
approximately $1,444,000 for such services. In addition, in the ordinary
course of business, Simmons may actively trade the securities of Daniel and
Bettis for its own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities. Simmons owns
62,500 shares of Bettis Common Stock, independent of its day-to-day trading
operations.
BETTIS
The Bettis Board of Directors engaged Jefferies to act as the Board's
financial advisor in connection with the transactions contemplated by the
Merger Agreement. The Bettis Board of Directors instructed Jefferies, in its
role as financial advisor, to evaluate the fairness, from a financial point of
view, to the holders of Bettis Common Stock, of the consideration to be
received by such holders pursuant to the Merger and, in such regard, to conduct
such investigations as Jefferies deemed appropriate for such purpose. No
limitations were placed by the Board of Directors or management of Bettis with
respect to the investigations made or the procedures followed by Jefferies in
preparing and rendering its opinion, and Bettis and its management cooperated
fully with Jefferies in connection therewith.
At the September 16, 1996 meeting of the Board of Directors of
Bettis, Jefferies rendered to the Board of Directors an oral opinion, which
was subsequently confirmed in writing, to the effect that, as of such dates and
based on certain matters stated therein, the consideration to be received by
the holders of Bettis Common Stock pursuant to the Merger was fair, from a
financial point of view, to such holders. The exchange ratio on which the
amount of such consideration is based was determined by the Boards of Directors
of Bettis and Daniel, and Jefferies was not asked to, and did not, assist in
determining same. Jefferies'
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opinion relates only to the fairness, from a financial point of view, to the
holders of Bettis Common Stock, of the consideration to be received by such
holders in connection with the Merger and does not constitute a recommendation
to any stockholder of Bettis as to how such stockholder should vote at the
Bettis Special Meeting. A copy of the opinion of Jefferies is attached hereto
as Appendix C. Holders of Bettis Common Stock are urged to read the opinion in
its entirety for an explanation of the assumptions made, matters considered and
limits of the review undertaken by Jefferies.
In its review and analysis and in rendering its opinion, Jefferies
assumed and relied upon the accuracy and completeness of all the financial and
other information provided to it by Bettis' and Daniel's management or publicly
available, and Jefferies did not assume any responsibility for the independent
verification of such information. Jefferies did not conduct a detailed
physical inspection of any of the properties or facilities of Bettis or Daniel,
nor did Jefferies make or consider any independent evaluations or appraisals of
any such properties or facilities. Pursuant to the terms of the Merger
Agreement, Jefferies also assumed that the Merger will be accounted for as a
pooling of interests in accordance with generally accepted accounting
principles.
In rendering its opinion, Jefferies reviewed (i) the historical and
current financial condition and results of operations of Bettis and Daniel;
(ii) certain non-public financial and non-financial information prepared by the
management of Bettis and Daniel, which data was made available to Jefferies in
its role as financial advisor to Bettis; (iii) published information regarding
the financial performance and operating characteristics of a selected group of
companies which it deemed comparable; (iv) business prospects of Bettis when
taking into consideration the impact of the Merger; (v) the historical and
current market prices for Bettis Common Stock and Daniel Common Stock and for
the equity securities of certain other companies with businesses that Jefferies
considered relevant to its inquiry; (vi) publicly available information,
including research reports on companies Jefferies considered relevant to its
inquiry; (vii) the respective contributions in terms of various financial
measures of Bettis and Daniel to the combined company, and the relative pro
forma ownership of Daniel after the proposed Merger by the current holders of
Bettis Common Stock and Daniel Common Stock, and (viii) the nature and terms of
other recent acquisition transactions in the oil service industry. Jefferies
also discussed the past and current operations and financial conditions and the
prospects of Bettis and Daniel with members of senior management of Bettis and
Daniel and conducted such other investigations as it deemed appropriate.
In evaluating the consideration to be paid in the Merger by Daniel,
Jefferies performed a variety of financial and comparative analyses with
respect to Daniel and Bettis, including those described below:
Bettis Common Stock Performance. Jefferies' analysis of the
performance of Bettis Common Stock consisted of an historical analysis of
closing prices and trading volumes from May 11, 1994, the date the Bettis
Common Stock commenced trading in connection with the spin-off from
Galveston-Houston Company, to September 16, 1996, the last trading day prior to
Bettis' announcement of the Merger. During the period, based on closing sale
prices as reported by the Nasdaq National Market, Bettis Common Stock achieved
a high of $6.875 per share and a low of $2.625 per share. For the one year and
one month periods preceding September 16, 1996, Bettis Common Stock averaged
$5.10 per share and $6.02 per share, respectively, based on daily closing sale
prices as reported by the Nasdaq National Market. Jefferies observed that an
implied proposal price of $7.54 per share (the "Implied Price") based upon the
exchange ratio and Daniel's closing price of $13.00 per share on September 16,
1996 represented premiums of 48% and 25% to the average prices of Bettis Common
Stock for the one year and one month periods preceding September 16, 1996,
respectively.
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Comparable Company Analysis. Comparable company analysis examines a
company's trading characteristics relative to a group of publicly traded peers.
Jefferies analyzed the trading characteristics of companies in the industrial
service and oil service industries. Companies in the industrial service group
that were examined included Crane Co., Duriron Company, Inc., Goulds Pumps,
Inc., Keystone International, Inc. and Watts Industries, Inc. (the "Industrial
Peers"). Companies in the oil service group that were examined included Dreco
Energy Services Ltd., Energy Ventures, Inc., Smith International, Inc. and
Varco International, Inc. (the "Oil Service Peers"). The Industrial Peers and
the Oil Service Peers (collectively, the "Comparable Companies") were selected
based on general business, operating and financial characteristics
representative of companies in industries in which Bettis and Daniel operate.
Historical financial information used in connection with the ratios provided
below with respect to the Comparable Companies was as of the most recent
financial statements publicly available for each company. Management of Bettis
provided balance sheet information for Bettis which was adjusted to give effect
to an acquisition completed after the date of the balance sheet in Bettis' most
recent public filing. Market information used in calculating the ratios was as
of September 13, 1996, unless otherwise noted. Earnings per share ("EPS") and
cash flow per share ("CFPS") estimates for Bettis were provided by management
of Bettis. EPS and CFPS estimates for Daniel were provided by Simmons in its
role as financial advisor to Daniel. EPS and CFPS estimates for the Comparable
Companies were obtained from publicly available research reports.
Jefferies analyzed the relative performance and value for Bettis and
Daniel compared to the Comparable Companies. Among the market trading
information considered in the valuation analysis were the ratios of market
price to EPS estimates and market price to CFPS estimates for 1997. This
analysis indicated that (i) the ratios of market price to 1997 EPS estimates
for Bettis and Daniel were 9.2x and 12.6x, respectively, (ii) the median ratios
of market price to 1997 EPS estimates for the Industrial Peers and the Oil
Service Peers were 12.4x and 16.0x, respectively, (iii) the ratios of market
price to 1997 EPS estimates for Bettis and Daniel using share prices for each
company which were calculated based on the average of the daily closing prices
for each of the trading days in the one month period preceding September 16,
1996 were 8.1x and 12.8x, respectively, (iv) the ratios of market price to 1997
CFPS estimates for Bettis and Daniel were 5.6x and 8.2x, respectively, (v) the
median ratios of market price to 1997 CFPS estimates for the Industrial Peers
and the Oil Service Peers were 8.1x and 11.3x, respectively and (vi) the ratios
of market price to 1997 CFPS estimates for Bettis and Daniel using share prices
for each company which were calculated based on the average of the daily
closing prices for each of the trading days in the one month period preceding
September 16, 1996 were 4.9x and 8.3x, respectively. Jefferies observed that
the Implied Price implied ratios to 1997 estimates of EPS and CFPS for Bettis
of 10.2x and 6.1x, respectively. Jefferies also observed that the implied
proposal price based on the exchange ratio and the average of the daily closing
prices for Daniel for each of the trading days in the one month period
preceding September 16, 1996 implied ratios to 1997 estimates of EPS and CFPS
for Bettis of 10.4x and 6.2x, respectively.
No company included in the comparable company analysis as a comparison
is identical to Bettis or Daniel. In evaluating the Comparable Companies,
Jefferies made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of Bettis or Daniel, such as the impact of
competition on the business of Bettis and Daniel and the industry generally,
industry growth and the absence of any adverse material change in the financial
condition and prospects of Bettis or Daniel or the industry or in the financial
markets in general. Due to the inherent differences between the operations of
Bettis or Daniel and the Comparable Companies, a purely quantitative
mathematical analysis (such as determining the average or median) is not in
itself a meaningful method of using comparable company data.
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Historical Market Price Ratio Analysis. Jefferies analyzed the
historical ratios between the market prices for Bettis Common Stock and Daniel
Common Stock from May 11, 1994, to September 16, 1996. Jefferies observed that
the exchange ratio of 0.58 is higher than the historical ratio between Bettis
Common Stock and Daniel Common Stock based on the closing sale prices on any
trading day in the period. Jefferies also observed that for selected time
periods, including the last twelve months, the period from January 1, 1996 to
September 13, 1996, and the closing price on September 13, 1996, the average
ratio was 0.36, 0.37 and 0.52, respectively.
Comparable Transaction Analysis. Jefferies performed an analysis of
several recent acquisition transactions ("Comparable Transactions") in the oil
service industry with total transaction values (defined as the value of cash
and securities paid plus the book value of total financial debt assumed less
the amount of cash assumed) less than $175 million. This analysis indicated a
median acquisition multiple of 5.9x the one year projected earnings before
interest, taxes and depreciation and amortization ("EBITDA") of the targets in
the Comparable Transactions. Jefferies observed that the Implied Price
represents a multiple of 5.8x the 1997 projected EBITDA of Bettis as provided
to Jefferies by management of Bettis.
Premium Analysis. Jefferies analyzed implied share price premiums
announced or paid in selected negotiated transactions announced or completed in
the oil service industry since January 1, 1993. This analysis indicated that
the median premiums to the targets' share prices for the one day, one week and
four week periods prior to announcement of the transactions were 26%, 24%, and
31%, respectively, during this period. Jefferies observed that the Implied
Price implied premiums to the share price of Bettis Common Stock for the one
day, one week and four weeks prior to September 16, 1996 were 21%, 30% and 30%,
respectively.
Pro Forma Analysis of the Merger. Jefferies analyzed certain pro
forma financial effects of the Merger assuming that the Merger was treated as a
pooling of interests. Jefferies observed that, after the Merger, the pro forma
company will have a ratio of total financial debt to total capitalization
(defined as book value of total financial debt divided by the sum of book value
of total financial debt and book value of total shareholders' equity) of 35%
compared to 65% for Bettis alone, based on balance sheet information at June
30, 1996 provided to Jefferies by management of Bettis and adjusted to reflect
the impact of an acquisition completed by Bettis after such date. Jefferies
also observed that, assuming $1.5 million of cost savings and synergies, the
issuance of Daniel Common Stock in the Merger would have an accretive effect on
pro forma earnings per share to Daniel of approximately 2% for the calendar
year 1996 and approximately 12% for the calendar year 1997.
The foregoing summary does not purport to be a complete description of
the analyses performed by Jefferies. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of these methods to the particular
circumstances. In arriving at its opinion, Jefferies did not attribute any
particular weight to any analysis or factors considered by it, but rather, made
qualitative judgments as to the significance and relevance of each analysis and
factor. Jefferies believes that its analyses must be considered as a whole,
and that selecting portions of such analyses and of the factors considered by
Jefferies, without considering all of such analyses and factors, could create
an incomplete view of the process underlying its opinion. The preparation of
fairness opinions is a complex process and is not necessarily susceptible to
partial analysis or summary description.
Jefferies is an investment banking firm with substantial experience in
transactions similar to the Merger and is familiar with Bettis and its
business. As part of its investment banking business, Jefferies is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive
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<PAGE> 38
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
Bettis paid Jefferies a retainer of $50,000 upon the execution of an
engagement letter and an additional $125,000 at the time Jefferies delivered
its fairness opinion to the Board of Directors. Bettis also has agreed to
reimburse Jefferies for its reasonable out-of-pocket expenses and to indemnify
Jefferies against certain liabilities and expenses, including certain
liabilities under U.S. federal securities laws, relating to or arising out of
its engagement as financial advisor. If the Merger is consummated, Jefferies
will receive a fee of 1% of the "aggregate consideration", less the $175,000 in
fees previously paid by Bettis. The aggregate consideration will be based
upon the value of the Daniel Common Stock received by the Bettis shareholders
on the closing date of the Merger, calculated as if all shares of Bettis Common
Stock on a fully diluted basis (including outstanding options) were converted
in the Merger, plus the value of Bettis' long-term debt on the closing date of
the Merger.
Jefferies has previously rendered certain investment banking and
financial advisory services to Bettis for which it has received customary
compensation. In the normal course of its business, Jefferies trades in Bettis
Common Stock for its own account and for the account of its customers and,
accordingly, may at any time hold a long or short position therein.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material federal income tax
consequences of the Merger to the holders of Bettis Common Stock and is based
upon current provisions of the Code, existing regulations thereunder, current
administrative rulings of the Internal Revenue Service (the "Service") and
court decisions, all of which are subject to change. No attempt has been made
to comment on all federal income tax consequences of the Merger that may be
relevant to particular holders, including holders that are subject to special
tax rules which may modify or alter the following discussion, such as dealers
in securities, foreign persons, mutual funds, insurance companies, tax-exempt
entities and holders who do not hold their shares as capital assets. HOLDERS
OF BETTIS COMMON STOCK ARE ADVISED AND EXPECTED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER IN LIGHT
OF THEIR PERSONAL CIRCUMSTANCES AND THE CONSEQUENCES OF THE MERGER UNDER STATE,
LOCAL AND FOREIGN TAX LAWS.
Neither Daniel nor Bettis has requested a ruling from the Service in
connection with the Merger. Daniel has received from its counsel, Fulbright &
Jaworski L.L.P., an opinion to the effect that, for federal income tax purposes
(i) the Merger will qualify as a "reorganization" within the meaning of Section
368(a) of the Code and (ii) no gain or loss will be recognized by Daniel, Sub
or Bettis as a result of the Merger. It is a condition to the obligation of
Daniel to consummate the Merger that such opinion shall not have been withdrawn
or modified in any material respect. Bettis has received from its counsel,
Vinson & Elkins L.L.P., an opinion to the effect that, for federal income tax
purposes (i) the Merger will qualify as a "reorganization" within the meaning
of Section 368(a) of the Code; (ii) each of Daniel, Sub and Bettis are parties
to the reorganization within the meaning of Section 368(b) of the Code; and
(iii) no gain or loss will be recognized by the stockholders of Bettis upon the
receipt by them of shares of Daniel Common Stock in exchange for their shares
of Bettis Common Stock pursuant to the Merger, except with respect to cash
received in lieu of fractional shares of Daniel Common Stock. It is a
condition to the obligation of Bettis to consummate the Merger that such
opinion shall not have been withdrawn or modified in any material respect.
Such opinions are subject to certain assumptions and based on certain
representations of Daniel and Bettis and affiliates of Bettis. Bettis
stockholders should be aware that such opinions are not binding upon the
Service and no assurance can be given that the Service will not adopt a
contrary position or that a contrary Service position would not be sustained by
a court.
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Assuming the Merger qualifies as a reorganization under Section 368(a)
of the Code, the following U.S. federal income tax consequences will occur:
(a) No gain or loss will be recognized by Daniel, Sub or
Bettis by reason of the Merger;
(b) No gain or loss will be recognized by a holder of
Bettis Common Stock who exchanges all of his or her shares of Bettis
Common Stock solely for shares of Daniel Common Stock in the Merger;
(c) The aggregate basis of the shares of Daniel Common
Stock to be received by a Bettis stockholder in the Merger (including
any fractional share not actually received) will be the same as the
aggregate basis of the shares of Bettis Common Stock surrendered in
exchange therefor;
(d) The holding period of the shares of Daniel Common
Stock to be received by a Bettis stockholder in the Merger (including
any fractional share not actually received) will include the holding
period of the shares of Bettis Common Stock surrendered in exchange
therefor, provided that such shares of Bettis Common Stock are held as
capital assets at the Effective Time; and
(e) Cash payments in lieu of a fractional share will be
treated as if a fractional share of Daniel Common Stock had been
received in the Merger and then redeemed by Daniel. Such a redemption
should qualify as a distribution in full payment in exchange for the
fractional share rather than as a distribution of a dividend.
Accordingly, a Bettis stockholder receiving cash in lieu of a
fractional share will recognize gain or loss treatment upon such
payment equal to the difference, if any, between such stockholder's
basis in the fractional share (as described in paragraph (c) above)
and the amount of cash received. Such gain or loss will be eligible
for long-term capital gain or loss treatment if the Bettis Common
Stock is held as a capital asset at the Effective Time and the holding
period for the fractional share (as described in paragraph (d) above)
is more than one year.
ACCOUNTING TREATMENT
The Merger will be accounted for using the pooling of interests
method of accounting pursuant to Opinion No. 16 of the Accounting Principles
Board. The pooling of interests method of accounting assumes that the
combining companies have been merged from inception, and the historical
financial statements for periods prior to consummation of the Merger are
restated as though the companies had been combined from inception. The
restated financial statements are adjusted to conform the accounting policies
of the separate companies.
Daniel has been advised by Daniel's independent accountants,
Price Waterhouse LLP, that, subject to customary qualifications, the Merger
will be properly accounted for as a pooling of interests in conformity with
generally accepted accounting principles.
GOVERNMENTAL AND REGULATORY APPROVALS
Under the provisions of the HSR Act, the Merger may not be consummated
until such time as the specified waiting period requirements of the HSR Act
have been satisfied. Daniel and Bettis filed notification reports, together
with requests for early termination of the waiting period, with the Department
of Justice and the FTC on October 2, 1996. The required waiting period under
the HSR Act expired on November 1, 1996.
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<PAGE> 40
At any time before or after the Effective Time, the Department of
Justice, the FTC or a private person or entity could seek under the antitrust
laws, among other things, to enjoin the Merger or to cause Daniel to divest
itself, in whole or in part, of Bettis or of other businesses conducted by
Daniel. There can be no assurance that a challenge to the Merger will not be
made or that, if such a challenge is made, Daniel and Bettis will prevail.
Daniel and Bettis are aware of no other governmental or regulatory
approvals required for consummation of the Merger, other than compliance with
applicable securities laws of the various states.
NYSE LISTING
As a condition to the closing of the Merger, the shares of Daniel
Common Stock to be issued upon consummation of the Merger will be approved for
listing on the NYSE, subject to official notice of issuance.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of Bettis
with respect to the Merger, Bettis' stockholders should be aware that certain
members of the Board of Directors and officers of Bettis have certain interests
respecting the Merger separate from their interests as holders of Bettis Common
Stock, including those referred to below. In addition, Jefferies, Bettis'
financial advisor, will receive additional compensation if the Merger is
effected. See "-- Opinions of Financial Advisors."
Election of Additional Officer and Directors of Daniel. At the
Effective Time of the Merger, Ralph H. Clemons, Jr. and Richard L. O'Shields
will resign from the Board of Directors of Daniel, and the Daniel Board of
Directors will elect Nathan M. Avery and Thomas J. Keefe to fill the vacancies
created thereby. Additionally, pursuant to the terms of the Merger Agreement,
the directors of Daniel will take action to appoint Mr. Avery to the Executive
Committee of the Board of Directors and Mr. Keefe to the Compensation
Committee. Upon such election, Messrs. Avery and Keefe will be eligible to
participate in Daniel's 1995 Non-Employee Directors' Stock Option Plan and will
each receive an option to acquire 15,000 shares of Daniel Common Stock at an
option price equal to the closing sale price on such date, which option will be
subject to vesting over a three-year period. Mr. W. Todd Bratton, President
and Chief Executive Officer of Bettis, will also be elected an Executive Vice
President of Daniel.
Stock Options. The 1994 Nonemployee Directors Stock Option Plan for
Bettis provides that in the event of a "change of control" (as defined
therein), the options granted with respect thereto will become fully vested and
immediately exercisable. The Merger will constitute a "change of control"
under such plan. As a result, Bettis' Options relating to an aggregate of
45,000 shares of Bettis Common Stock (equivalent to 26,100 shares of Daniel
Common Stock) will become fully vested and immediately exercisable. In
addition, certain severance agreements held by Mr. Bratton, Wilfred M. Krenek
and Norman D. Quam provide for the acceleration of Bettis' Options granted such
persons in the event of termination of their employment under conditions set
forth in those agreements as provided below. See "Executive Compensation and
Other Information of Bettis."
Indemnification. Pursuant to the Merger Agreement, Daniel and Sub
agreed that all rights to indemnification for acts or omissions occurring prior
to the Effective Time in favor of the current or former directors or officers
of Bettis and its subsidiaries as provided in their respective certificates of
incorporation or bylaws and indemnity agreements will survive the
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Merger, and Daniel shall cause the Surviving Corporation to continue such
indemnification rights in full force and effect in accordance with their terms
as an obligation of the Surviving Corporation for a period of not less than
five years from the Effective Time. See "Terms of the Merger --
Indemnification".
Severance Agreements. Bettis has entered into severance agreements
with W. Todd Bratton, Norman D. Quam and Wilfred M. Krenek. Under the terms of
the severance agreements, within 12 months after a "change of control" (as
defined therein) and the occurrence of an involuntary termination of
employment, Bettis will pay to the employee a lump sum cash payment equal to
(i) two years' salary in the case of Mr. Bratton or (ii) one year's salary in
the case of Mr. Quam and Mr. Krenek. The Merger will constitute a "change of
control" under the severance agreements. Upon involuntary termination as
provided in the severance agreements, each of such employees will continue to
be covered under Bettis' health and medical benefit plans, will receive all
amounts payable under the Bettis management incentive compensation plan, and
all stock options held by such employees will become immediately exercisable.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of Daniel Common Stock to be received by Bettis
stockholders in connection with the Merger have been registered under the
Securities Act and, except as set forth below, may be traded without
restriction. The shares of Daniel Common Stock to be issued in the Merger and
received by persons who are deemed to be "affiliates" (as that term is defined
in Rule 144 under the Securities Act) of Bettis prior to the Merger may be
resold by them only in transactions permitted by the resale provisions of Rule
145 under the Securities Act (or, in the case of such persons who become
affiliates of Daniel, Rule 144 under the Securities Act) or as otherwise
permitted under the Securities Act. It is a condition to consummation of the
Merger that Bettis provide Daniel with a list of its affiliates and that such
affiliates deliver a written undertaking to the effect that they will not
dispose of any shares of Daniel Common Stock received pursuant to the Merger
except in compliance with the Securities Act and the rules and regulations
promulgated thereunder.
Under generally accepted accounting principles, the sale of Daniel
Common Stock or Bettis Common Stock by an affiliate of either Daniel or Bettis
within 30 days prior to the Effective Time or thereafter prior to the
publication of financial results that include at least 30 days of combined
operations of Daniel and Bettis after the Effective Time could preclude
pooling of interests accounting treatment of the Merger.
NO DISSENTERS' RIGHTS
Delaware law does not require that holders of Bettis Common Stock who
object to the Merger and who vote against or abstain from voting in favor of
the Merger and the Merger Agreement be afforded any appraisal rights or the
right to receive cash for their shares of Bettis Common Stock, and Bettis does
not intend to make available such rights to its stockholders.
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TERMS OF THE MERGER
The following description does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement, a copy of which
is attached as Appendix A to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference.
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that the Merger will become effective at
the effective time set forth in the certified copy of the Certificate of Merger
issued by the Secretary of State of the State of Delaware with respect to the
Merger. It is anticipated that, if the Merger Agreement is approved at the
Daniel Special Meeting and the Bettis Special Meeting and all other conditions
to the Merger have been satisfied or waived, the Effective Time will occur on
the date of the Special Meetings or as soon as practicable thereafter.
MANNER AND BASIS OF CONVERTING SHARES
The Merger Agreement provides that, at the Effective Time, each share
of Bettis Common Stock issued and outstanding, other than shares held by Daniel
or any wholly-owned subsidiary of Bettis or of Daniel (which shares will be
canceled at the Effective Time and no payment shall be made with respect
thereto), will be converted into the right to receive .58 of a share of Daniel
Common Stock.
As soon as practicable following the Effective Time, Daniel will cause
Wachovia Bank of North Carolina, N.A., which will act as Exchange Agent for the
Bettis Common Stock, to mail to each record holder of Bettis Common Stock
immediately prior to the Effective Time, a letter of transmittal and other
information advising such holder of the consummation of the Merger and for use
in exchanging Bettis Common Stock certificates for Daniel Common Stock
certificates and cash in lieu of fractional shares. Letters of transmittal
also will be available following the Effective Time at the offices of the
Exchange Agent. SHARE CERTIFICATES SHOULD NOT BE SURRENDERED FOR EXCHANGE BY
STOCKHOLDERS OF BETTIS PRIOR TO APPROVAL OF THE MERGER AND THE RECEIPT OF A
LETTER OF TRANSMITTAL.
No fraction of a share of Daniel Common Stock will be issued in the
Merger. Each stockholder of Bettis otherwise entitled to a fraction of a share
will, upon surrender of Bettis Common Stock certificates held by such holder,
be paid an amount in cash equal to the value of such fractional share based
upon the average of the daily closing sale price per share of Daniel Common
Stock on the NYSE for the ten trading days next preceding the Effective Time.
Alternatively, Daniel and Sub have the option of instructing the Exchange Agent
to aggregate all fractional shares of Daniel Common Stock, sell such Daniel
Common Stock in the open market and distribute to holders of fractional shares
of Daniel Common Stock a pro rata percentage of the proceeds from such sale.
No interest will be paid on such amount and all shares of Bettis Common Stock
held by a record holder shall be aggregated for purposes of computing the
number of shares of Daniel Common Stock to be issued in the Merger.
Until such time as a holder of Bettis Common Stock surrenders his or
her outstanding stock certificate to the Exchange Agent, together with the
letter of transmittal, the shares of Bettis Common Stock represented thereby
will be deemed from and after the Effective Time, for all corporate purposes,
other than the payment of earlier dividends and distributions, to evidence the
ownership of the number of full shares of Daniel Common Stock into which such
shares shall have been converted. Unless and until such outstanding
certificates are surrendered, no dividends or other distributions payable to
the holders of Daniel Common Stock, as of any time on or after the Effective
Time, will be paid to the holders of such outstanding certificates. Upon
surrender of the certificates previously representing Bettis
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Common Stock, the holder thereof will receive certificates representing the
number of shares of Daniel Common Stock to which he is entitled, cash in lieu
of fractional shares, and the amount of any dividends or other distributions,
if any, payable to holders of Daniel Common Stock on or after the Effective
Time with respect to such shares, without interest thereon.
BETTIS OPTIONS
Pursuant to the Merger Agreement, at the Effective Time, each option
to purchase shares of Bettis Common Stock outstanding as of the date of the
Merger Agreement ("Bettis Option") that remains unexercised in whole or in part
will be replaced by a substitute option to purchase that number of shares of
Daniel Common Stock determined by multiplying the number of shares of Bettis
Common Stock subject to such Bettis Option by .58 and dividing the exercise
price per share of such Bettis Option by .58. Each such substitute option will
otherwise contain substantially the same terms and conditions as the Bettis
Option it replaces.
Based on the Bettis Options outstanding at the Record Date, and
assuming none of the Bettis Options are exercised prior to the Effective Time,
Daniel will be required at the Effective Time to reserve an aggregate of
452,980 shares of Daniel Common Stock for issuance upon exercise of Bettis
Options assumed by the Surviving Corporation pursuant to the Merger.
The assumption of the Bettis Options pursuant to the Merger Agreement
will not affect the vesting schedules of any such options. The 1994
Nonemployee Directors Stock Option Plan, however, by its terms, provides that
in the event of a "change of control" (as defined therein), the options granted
with respect thereto will become fully vested and immediately exercisable. The
Merger will constitute a "change of control" under such plan. As a result,
Bettis Options relating to an aggregate of 45,000 shares of Bettis Common Stock
(equivalent to 26,100 shares of Daniel Common Stock) will become fully vested
and immediately exercisable. In addition, certain severance agreements held by
Messrs. Bratton, Krenek and Quam provide for the acceleration of Bettis
Options granted such persons in the event of termination of their employment
under conditions set forth in those agreements. For information regarding the
effect of the severance agreements on options held by those executive officers
of Bettis, see "The Merger -- Interests of Certain Persons in the Merger."
EMPLOYEE MATTERS
Pursuant to the Merger Agreement, Daniel may cause any Bettis employee
benefit plan ("Bettis Plan") to be terminated or discontinued at or after the
Effective Time, provided that, to the extent Daniel or its affiliates maintain
a Daniel employee benefit plan ("Daniel Plan") of the same type for employees
of Daniel or its affiliates, Daniel will take action to permit the Bettis
employees participating in such terminated or discontinued Bettis Plan to
thereafter participate in such Daniel Plan. If the Bettis Plan so terminated
or discontinued is a group health plan, then Daniel must permit each Bettis
employee (including dependents) participating in such group health plan to be
covered under a Daniel Plan modified to the extent necessary to (i) provide
medical and dental benefits to the Bettis employee and such eligible dependents
effective immediately upon the cessation of coverage under the Bettis Plan,
(ii) credit to such Bettis employee, for the plan year during which such
coverage under the Daniel Plan begins, with any deductibles and copayments
already incurred during such year under the respective Bettis Plan, and (iii)
waive any preexisting condition restrictions to the extent the restrictions
were satisfied under the respective Bettis Plan. All service with Bettis and
any subsidiary of Bettis prior to the Effective Time, and any other service
recognized under the applicable Bettis Plans, will be credited to such
employees for purposes of terms of employment and eligibility, vesting and
benefit determination under the Daniel Plans (other than benefit accruals under
any defined benefit pension plan).
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CONDITIONS TO THE MERGER
The Merger Agreement provides that the respective obligations of
Daniel and Bettis to effect the Merger are subject to the satisfaction or
waiver of the following conditions: (a) that the Merger Agreement and the
Merger shall have been approved and adopted by the requisite vote of the
stockholders of Daniel and the stockholders of Bettis; (b) that the Daniel
Common Stock issuable to the Bettis stockholders in the Merger shall have been
approved for listing on the NYSE, subject to official notice of issuance; (c)
that the waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated; (d) that no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the Merger
shall be in effect; (e) that the Registration Statement shall be effective on
the Closing Date, and all post-effective amendments filed shall have been
declared effective or shall have been withdrawn, and no stop order suspending
the effectiveness thereof shall have been issued and no proceedings for that
purpose shall have been initiated or, to the knowledge of the parties,
threatened by the Commission; and (f) that there shall have been obtained any
and all material permits, approvals and consents of securities or blue sky
authorities of any jurisdiction as are necessary so that the consummation of
the Merger and the transactions contemplated thereby will be in compliance with
applicable laws, the failure to comply with which would have a material adverse
effect on the business, financial condition or results of operations of Daniel.
The Merger Agreement provides that the obligation of Daniel to effect
the Merger is, at the option of Daniel, further subject to the satisfaction or
waiver of the following conditions: (a) the agreements and covenants of Bettis
to be complied with or performed on or before the Closing Date pursuant to the
Merger Agreement shall have been duly complied with or performed in all
material respects; (b) Bettis shall have furnished Daniel with certified
resolutions of its Board of Directors and stockholders approving the Merger and
an opinion of Vinson & Elkins L.L.P., counsel for Bettis, as to certain
corporate matters of Bettis; (c) the representations and warranties of Bettis
contained in the Merger Agreement (other than those made as of a specific date)
shall be true in all material respects (except to the extent the representation
or warranty is already qualified by materiality, in which case it shall be true
in all respects) on and as of the Closing Date; (d) Daniel shall have received
from persons, if any, as counsel for Bettis state may be "affiliates" of
Bettis, within the meaning of Rules 144 and 145(c) of the Commission pursuant
to the Securities Act, written undertakings to the effect that no disposition
will be made by such persons of any shares of Daniel Common Stock received
pursuant to the Merger except in compliance with the applicable provisions of
the Securities Act and the rules and regulations thereunder; (e) Daniel shall
have received an opinion of Fulbright & Jaworski L.L.P., counsel to Daniel, to
the effect that for federal income tax purposes and conditioned upon certain
representations of managements of Bettis and Daniel as to certain customary
facts and circumstances regarding the Merger: (i) the Merger will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code and (ii) no
gain or loss will be recognized by Bettis, Sub or Daniel as a result of the
Merger; (f) Daniel and Bettis shall have received a letter from Price
Waterhouse LLP to the effect that the Merger should be accounted for as a
pooling of interests under generally accepted accounting principles and
applicable regulations of the Commission; (g) Daniel shall have received
evidence that all approvals of governmental authorities and other third parties
necessary for the consummation of the Merger have been obtained, except those
that are not, individually or in the aggregate, material to Daniel or Bettis or
the failure of which to have been received would not materially detract from
the aggregate benefits to Daniel of the transactions reasonably contemplated by
the Merger Agreement; (h) there shall not be pending or threatened by any
governmental entity any suit, action or proceeding (or by any other person any
suit, action or proceeding which has a reasonable likelihood of success), (1)
challenging or seeking to restrain or prohibit
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<PAGE> 45
the consummation of the Merger or any of the other transactions contemplated by
the Merger Agreement or seeking to obtain from Daniel or any of its
subsidiaries any damages that are material in relation to Daniel and its
subsidiaries taken as a whole, (2) seeking to prohibit or limit the ownership
or operation by Bettis, Daniel or any of their respective subsidiaries of any
material portion of their business or assets, or to dispose of or hold separate
any material portion of their business or assets, as a result of the Merger or
any of the other transactions contemplated by the Merger Agreement, (3) seeking
to impose limitations on the ability of Daniel or Sub to acquire or hold, or
exercise full rights of ownership as to, any shares of Common Stock of the
Surviving Corporation, including the right to vote such shares on all matters
properly presented to the stockholders of the Surviving Corporation or (4)
seeking to prohibit Daniel or any of its subsidiaries from effectively
controlling in any material respect the business or operations of Bettis or its
subsidiaries; (i) Daniel shall have received an opinion from Simmons to the
effect that the terms of the Merger are fair to the holders of Daniel Common
Stock from a financial point of view; and (j) there shall not have occurred any
material adverse change with respect to Bettis since the date of the Merger
Agreement.
The Merger Agreement provides that the obligation of Bettis to effect
the Merger is, at the option of Bettis, further subject to the satisfaction or
waiver of the following conditions: (a) the agreements and covenants of Daniel
to be complied with or performed on or before the Closing Date pursuant to the
Merger Agreement shall have been duly complied with or performed in all
material respects; (b) Daniel shall have furnished Bettis with certified
resolutions of its Board of Directors and stockholders approving the Merger and
an opinion of Fulbright & Jaworski L.L.P., counsel for Daniel, as to certain
corporate matters of Daniel; (c) the representations and warranties of Daniel
contained in the Merger Agreement (other than those made as of a specific date)
shall be true in all material respects (except to the extent the representation
or warranty is already qualified by materiality, in which case it shall be true
in all respects) on and as of the Closing Date; (d) Bettis shall have received
an opinion of Vinson & Elkins L.L.P., counsel to Bettis, to the effect that for
federal income tax purposes and conditioned upon certain representations of
managements of Daniel and Bettis as to certain customary facts and
circumstances regarding the Merger: (i) the Merger will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code; (ii) each of
Daniel, Sub and Bettis are parties to the reorganization with the meaning of
Section 368(a) of the Code; and (iii) no gain or loss will be recognized by
Daniel, Sub or Bettis as a result of the Merger; (e) the fairness opinion from
Jefferies shall not have been revoked, modified or materially changed; and (f)
there shall not have occurred any material adverse change with respect to
Daniel since the date of the Merger Agreement.
REPRESENTATIONS AND WARRANTIES OF DANIEL AND BETTIS
In the Merger Agreement, Daniel and Bettis have made various
representations and warranties relating to, among other things, their
respective businesses and financial conditions, the accuracy of their various
filings with the Commission and their financial statements contained therein,
the status of various employee benefit plans, tax and environmental matters,
the satisfaction of certain legal requirements for the Merger and the existence
of certain litigation. The representations and warranties of each of the
parties to the Merger Agreement will expire upon consummation of the Merger.
CONDUCT OF BUSINESS OF DANIEL AND BETTIS PRIOR TO MERGER
Pursuant to the Merger Agreement, Bettis agreed that, prior to the
Effective Time, other than as expressly contemplated by the Merger Agreement or
as previously disclosed to Daniel, or unless Daniel shall otherwise provide its
prior written consent, (a) Bettis shall and shall cause its significant
subsidiaries to carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as previously conducted and
use
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all reasonable efforts to preserve intact their current business organizations,
keep available the services of their current officers and employees and
preserve their relationships with customers, suppliers and others having
business dealings with them, and (b) Bettis shall not, and shall not permit any
of its subsidiaries to, (i) (A) declare, set aside or pay any dividends on, or
make any other distributions in respect of, any of its capital stock, other
than dividends and distributions by any direct or indirect wholly-owned
subsidiary of Bettis to Bettis or a wholly-owned subsidiary of Bettis, (B)
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of its capital stock or (C)
purchase, redeem or otherwise acquire any shares of capital stock of Bettis or
any of its subsidiaries or any other securities thereof or any rights, warrants
or options to acquire any such shares or other securities; (ii) issue, deliver,
sell, pledge or otherwise encumber any shares of its capital stock, any other
voting securities or any securities convertible into, or any rights, warrants
or options to acquire, any such shares, voting securities or convertible
securities (other than the issuance of Bettis Common Stock upon the exercise of
stock options outstanding on the date of the Merger Agreement); (iii) amend its
Certificate of Incorporation, By-laws or other comparable charter or
organizational document; (iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the stock or
assets of, or by any other manner, any business or any corporation,
partnership, association, joint venture, limited liability company or other
entity or division thereof or (B) any assets that would be material,
individually or in the aggregate, to Bettis, except purchases of supplies and
inventory in the ordinary course of business consistent with past practice; (v)
sell, lease, mortgage, pledge, grant a lien on or otherwise encumber or dispose
of any of its properties or assets, except (A) sales of inventory in the
ordinary course of business consistent with past practice, (B) the sale of
buildings in Orville, Ohio and Glenrothes, Scotland, and (C) other immaterial
transactions not in excess of $250,000 in the aggregate; (vi) (A) incur any
indebtedness for borrowed money or guarantee any such indebtedness of another
person, issue or sell any debt securities or warrants or other rights to
acquire any debt securities of Bettis, guarantee any debt securities of another
person, enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for working capital borrowings
under currently existing revolving credit facilities incurred in the ordinary
course of business, or (B) make any loans, advances or capital contributions
to, or investments in, any other person, other than to Bettis or a wholly-owned
subsidiary of Bettis; (vii) make or incur any new capital expenditure, which,
singly or in the aggregate with all other such expenditures, would exceed
$500,000; (viii) make any material election relating to taxes or settle or
compromise any material tax liability; (ix) pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of Bettis included in its Commission filings or incurred in the
ordinary course of business consistent with past practice; (x) waive the
benefits of, or agree to modify in any manner, any confidentiality, standstill
or similar agreement to which it is a party; (xi) adopt a plan of complete or
partial liquidation or resolutions providing for or authorizing such a
liquidation or a dissolution, merger, consolidation, restructuring,
recapitalization or reorganization; (xii) enter into any new collective
bargaining agreement; (xiii) change any material accounting principle used by
it, except as required by regulations promulgated by the Commission; (xiv)
settle or compromise any litigation other than settlements or compromises: (A)
of litigation where the amount paid in settlement or compromise does not exceed
$100,000, or (B) in consultation and cooperation with Daniel, and, with respect
to any such settlement, with the prior written consent of Daniel; (xv)
authorize any of, or commit or agree to take any of, the foregoing actions;
(xvi) adopt or amend (except as may be required by law) any employee benefit
plan, agreement, trust, fund or other arrangement, for the benefit or welfare
of any employee, director or former director or employee, increase the
compensation or fringe benefits
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of any officer of Bettis or any of its subsidiaries, or, except as provided in
an existing Bettis Plan or in the ordinary course of business consistent with
past practice, increase the compensation or fringe benefits of any employee or
former employee or pay any benefit not required by any existing plan,
arrangement or agreement; (xvii) grant any new or modified severance or
termination arrangement or increase or accelerate any benefits payable under
its severance or termination pay policies in effect on the date of the Merger
Agreement; or (xviii) take any action that would, or could reasonably be
expected to, result in any of the representations and warranties of Bettis set
forth in the Merger Agreement becoming untrue.
Pursuant to the Merger Agreement, Daniel agreed that, prior to the
Effective Time, other than as expressly contemplated by the Merger Agreement or
as previously disclosed to Bettis, or unless Bettis shall otherwise provide its
prior written consent, (a) Daniel shall and shall cause each of its significant
subsidiaries to carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as previously conducted; and
(b) Daniel shall not, and shall not permit any of its significant subsidiaries
to, (i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends and
distributions by any direct or indirect wholly-owned subsidiary of Daniel to
Daniel or a wholly-owned subsidiary of Daniel or regular quarterly cash
dividends declared or paid by Daniel consistent with past practice, (B) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of its capital stock or (C)
purchase, redeem or otherwise acquire any shares of capital stock of Daniel or
any of its subsidiaries or any other securities thereof or any rights, warrants
or options to acquire any such shares or other securities; (ii) issue, deliver,
sell, pledge or otherwise encumber any shares of its capital stock, any other
voting securities or any securities convertible into, or any rights, warrants
or options to acquire, any such shares, voting securities or convertible
securities other than (A) the issuance of Daniel Common Stock upon the exercise
of stock options outstanding on the date of the Merger Agreement in accordance
with their current terms, or (B) the issuance of a number of shares of Daniel
Common Stock, not to exceed 5% of the shares outstanding on the date of the
Merger Agreement, in connection with the acquisition of assets or equity
securities of other entities or businesses; (iii) amend its Certificate of
Incorporation, By-laws, or other comparable charter or organizational document;
(iv) adopt a plan of complete or partial liquidation or resolutions providing
for or authorizing such a liquidation or a dissolution, merger, consolidation,
restructuring, recapitalization or reorganization; (v) change any material
accounting principle used by it, except as required by regulations promulgated
by the Commission; (vi) authorize any of, or commit or agree to take any of,
the foregoing actions; or (vii) take any action that would, or could reasonably
be expected to, result in any of the representations and warranties of Daniel
or Sub set forth in the Merger Agreement becoming untrue.
CONDUCT OF BUSINESS OF THE COMBINED COMPANY FOLLOWING MERGER
At the Effective Time of the Merger, Messrs. Clemons and O'Shields will
resign from the Board of Directors of Daniel, and the remaining directors will
elect Nathan M. Avery and Thomas J. Keefe to fill the vacancies created
thereby. Additionally, pursuant to the terms of the Merger Agreement, the
directors of Daniel will take action to appoint Mr. Avery to the Executive
Committee of the Board of Directors and Mr. Keefe to the Compensation
Committee. Mr. W. Todd Bratton, President and Chief Executive Officer of
Bettis, will also be elected an Executive Vice President of Daniel.
Sub will cease to exist after the Merger and Bettis will continue as a
wholly-owned subsidiary of Daniel. Pursuant to the Merger Agreement, the
Certificate of Incorporation of Bettis will be the Certificate of Incorporation
of the Surviving Corporation, and the By-laws of Sub will be the By-laws of the
Surviving Corporation. The directors of Sub immediately prior to the Effective
Time of the Merger, which will be James M. Tidwell, Michael R. Yellin
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and Thomas L. Sivak, will be the directors of the Surviving Corporation, and
the officers of Bettis immediately prior to the Effective Time of the Merger,
which are set forth under "Management -- Directors and Executive Officers "
will be the officers of the Surviving Corporation.
Each director and officer of Daniel and the Surviving Corporation will
hold office in accordance with the Certificate of Incorporation and By-laws of
Daniel and the Surviving Corporation, as the case may be, until their
respective successors are duly elected or appointed and qualified. See
"Management -- Directors and Executive Officers".
NO SOLICITATION BY BETTIS
The Merger Agreement provides that Bettis will not, and will not
permit any of its subsidiaries to, nor shall it authorize or permit any
officer, director or employee of or any investment banker, attorney or other
advisor, agent or representative of Bettis or any of its subsidiaries to,
directly or indirectly, (i) solicit, initiate or encourage the submission of
any takeover proposal, (ii) enter into any agreement (other than
confidentiality and standstill agreements in accordance with the immediately
following proviso) with respect to any takeover proposal, or (iii) participate
in any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any takeover proposal; provided that, prior to the vote of
stockholders of Bettis for approval of the Merger and to the extent required by
the fiduciary obligations of the Board of Directors of Bettis, determined in
good faith by a majority of the disinterested members thereof based on the
advice of outside counsel, Bettis may, in response to an unsolicited request
therefor, furnish information to any person or "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) pursuant to a confidentiality agreement.
"Takeover proposal" is defined in the Merger Agreement as (i) any proposal,
other than a proposal by Daniel or its affiliates, for a merger or other
business combination involving Bettis, (ii) any proposal or offer, other than a
proposal or offer by Daniel or its affiliates, to acquire from Bettis or any of
its affiliates, directly or indirectly, an equity interest in Bettis or any
subsidiary, any voting securities of Bettis or any subsidiary or a material
amount of the assets of Bettis or (iii) any proposal or offer, other than by
Daniel or its affiliates, to acquire from the stockholders of Bettis, by tender
offer, exchange offer or otherwise, more than 20% of the outstanding shares of
Bettis Common Stock. Notwithstanding the foregoing, Bettis may engage in
discussions with any person or group that has made an unsolicited takeover
proposal for the limited purpose of determining whether such proposal is a
superior proposal (hereinafter defined). In addition, Bettis may take and
disclose to its stockholders a position contemplated by Rule 14e-2(a) of the
Exchange Act, relating to tender offers.
PAYMENTS IN THE EVENT OF CERTAIN TAKEOVER PROPOSALS
The Merger Agreement further provides that, except in connection with
the termination of the Merger Agreement (i) by mutual consent of Daniel and
Bettis, (ii) by reason of the stockholders of either company not having
approved the Merger, (iii) because of a court or governmental agency order
enjoining the Merger, (iv) because the Merger has not occurred by January 31,
1997 or (v) by Bettis because the results of its due diligence review of Daniel
are not satisfactory, the Board of Directors of Bettis shall not (i) withdraw
or modify in a manner adverse to Daniel or Sub the approval or recommendation
by the Board of the Merger Agreement or the Merger or take any action having
such effect or (ii) approve or recommend any takeover proposal.
Notwithstanding the foregoing, in the event the Board of Directors of
Bettis receives a "takeover proposal" that, in the exercise of its fiduciary
obligations (as determined in good faith
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by a majority of the disinterested members thereof based on the advice of
outside counsel), it determines to be a "superior proposal", the Board of
Directors may withdraw or modify its approval or recommendation of the Merger
Agreement or the Merger and may terminate the Merger Agreement, but only if the
stockholders of Bettis have not yet voted upon the Merger and Bettis shall have
paid $2,000,000 to Daniel. In the event the Board of Directors of Bettis (i)
withdraws or modifies in a manner adverse to Daniel or Sub its approval or
recommendation of the Merger Agreement or the Merger or take any action having
such effect or (ii) approves or recommends any takeover proposal, Daniel may
terminate the Merger Agreement, and Bettis must pay $2,000,000 to Daniel. The
Merger Agreement defines a "superior proposal" as any bona fide takeover
proposal to acquire, directly or indirectly, for consideration consisting of
cash, securities or a combination thereof, all of the shares of Bettis Common
Stock then outstanding or all or substantially all the assets of Bettis, and
otherwise on terms which a majority of the disinterested members of the Board
of Directors of Bettis determines in its good faith reasonable judgment (based
on the written advice of a financial advisor of nationally recognized
reputation, a copy of which shall be provided to Daniel) to be more favorable
to Bettis' stockholders than the Merger. Bettis has agreed to advise Daniel of
any takeover proposal or any inquiry with respect to or which could lead to any
takeover proposal, of the material terms and conditions of any such inquiry or
takeover proposal (including the financing for such proposal and a copy of such
documents conveying such proposal), and of the identity of the person making
any such inquiry or takeover proposal. In addition, in the event the
stockholders of Bettis do not approve the Merger, and the Merger Agreement is
terminated, Bettis agrees to pay Daniel $2,000,000 if, after the date of the
Merger Agreement and before the termination of the Merger Agreement or within
six months following the date of termination of the Merger Agreement, a
takeover proposal shall have been made that is ultimately consummated.
In the event the Board of Directors of Daniel receives a takeover
proposal involving Daniel because of which, in the exercise of its fiduciary
obligations (as determined in good faith by a majority of the disinterested
members thereof based on advice of outside counsel), it determines it is
necessary to withdraw or modify its approval or recommendation of the Merger
Agreement or the Merger, Daniel may terminate the Merger Agreement by advising
Bettis that the Board of Directors of Daniel has received a takeover proposal
which it has determined requires such action, specifying the material terms and
conditions of such proposal (including the proposed financing for such proposal
and a copy of any documents conveying such proposal) and identifying the person
making such proposal, but only if the stockholders of Daniel have not yet voted
upon the Merger and Daniel shall have paid $2,000,000 to Bettis. Daniel
further agreed to pay $2,000,000 to Bettis if the stockholders of Daniel do not
approve the Merger as a result of a hostile takeover of Daniel after the date
of the Merger Agreement. The Merger Agreement defines "takeover proposal
involving Daniel" as (i) any proposal for a merger or other business
combination involving Daniel, (ii) any proposal or offer to acquire from Daniel
or its affiliates, directly or indirectly, an equity interest in Daniel or any
subsidiary, any voting securities of Daniel or any subsidiary or a material
amount of the assets of Daniel, or (iii) any proposal or offer to acquire from
the stockholders of Daniel, by tender offer, exchange offer or otherwise, more
than 20% of the outstanding Daniel Common Stock.
TERMINATION OR AMENDMENT OF MERGER AGREEMENT
The Merger Agreement provides that it may be terminated at any time
prior to the Effective Time, whether prior to or after approval by the
stockholders of Daniel or the stockholders of Bettis: (a) by mutual consent of
Daniel and Bettis; (b) by either Daniel or Bettis if (i) the stockholders of
Bettis or Daniel fail to give any required approval of the Merger upon a vote
at a duly held meeting; (ii) any court of competent jurisdiction or any
governmental authority shall have issued an order permanently enjoining,
restraining or otherwise prohibiting the Merger and such order shall have
become final and nonappealable;
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or (iii) the Merger has not been effected on or before January 31, 1997; and
(c) by either Daniel or Bettis if the other party breaches any of its
representations or warranties in the Merger Agreement or fails to perform in
any material respect any of its covenants, agreements or obligations
thereunder; and (d) by either Daniel or Bettis prior to a specified date, if
the results of its due diligence review of the other party were not
satisfactory to it. The Merger Agreement also may be terminated as described
above under "-- No Solicitation by Bettis" and "-- Payments in the Event of
Certain Takeover Proposals".
The Merger Agreement provides that it may be amended or supplemented
by an instrument in writing signed on behalf of each party thereto, provided
that after the Merger Agreement has been approved and adopted by the
stockholders of Daniel and the stockholders of Bettis, it may be amended only
as may be permitted by applicable provisions of Delaware law.
INDEMNIFICATION
Pursuant to the Merger Agreement, Daniel and Sub agreed that all
rights to indemnification for acts or omissions occurring prior to the
Effective Time in favor of the current or former directors or officers of
Bettis and its subsidiaries as provided in their respective certificates of
incorporation or by-laws and indemnity agreements will survive the Merger, and
Daniel shall cause the Surviving Corporation to continue such indemnification
rights in full force and effect in accordance with their terms as an obligation
of the Surviving Corporation for a period of not less than five years from the
Effective Time. Daniel further agreed to either (i) cause to be maintained for
a period of five years from the Effective Time (or such shorter period of time
as shall be agreed to by Nathan M. Avery and Sheldon R. Erikson (or, upon the
death of either, the sole survivor as representatives of the indemnified
parties)) Bettis' current directors' and officers' insurance and
indemnification policy to the extent that it provides coverage for events
occurring at or prior to the Effective Time of the Merger for all persons who
were directors and officers of Bettis on the date of the Merger Agreement or
(ii) cause to be provided a comparable arrangement (which may include
self-insurance by Daniel). Daniel guaranteed the payment by the Surviving
Corporation of the full annual premium for such directors' and officers'
insurance or comparable arrangement.
In the event the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then in each such case, proper provision must be made so that
the successors and assigns of the surviving corporation, which shall be
financially responsible persons or entities, assume the indemnification
obligations.
EXPENSES
Each of Daniel and Bettis has agreed to pay or reimburse the other for
its reasonable fees and expenses specifically related to the Merger, up to
$300,000, if the Merger Agreement is terminated because (a) the stockholders of
Daniel or Bettis, respectively, fail to approve the Merger and Merger Agreement
or (b) there has been a breach by Daniel or Bettis, respectively, of any
representation or warranty or a failure by it to perform in any material
respect any of its covenants, agreements or obligations set forth in the Merger
Agreement.
COMPARATIVE RIGHTS OF STOCKHOLDERS OF DANIEL AND BETTIS
The rights of holders of Bettis Common Stock are currently governed by
Delaware law, Bettis' Certificate of Incorporation and Bettis' By-laws. Upon
consummation of the Merger, holders of Bettis Common Stock will become holders
of Daniel Common Stock, and their rights
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as holders of Daniel Common Stock will be governed by Delaware law and Daniel's
Certificate of Incorporation and By-laws. Set forth below is an explanation
of material differences between the rights of holders of Bettis Common Stock
and the rights of the holders of Daniel Common Stock.
SPECIAL VOTE REQUIRED FOR CERTAIN COMBINATIONS
Section 203 of the Delaware General Corporation Law (the "DGCL")
prohibits a corporation from engaging in a "business combination" (as
hereinafter defined) with an "interested stockholder" (defined generally to mean
a person who, together with his affiliates owns, or if the person is an
affiliate of the corporation did own within the last three years, 15% or more of
the outstanding voting stock of the corporation) for a period of three years
after the time of the transaction in which the person became an interested
stockholder, unless (i) prior to the time of the business combination, the board
of directors of the corporation approved the business combination or the
transaction in which the stockholder became an interested stockholder, (ii) as a
result of the business combination, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced or (iii) on or subsequent to the date of the business
combination, the board of directors and the holders of at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder approve the
business combination. The DGCL defines a "business combination" generally as:
(i) a merger or consolidation with the interested stockholder or with any other
entity if the merger or consolidation is caused by the interested stockholder
and Section 203 will not apply to the surviving entity, (ii) a sale or other
disposition to or with an interested stockholder of assets with an aggregate
market value greater than or equal to 10% or more of either the aggregate market
value of all assets of the corporation or the aggregate market value of all of
the outstanding stock of the corporation; (iii) with certain exceptions, any
transaction resulting in the issuance or transfer by the corporation or any
majority-owned subsidiary of any stock of the corporation or such subsidiary to
the interested stockholder; (iv) any transaction involving the corporation or a
majority-owned subsidiary that has the effect of increasing the proportionate
share of the stock of the corporation or any such subsidiary owned by the
interested stockholder; or (v) any receipt by the interested stockholder of the
benefit of any loans or other financial benefits provided by the corporation or
any majority-owned subsidiary.
Section 203 applies to Bettis. However, the DGCL permits a
corporation to elect not to be governed by Section 203 and Daniel's By-laws
make such an election. Provisions similar to Section 203 are contained in
Daniel's Certificate of Incorporation. Daniel's provisions differ from the
DGCL by requiring a higher percentage of all stockholders' voting as a class to
approve a Business Combination (as hereinafter defined) with a Beneficial Owner
(as hereinafter defined). Pursuant to these provisions, a "Beneficial Owner"
is defined generally to mean a corporation, person or entity who, together with
its affiliates and associates, owns or has the right to acquire 5% or more of
the outstanding voting stock of Daniel. The holders of at least 80% of the
voting stock of Daniel, voting as a single class, must approve a Business
Combination. The term "Business Combination" is defined generally to include
any of the following transactions in which a Beneficial Owner is involved: (i)
a merger or consolidation involving Daniel, (ii) a sale or lease of assets of
all or substantially all of the assets of Daniel, or (iii) a sale or lease to
Daniel or any subsidiary of Daniel of any assets having an aggregate fair
market value of more than $1 million in exchange for voting stock (or
securities convertible or exchangeable for voting stock) of Daniel or any
subsidiary of Daniel by any other corporation, person or entity. The rules
regarding certain Business Combinations do not apply if Daniel's Board of
Directors approves a memorandum of understanding prior to the time such other
corporation, person or entity becomes a Beneficial Owner of 5% or more of the
outstanding shares of voting stock or to Business Combinations with a
subsidiary of which Daniel owns greater than 50% of the voting stock.
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VOTE REQUIRED FOR CORPORATE TRANSACTIONS AND OTHER MATTERS
Under the DGCL, an amendment to the corporation's certificate of
incorporation requires the affirmative vote of the holders of a majority of the
outstanding stock of the corporation entitled to vote thereon and a majority of
the outstanding stock of each class entitled to vote thereon as a class unless
the corporation's certificate of incorporation provides for a higher percentage.
The DGCL also provides that the holders of a majority of the outstanding stock
of the corporation entitled to vote thereon must approve an agreement of merger
or consolidation or the dissolution of a corporation.
Article VII of Bettis' Certificate of Incorporation contains a
provision requiring the vote of the holders of at least 80% of the outstanding
voting stock of the corporation, voting together as a single class, to amend
Article VII or Article V of the Certificate of Incorporation. Article V of
Bettis' Certificate of Incorporation generally refers to provisions relating to
the classes, number, election, terms, removal of directors, the vote required
to amend the By-laws and the requirement that stockholder actions be taken at
meetings rather than by written consent.
Daniel's Certificate of Incorporation provides that the affirmative
vote of the holders of at least 66 2/3% of the outstanding stock entitled to
vote is required for amendments to Daniel's Certificate of Incorporation. The
affirmative vote of the holders of at least 66 2/3% of the outstanding stock
entitled to vote is also required for mergers, consolidations and dissolutions
involving Daniel, unless the DGCL does not require a vote of the stockholders
of Daniel for the approval of the merger or another corporation with or into
Daniel. The DGCL does not require a vote of the Daniel stockholders for the
consummation of the Merger. Daniel's Certificate of Incorporation contains a
provision requiring the vote of the holders of at least 80% of the outstanding
voting stock of the corporation to amend the special vote requirement for
certain Business Combinations.
DISPOSITION OF ASSETS
Under the DGCL, all sales, leases or exchanges of all, or substantially
all, of the assets of a corporation must be authorized by a resolution adopted
by the holders of a majority of the outstanding stock of the corporation
entitled to vote thereon. Daniel's Certificate of Incorporation includes
provisions that set higher voting requirements for asset sales and leases
involving Business Combinations with Beneficial Owners. See "-- Special Vote
Required for Certain Combinations" for a description of the higher voting
requirements.
POWER TO AMEND BY-LAWS
Under the DGCL, the power to adopt, amend or repeal by-laws of a
corporation is vested in the authority of the stockholders entitled to vote,
unless the corporation's certificate of incorporation confers such power upon
its directors. However, power conferred shall not divest the stockholders of
their power to adopt, amend or repeal the by-laws. Bettis' Certificate of
Incorporation and By-laws provide that the By-laws may be amended (a) by the
affirmative vote of a majority of the outstanding stock entitled to vote,
voting together as a class, provided that, any amendment inconsistent with
provisions relating to number, term, vacancies and removal of directors,
requires the affirmative vote of 80% of the shares entitled to vote, or (b) by
a majority of the members present at a regular or special meeting of the board
of directors. Daniel's Certificate of Incorporation provides that the board of
directors of Daniel shall have the power to adopt, amend or repeal the By-laws,
subject to the right of the stockholders to amend the By-laws by a vote of the
holders of not less than 80% of the shares entitled to vote at a meeting of the
stockholders expressly called for that purpose.
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<PAGE> 53
QUORUM REQUIREMENTS FOR DIRECTORS' MEETINGS
The DGCL provides that a majority of the total number of directors
shall constitute a quorum for the transaction of business, unless the
certificate of incorporation or by-laws require a greater or lesser number,
provided that a quorum may not be less than one third of the full board of
directors. Bettis' By-laws provide that one-third of the directors, but
not less than three, shall constitute a quorum for the transaction of business
at directors' meetings. Daniel's By-laws provide that a majority of the total
number of directors shall constitute a quorum for the transaction of business.
REMOVAL OF DIRECTORS
The DGCL and Daniel's Certificate of Incorporation provide that
directors of Daniel may only be removed for cause by the holders of a majority
of the shares then entitled to vote at an election of directors. Bettis'
Certificate of Incorporation and By-laws provide that no director may be
removed from office, except for cause and upon the affirmative vote of the
holders of at least 80% of the outstanding stock entitled to vote for the
election of directors.
DIRECTOR ELECTIONS, QUALIFICATIONS AND NUMBER
The DGCL provides that the number of directors of a Delaware
corporation shall be fixed by, or in the manner provided in, the by-laws,
unless such number is changed by action of the majority of the directors.
Under the DGCL, a director need not be a stockholder to be qualified unless so
required by the corporation's certificate of incorporation or by-laws.
Regarding elections, Bettis' Certificate of Incorporation provides that
directors are to be elected by a plurality vote of the stockholders. Daniel's
By-laws provide that the vote of the holders of a majority of the shares
present (in person or represented by proxy) at the meeting of stockholders and
entitled to vote on the subject matter, including the election of directors,
shall generally be required to constitute the act of the stockholders to elect
directors. As to the number of directors, Bettis' Certificate of Incorporation
provides for the number of directors to be not less than three, and Daniel's
Certificate of Incorporation provides for the number of directors to be not
less than nine, unless otherwise approved by the affirmative vote of not less
than 80% of the number of directors in office at that time.
-46-
<PAGE> 54
DANIEL SELECTED FINANCIAL INFORMATION
The following selected financial information of Daniel, insofar as it
relates to fiscal years 1993 through 1995, has been derived from audited
financial statements, including the consolidated balance sheets at September 30,
1995 and 1994 and the related consolidated statements of operations and of cash
flows for the three years ended September 30, 1995 and the related notes
incorporated by reference herein. The selected financial information of Daniel
for the nine months ended June 30, 1996 and 1995 has been derived from unaudited
financial statements, which, in the opinion of Daniel, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of the results for the interim periods.
The information set forth below is qualified by reference to and
should be read in conjunction with the consolidated financial statements and
related notes included in Daniel's annual report on Form 10-K for the year
ended September 30, 1995 and its quarterly reports on Form 10-Q for the
quarters ended December 31, 1995, March 31, 1996 and June 30, 1996, each of
which is incorporated by reference in this Joint Proxy Statement/Prospectus.
(In thousands except per share amounts and ratios.)
<TABLE>
<CAPTION>
Nine Months
Ended June 30, Year Ended September 30,
-------------------- --------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues . . . . . . . . . . . . $120,295 $123,063 (2) $168,560 (2) $203,766 $180,249 $210,362 $201,744
Net income (loss) . . . . . . . . 7,496(1) (7,823)(3) (12,792)(3) 1,324 5,025 8,373 (1,969)
Net income (loss) per common share . .62 (.65) (1.06) .11 .42 .70 (.18)
Cash dividends per share .135 .135 .18 .18 .18 .18 .18
Weighted average shares outstanding 12,097 12,036 12,048 12,030 11,991 11,960 10,925
OTHER INFORMATION:
Capital expenditures, excluding
acquisitions . . . . . . . . . $4,159 $ 3,612 $4,794 $13,631 $11,793 $8,758 $11,538
<CAPTION>
September 30,
June 30, -------------------------------------------------------------
1996 1995 1994 1993 1992 1991
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Working capital . . . . . . . . . $ 50,572 $ 65,386 $ 65,990 $ 67,209 $ 77,735 $ 78,792
Total assets . . . . . . . . . . 180,576 164,468 187,337 178,068 177,079 192,091
Long-term debt (excluding current
portion) . . . . . . . . . . . 5,715 8,572 11,429 14,286 17,143 20,000
Stockholders' equity . . . . . . 113,715 109,320 121,880 121,050 120,427 113,343
Current ratio . . . . . . . . . 1.9(4) 2.5 2.4 2.8 3.3 2.5
- -----------------------------------
</TABLE>
(1) Net income for the nine months ended June 30, 1996 includes $1,288
attributable to gains on sales of non-manufacturing properties in
Germany.
(2) On November 28, 1995, Daniel disposed of a product line, which for the
nine months ended June 30, 1995 and for the year ended September 30,
1995 represented revenues of $20,362 and $27,746, respectively.
(3) The net losses for the nine months ended June 30, 1995 and fiscal 1995
were affected by charges for restructuring and other charges, inventory
writedowns and losses on divestitures of assets aggregating $12,170 and
$19,539, respectively. Additionally, on November 28, 1995, Daniel
disposed of a product line, which, for the nine months ended June 30,
1995 and for the year ended September 30, 1995 represented net income
(loss) of $1,155 and $(4,627), respectively.
(4) Reflects the acquisition of Spectra-Tek International Limited by Daniel
in May 1996, the consideration for which was funded by short-term bank
borrowing.
-47-
<PAGE> 55
BETTIS SELECTED FINANCIAL INFORMATION
The following selected financial information of Bettis, insofar as it
relates to each of the three years 1993 through 1995, has been derived from
audited financial statements, including the consolidated balance sheets at
December 31, 1995 and 1994 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1995 and notes thereto appearing elsewhere in
this Joint Proxy Statement/Prospectus. The selected financial information of
Bettis for the six months ended June 30, 1996 and 1995 has been derived from
unaudited financial information also appearing elsewhere in this Joint Proxy
Statement/Prospectus and which, in the opinion of management of Bettis,
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations for the unaudited interim periods. (In thousands except per share
amounts and ratios.)
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31, (1)
------------------ -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues . . . . . . . . . . . . $29,814 $ 26,394 $ 55,142 $ 51,974 $ 52,699 $ 55,574 $ 58,594
Net income . . . . . . . . . . . 1,018 973 2,280 2,067 3,737 5,068 5,238
Net income per common share . . 0.13 0.11 0.27 0.24 0.44 0.60 0.62
Weighted average shares outstanding 8,611 8,499 8,536 8,480 8,480 8,480 8,480
OTHER INFORMATION
Capital expenditures, excluding
acquisitions . . . . . . . . . $461 $ 546 $1,826 $1,916 $1,831 $1,279 $3,806
<CAPTION>
December 31, (1)
June 30, ------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- -------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Working capital . . . . . . . . . $ 12,781 $ 9,089 $ 9,183 $ 3,520 $ 2,139 $ 1,788
Total assets . . . . . . . . . . 60,448 45,876 44,625 39,278 36,285 44,621
Long-term debt (excluding current
portion) (2) . . . . . . . . . 16,730 9,898 12,667 927 1,910 2,803
Stockholders' equity . . . . . . 21,933 20,809 18,461 19,891 17,337 17,999
Current ratio . . . . . . . . . 1.6 1.6 1.7 1.2 1.1 1.1
</TABLE>
- ----------------------------------
(1) Through May 20, 1994, Bettis was a wholly-owned subsidiary of GH. On
such date GH distributed to its stockholders 100% of the common stock
of Bettis.
(2) The increase in long-term debt at June 30, 1996 resulted from
borrowings to fund acquisitions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Bettis --
Liquidity and Capital Resources".
-48-
<PAGE> 56
UNAUDITED PRO FORMA FINANCIAL INFORMATION
POOLING OF INTERESTS
The Unaudited Pro Forma Financial Statements (the "Pro Forma
Statements") have been prepared assuming the Merger is accounted for as a
pooling of interests. Accordingly, the Pro Forma Statements have been prepared
as if Daniel and Bettis were combined as of the beginning of the earliest
period presented.
The Unaudited Pro Forma Balance Sheet as of June 30, 1996 and
Unaudited Pro Forma Statements of Operations for the nine month periods ended
June 30, 1996 and 1995, are based on the unaudited consolidated financial
statements of Daniel and Bettis and include, in the opinion of Daniel's and
Bettis' managements, all adjustments necessary to present fairly the results of
such periods and should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations for each of Daniel
and Bettis. The Unaudited Pro Forma Statements of Operations for each of the
three years in the period ended September 30, 1995 have been derived from, and
should be read in conjunction with, the audited Consolidated Financial
Statements of Daniel and the related notes incorporated by reference and the
audited Consolidated Financial Statements of Bettis and the related notes
included elsewhere in this Joint Proxy Statement/Prospectus.
As a result of the differing year ends of Daniel and Bettis, results
of operations for different year ends have been combined. Daniel's results of
operations for years ended September 30, 1995, 1994 and 1993 have been combined
with Bettis' results of operations for the years ended December 31, 1995, 1994
and 1993, respectively. Daniel's results of operations for the nine months
ended June 30, 1996 and 1995 have been combined with Bettis' results of
operations for the nine month periods ended June 30, 1996 and 1995,
respectively, and accordingly, Bettis' operating results for the periods
October 1, 1995 through December 31, 1995 and October 1, 1994 through December
31, 1994 are included in the Pro Forma Statements for the years ended
September 30, 1995 and 1994, and in the nine month periods ended June 30, 1996
and 1995, respectively. Revenues, net income and net income per share of
Bettis were $14,735,000, $635,000, and $.08, respectively, for the period
October 1, 1995 through December 31, 1995. Revenues, net income and net
income per share were $13,215,000, $362,000, and $.04, respectively, for the
period October 1, 1994 through December 31, 1994.
ACQUISITIONS
On June 20, 1996, Bettis acquired all of the stock of Prime Actuator
Control Systems Limited and Prime Actuator Control Systems, Inc. (collectively,
"Prime") from Sooner Pipe and Supply Corporation for $4,000,000. The
acquisition of Prime was accounted for under the purchase method of accounting.
The Pro Forma Statements reflect Prime as if it had been acquired on October 1,
1994. Prime has historically used a July 31 year end for financial reporting
purposes. Included in the Pro Forma Statements for the nine months ended June
30, 1996 and for the year ended September 30, 1995 are Prime's results of
operations for the nine months ended April 30, 1996 and for the twelve months
ended October 31, 1995, respectively. Revenues, net loss and net loss per
share of Prime for the period August 1, 1995 through October 31, 1995 were
immaterial.
Bettis acquired all the stock of Shafer Valve Company ("Shafer") on
July 9, 1996 from Valley City Steel Company pursuant to a stock purchase
agreement with Valley City Steel Company, Shiloh Industries, Inc. and Shiloh
Corporation (the latter two being the shareholders of Valley City Steel
Company) (collectively referred to as "Valley City"). Bettis paid $13,200,000
in cash to Valley City for the shares of Shafer. The acquisition of Shafer was
accounted for under the purchase method of accounting. The accompanying
Unaudited Pro
-49-
<PAGE> 57
Forma Statements of Operations for the nine month period ended June 30, 1996
and for the year ended September 30, 1995 reflect Shafer as if it had been
acquired on October 1, 1994. Shafer has historically used an October 31 year
end for financial reporting purposes. Included in the Pro Forma Statements
for the nine month period ended June 30, 1996 and for the year ended September
30, 1995 are Shafer's results of operations for the nine months ended April 30,
1996 and for the twelve months ended October 31, 1995, respectively. Revenues,
net loss and net loss per share of Shafer for the period August 1, 1995 through
October 31, 1995 were immaterial.
The Unaudited Pro Forma Balance Sheet as of June 30, 1996 includes the
accounts of Bettis (which include Prime at such date) and reflect Shafer
accounted for on a pro forma basis as if the acquisition had occurred on such
date.
The Pro Forma Statements have been prepared based upon certain
assumptions and include adjustments as detailed in the Notes to Unaudited Pro
Forma Financial Statements. Bettis has not completed all the evaluations
necessary for the final purchase price allocations related to the acquisition
of Shafer or Prime; accordingly, actual adjustments that reflect final
evaluations of the purchased assets and assumed liabilities may differ from the
pro forma adjustments.
DIVESTITURES
As part of a restructuring plan adopted during Daniel's fiscal 1995,
Daniel announced its intention to divest identified non-core product lines. On
November 28, 1995, the net assets of its fastener subsidiary, Daniel
Industrial, Inc. ("Industrial"), were sold to an investor group for $8,200,000
in cash and $9,948,000 in collateralized subordinated notes, discounted to
$9,048,000. In the quarter ended September 30, 1995, Daniel recorded a pretax
charge of $10,587,000 related to the divestitures of non-core assets, primarily
the fastener group.
The Unaudited Pro Forma Statement of Operations for the nine month
period ended June 30, 1995, and year ended September 30, 1995, reflect the
divestiture of Industrial as if it had occurred on September 30, 1994.
----------------------------
The Pro Forma Statements are presented for illustrative purposes only
and are not necessarily indicative of actual results of operations or financial
position that would have been achieved had the Merger been consummated at the
beginning of the earliest period presented, or had the operations of Bettis,
Shafer and Prime been consolidated during the periods presented. Neither are
they necessarily indicative of future results.
-50-
<PAGE> 58
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Daniel/ Pro Forma
Daniel Bettis Bettis Shafer Prime Adjustments Combined
-------- ------- -------- ------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $120,295 $44,549 $164,844 $12,307 $ 4,018 $181,169
-------- ------- -------- ------- ------- --------
Costs and expenses:
Cost of goods sold 75,235 29,307 104,542 8,877 3,737 $ (366)A 116,790
Selling, general and
administrative expenses 34,594 11,126 45,720 3,073 1,792 (41)A 49,980
(294)B
(270)C
Gain on sale of assets (2,684) (2,684) (2,684)
Interest expense 1,378 816 2,194 1,225 323 D 3,359
(383)E
-------- ------- -------- ------- ------- -------- --------
108,523 41,249 149,772 13,175 5,529 (1,031) 167,445
-------- ------- -------- ------- ------- -------- --------
Income (loss) before income tax
expense (benefit) 11,772 3,300 15,072 (868) (1,511) 1,031 13,724
Income tax expense (benefit) 4,276 1,584 5,860 (205) (163)F 5,714
222 G
-------- ------- -------- ------- ------- -------- --------
Net income (loss) $ 7,496 $ 1,716 $ 9,212 $ (663) $(1,511) $ 972 $ 8,010
======== ======= ======== ======= ======= ======== ========
Earnings per common share $ .62 $ .47
======== ========
Average number of shares
outstanding 12,097 17,091
======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Financial Statements
-51-
<PAGE> 59
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Daniel/ Pro Forma
Daniel Bettis Bettis Industrial Shafer Prime Adjustments Combined
-------- ------- -------- ---------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $123,063 $39,609 $162,672 $(20,362) $11,800 $ 6,266 $160,376
-------- ------- -------- -------- ------- -------- --------
Costs and expenses:
Cost of goods sold 81,174 25,687 106,861 (15,321) 9,406 4,449 $ (403)A 104,992
Selling, general and
administrative expenses 38,421 10,710 49,131 (3,306) 3,043 1,487 (71)A 49,752
(294)B
(238)C
Restructuring and other
charges 12,330 12,330 12,330
Losses on divestitures 1,371 1,371 1,371
Interest expense 1,520 902 2,422 1,260 60 263 D 3,588
(417)E
-------- ------- -------- -------- ------- -------- ------- --------
134,816 37,299 172,115 (18,627) 13,709 5,996 (1,160) 172,033
-------- ------- -------- -------- ------- -------- ------- --------
Income (loss) before
income tax expense (benefit) (11,753) 2,310 (9,443) (1,735) (1,909) 270 1,160 (11,657)
Income tax expense (benefit) (3,930) 975 (2,955) (580) (569) (81)F (3,951)
234 G
-------- ------- -------- -------- ------- -------- ------- --------
Net income (loss) $ (7,823) $ 1,335 $ (6,488) $ (1,155) $(1,340) $ 270 $ 1,007 $ (7,706)
======== ======= ======== ======== ======= ======== ======= ========
Loss per common share $ (.65) $ (.45)
======== ========
Average number of shares
outstanding 12,036 16,965
======== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Financial Statements
-52-
<PAGE> 60
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Daniel/ Pro Forma
Daniel Bettis Bettis Industrial Shafer Prime Adjustments Combined
-------- ------- -------- ---------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $168,560 $55,142 $223,702 $(27,746) $16,462 $ 6,543 $218,961
-------- ------- -------- -------- ------- -------- --------
Costs and expenses:
Cost of goods sold 109,588 35,882 145,470 (20,549) 12,479 4,908 $ (521)A 141,787
Selling, general and
administrative expenses 51,171 14,203 65,374 (4,317) 3,860 2,223 (54)A 66,410
(378)B
(298)C
Restructuring and other
charges 12,330 12,330 12,330
Losses on divestitures 11,958 11,958 (9,528) 2,430
Interest expense 2,028 1,094 3,122 1,695 70 360 D 4,674
(573)E
-------- ------- -------- -------- ------- -------- ------- --------
187,075 51,179 238,254 (34,394) 18,034 7,201 (1,464) 227,631
-------- ------- -------- -------- ------- -------- ------- --------
Income (loss) before
income tax expense (benefit) (18,515) 3,963 (14,552) 6,648 (1,572) (658) 1,464 (8,670)
Income tax expense (benefit) (5,723) 1,683 (4,040) 2,021 (459) (235) (178)F
296 G (2,595)
-------- ------- -------- -------- ------- -------- ------- --------
Net income (loss) $(12,792) $ 2,280 $(10,512) $ 4,627 $(1,113) $ (423) $ 1,346 $ (6,075)
======== ======= ======== ======== ======= ======== ======= ========
Loss per common share $ (1.06) $ (.36)
======== ========
Average number of shares
outstanding 12,048 16,999
======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Financial Statements
-53-
<PAGE> 61
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Daniel/ Pro Forma
Daniel Bettis Bettis Adjustments Combined
-------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $203,766 $51,974 $255,740 $255,740
-------- ------- -------- --------
Costs and expenses:
Cost of goods sold 138,599 33,607 172,206 172,206
Selling, general and
administrative expenses 61,120 13,853 74,973 74,973
Interest expense 1,927 1,047 2,974 2,974
-------- ------- -------- --------
201,646 48,507 250,153 250,153
-------- ------- -------- --------
Income before income tax expense 2,120 3,467 5,587 5,587
Income tax expense 796 1,400 2,196 2,196
-------- ------- -------- --------
Net income $ 1,324 $ 2,067 $ 3,391 $ 3,391
======== ======= ======== ========
Earnings per common share $ .11 $ .20
======== ========
Average shares outstanding 12,030 16,949
======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Financial Statements
-54-
<PAGE> 62
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1993
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Daniel/ Pro Forma
Daniel Bettis Bettis Adjustments Combined
-------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $180,249 $52,699 $232,948 $232,948
-------- ------- -------- --------
Costs and expenses:
Cost of goods sold 112,144 32,514 144,658 144,658
Selling, general and
administrative expenses 57,935 13,200 71,135 71,135
Interest expense 2,088 959 3,047 3,047
-------- ------- -------- --------
172,167 46,673 218,840 218,840
-------- ------- -------- --------
Income before income tax expense 8,082 6,026 14,108 14,108
Income tax expense 3,057 2,289 5,346 5,346
-------- ------- -------- --------
Net income $ 5,025 $ 3,737 $ 8,762 $ 8,762
======== ======= ======== ========
Earnings per common share $ .42 $ .52
======== ========
Average shares outstanding 11,991 16,910
======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Financial Statements
-55-
<PAGE> 63
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Daniel/ Pro Forma
Daniel Bettis Adjustments Bettis Shafer Adjustments Combined
------ ------ ----------- ------ ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,460 $ 1,852 $ 9,312 $ 2 $ 9,314
Receivables, net of reserves 39,547 15,641 55,188 2,996 58,184
Costs in excess of billings
on uncompleted contracts 3,659 3,659 3,659
Inventories 44,879 14,386 59,265 5,647 64,912
Deferred taxes on income 7,102 7,102 1,054 $ (301)I 7,855
Other 3,647 2,042 5,689 164 5,853
-------- ------- -------- ------- -------- --------
Total current assets 106,294 33,921 140,215 9,863 (301) 149,777
Property, plant and equipment,
net 54,873 15,575 70,448 8,328 78,776
Intangibles and other assets 19,409 10,952 30,361 11,010 (10,394)J 30,977
-------- ------- ------- -------- ------- -------- --------
$180,576 $60,448 $ - $241,024 $29,201 $(10,695) $259,530
======== ======= ======= ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 22,037 $ 5,013 $ 27,050 $ 27,050
Current maturities of
long-term debt 2,857 2,766 5,623 5,623
Accounts payable-Valley City $25,037 $(25,037)K
Accounts payable 14,229 4,879 19,108 891 19,999
Accrued expenses 16,599 8,482 25,081 2,242 (524)L 26,799
-------- ------- -------- ------- -------- --------
Total current liabilities 55,722 21,140 76,862 28,170 (25,561) 79,471
Long-term debt 5,715 16,730 22,445 13,200 M 35,645
Deferred taxes on income 5,424 579 6,003 2,697 8,700
Other 66 66 405 (405)N 66
-------- ------- -------- ------- -------- --------
Total liabilities 66,861 38,515 105,376 31,272 (12,766) 123,882
-------- ------- -------- ------- -------- --------
Stockholders' equity:
Common stock, $1.25 par value 15,171 $ 6,150 H 21,321 21,321
Common stock, $.01 par value 85 (85)H
Common stock, $10.00 par value 1 (1)O
Capital in excess of par value 90,955 5,777 (6,065)H 90,667 90,667
Translation component (2,537) (1,131) (3,668) (3,668)
Retained earnings (deficit) 10,126 17,202 27,328 (2,072) 2,072 O 27,328
-------- ------- ------- -------- ------- -------- --------
Total stockholders'equity 113,715 21,933 135,648 (2,071) 2,071 135,648
-------- ------- ------- -------- ------- -------- --------
$180,576 $60,448 $ - $241,024 $29,201 $(10,695) $259,530
======== ======= ======= ======== ======= ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Financial Statements
-56-
<PAGE> 64
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION
On September 17, 1996, Daniel, Sub and Bettis entered into an Agreement
and Plan of Merger providing for the merger of Sub with and into Bettis. Under
the terms of the Merger Agreement, each outstanding share of Bettis common
stock, $.01 par value, will be converted into the right to receive .58 of a
share of Daniel Common Stock. The business combination will be accounted for
using the pooling of interests method of accounting. There are no adjustments
necessary to conform the accounting policies of Daniel and Bettis.
PRO FORMA ADJUSTMENTS
The pro forma adjustments are summarized below:
A. To record depreciation and amortization expense related to the
preliminary allocation of the purchase price of Prime.
B. To adjust historical goodwill expense of Shafer.
C. To record the effect of freezing the Shafer pension plan as of
the date of acquisition of Shafer.
D. To reverse the effects of historical interest expense related
to intercompany debt of Prime with Sooner not assumed in the
Prime acquisition and to record interest expense on the amount
drawn down on Bettis' revolving credit facility in connection
with the acquisition, net of cash available.
E. To reverse the effects of historical interest expense related
to intercompany debt of Shafer with Valley City not assumed in
the Shafer acquisition and to record interest expense on the
amount drawn down on Bettis' revolving credit facility in
connection with the acquisition, net of cash available.
F. To record the income tax benefit that would have been realized
if Prime had been acquired at the beginning of the period
presented.
G. To record the income tax provision that would have been
required if Shafer had been acquired at the beginning of the
period.
H. To give effect to the anticipated issuance of 4,920,392 shares
of Daniel Common Stock and to the retirement of the Bettis
Common Stock, based upon the exchange ratio of .58. The
actual number of shares of Daniel Common Stock will be
determined at the Effective Time.
I. Deferred tax benefits relating to adjustments to pension and
deferred compensation liabilities of Shafer.
J. To adjust excess cost over net assets acquired for purchase of
Shafer by Bettis.
K. To eliminate intercompany accounts not assumed in the
acquisition of Shafer.
L. To adjust pension liability for freezing the Shafer pension
plan effective as of date of the acquisition.
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M. To record increase in borrowings under Bettis' revolving line
of credit as a result of the acquisition of Shafer and Prime.
N. To adjust for deferred compensation plans not assumed in the
acquisition of Shafer.
O. To eliminate Shafer common stock and accumulated deficit at
date of acquisition.
There were no material transactions between Daniel and Bettis during
the periods presented.
PRO FORMA EARNINGS (LOSS) PER SHARE
The pro forma average common shares outstanding have been computed by
adjusting the historical average outstanding common shares of Daniel for the
shares assumed to be issued in exchange for the outstanding Bettis common
shares and for the dilutive effect of common stock equivalents arising from the
assumption of the Bettis options.
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<PAGE> 66
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DANIEL
RESULTS OF OPERATIONS
Nine Months Ended June 30, 1996 Compared to Nine Months Ended June 30, 1995
Daniel operates in one business segment, the manufacture and sale of
fluid measurement and flow control products and systems.
Revenues for the nine months ended June 30, 1996 were $120,295,000
compared to $123,063,000 for the same period in 1995, inclusive of revenues
from divested product lines of $4,815,000 and $24,975,000, respectively. The
increase in current period revenues, exclusive of revenues from divested
operations, over revenues of the prior period reflects improved demand for
Daniel's products, particularly valves.
The gross profit margin, exclusive of depreciation expense, for the
nine months ended June 30, 1996, was 40% of revenues compared to 36% for the
prior year. The gross profit margin, adjusted for divested operations and the
charge for inventory write-downs recorded during the 1995 period, remained
essentially unchanged at 42%
Selling and administrative expenses ("S&A expenses"), exclusive of
expenses of divested operations and depreciation and research and development
expenses, were 27% of revenues in the current period, as compared to 30% of
revenues in the prior period. The improvement is a result of revenues
increasing at a higher rate than expenses.
Depreciation and amortization expense decreased 14% to $5,031,000 for
the nine months ended June 30, 1996 due primarily to the divestiture of assets
during both the current and prior periods.
Research and development expenses decreased 47% to $1,154,000 during
the 1996 period compared to $2,165,000 in the prior period due primarily to
completion of certain electronics projects.
Interest expense decreased 9% to $1,378,000 in the current period due
to lower average short-term and long-term debt levels.
Results of operations for the nine months ended June 30, 1995 were
impacted by restructuring and other charges of $12,330,000 which represent
primarily accruals related to employee severance payments and to the impairment
of assets.
Daniel has not elected early adoption of Financial Accounting
Standards Board Statement No. 123, "Accounting for Stock-Based Compensation"
("FASB No. 123"), which requires implementation for fiscal years beginning
after December 15, 1995. Daniel will adopt FASB No. 123 for its year ending
September 30, 1997. Daniel does not intend to elect expense recognition for
stock options and, therefore, implementation will not materially affect its
financial statements.
While the original goals of Daniel's restructuring plan have been
substantially achieved, management is continuing to evaluate certain
operations, in part in light of the prospective consummation of the Merger.
Management believes that there may exist additional opportunities to eliminate
or combine certain operations, which measures, if undertaken, would, like the
restructuring plan, be directed toward achieving more efficient and profitable
operations. Any such measures, if taken, could in the future result in the
identification of impaired assets or other write-downs that could have a
non-recurring effect material to Daniel's results of operations in a particular
future period or interim period. Management does not foresee the likelihood of
any such actions that would have any material adverse effect on Daniel's
financial position, liquidity or cash flows. In accounting for the Merger as a
pooling of interests, Daniel will record as expense the transaction costs
associated with the Merger, currently estimated at approximately $3,000,000,
during the first quarter of fiscal 1997.
Year Ended September 30, 1995 Compared to Year Ended September 30, 1994
Revenues decreased 17% to $168,560,000 in 1995 from $203,766,000 in
fiscal 1994. The decline was due to the inclusion in the prior year of
revenues related to the construction of two
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large gas metering stations destined for the North Sea. In addition, during
fiscal 1995 a competitive foreign market for valves and the divestiture of the
energy fabrication business caused a decline in sales of valves and fabricated
energy products, respectively, compared to fiscal 1994 levels. The decrease in
revenues was partially offset by higher revenues from sales of fastener
products due to price increases allowed by improved demand.
The gross profit margin, exclusive of depreciation expense, for fiscal
1995 improved to 37% of revenues compared to 34% of revenues for fiscal 1994.
The improvement was due in large part to a change in product mix toward sales
of flow measurement products which earn higher margins than sales of flow
measurement systems and higher margins on fastener products due to price
increases. The improved gross profit margin was partially offset by a
$3,785,000 charge for inventory write downs recorded in the second quarter of
fiscal 1995 in connection with Daniel's decision, as part of its strategic
restructuring plan, to focus on core product lines.
S & A expenses, exclusive of depreciation and research and development
expenses, declined 15% to $45,031,000 during fiscal 1995 due principally to the
decrease in sales volume and the realization of benefits from the strategic
restructuring program.
Depreciation and amortization expense increased slightly to $7,545,000
in fiscal 1995 from $7,483,000 in fiscal 1994 due primarily to the amortization
of intangible assets associated with an acquisition. The increase was
partially offset by the discontinuation of depreciation and amortization of
assets held for sale.
Results of operations for fiscal 1995 include restructuring and other
charges of $12,330,000 representing primarily accruals related to employee
severance payments and the impairment of assets.
In fiscal 1995, Daniel recorded losses aggregating $11,958,000 related
to the divestiture of non-core product lines, primarily resulting from the
divestiture of the fastener business.
Research and development expenses declined 35% to $2,659,000 during
fiscal 1995 compared to $4,094,000 in the prior year due primarily to reduced
expenditures related to several electronic development projects.
Daniel's backlog at September 30, 1995 of approximately $46,700,000
represented an increase of 40% from the balance at September 30, 1994 due
primarily to a recovery in the level of backlog related to the valve business.
Year Ended September 30, 1994 Compared to Year Ended September 30, 1993
Revenues increased 13% to $203,766,000 during fiscal 1994 from
$180,249,000 during fiscal 1993. Sales of flow measurement systems increased
significantly during fiscal 1994 due primarily to construction of two gas
metering stations destined for the North Sea. Sales of flow measurement
products also increased reflecting increased demand for Daniel's metering and
electronic products, primarily in foreign markets. Sales of pipeline valves
decreased due to a more competitive worldwide market.
Gross profit margin, exclusive of depreciation expense, declined to 34%
of revenues for fiscal 1994 compared to 40% of revenues for fiscal 1993. A
shift in product mix toward sales of flow measurement systems, which earn lower
margins than sales of flow measurement products, pricing pressures in fiscal
1994 for pipeline valve and fastener products, and declines in operating
efficiencies at both Daniel's valve and fastener operations, were the primary
reasons for the margin decline.
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S&A expenses, exclusive of depreciation expense, increased to
$53,176,000 for fiscal 1994 as compared to $49,120,000 for fiscal 1993 due to an
increase in corporate expenses of $3,166,000 which resulted from a reduction of
accruals during the 1993 fiscal year related to settled litigation.
Research and development expenses decreased 23% to $4,094,000 during
fiscal 1994 compared to $5,343,000 for fiscal 1993 due primarily to completion
of certain electronics projects.
Depreciation and amortization expense increased 14% to $7,483,000 for
1994 due to capital expenditures incurred in 1993.
Interest expense decreased 8% to $1,927,000 during fiscal 1994 due to
lower long-term debt levels which were partially offset by increased short-term
borrowing levels.
Backlog at September 30, 1994 was approximately $33,400,000 compared
to $72,200,000 a year earlier. The decline in backlog was due in large part to
inclusion in the prior year of an unusually large order for a flow measurement
system in the amount of approximately $23,000,000.
IMPACT OF INFLATION
An effect of inflation is to increase the prices of labor and raw
materials used to manufacture Daniel'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 Daniel to have any unique difficulty in managing the effect of
inflation on its business. Daniel utilizes the LIFO method of accounting for
inventories which, in times of inflation, may have a significant impact on
reported income.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of Daniel's liquidity for the nine months ended
June 30, 1996 were proceeds from the divestiture of certain product lines,
proceeds from term loans, and cash and cash equivalents available at the
beginning of the year. These funds were used primarily for capital
expenditures, acquisitions, funding of operations, payments on short-term and
long-term debt, and payment of dividends.
Working capital decreased $14,814,000 from September 30, 1995 to
$50,572,000 at June 30, 1996 due in part to the receipt of long-term notes
received in partial consideration for the net assets of the fastener business,
which were classified as "Assets Held For Sale" and included as current assets
at September 30, 1995, and in part to the increase in short-term debt
associated with acquisition of Spectra-Tek. Daniel considers its financial
position to be strong with debt to total capitalization of 21%. Management
believes its current ratio at June 30, 1996 of 1.9 to 1.0 is adequate to meet
its needs for the foreseeable future.
During the first nine months of 1996 and 1995, Daniel relied upon
short-term borrowings under its bank lines of credit to meet its working capital
requirements. At June 30, 1996, borrowings under these lines were $9,000,000 at
a weighted average interest rate of 5.92%.
In May 1996, Daniel borrowed Pound Sterling 8,400,000 ($13,037,000) for
a period of six months at an interest rate for the first three months of 6.875%.
The proceeds were primarily used to acquire Spectra-Tek. Daniel has both the
intent and ability to refinance this loan.
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<PAGE> 69
Capital expenditures for the nine months ended June 30, 1996 were
$4,159,000. Daniel does not expect significant capital expenditures in the
fourth quarter of fiscal 1996. Daniel continues to seek acquisitions that
would build upon its market position in the manufacturing and marketing of
fluid measurement and flow control products and systems.
The primary sources of Daniel's liquidity for the year ended September
30, 1995, were internally generated funds, short-term borrowings, proceeds
from divestitures of non-core product lines, 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,
capital expenditures, payments on long-term debt and payments of dividends.
Daniel'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 at September 30, 1994. Daniel 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, Daniel 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, Daniel relied upon short-term borrowings under
its bank lines of credit to supplement its working capital and other cash
requirements. At September 30, 1995, Daniel had uncommitted short-term lines of
credit aggregating approximately $45,000,000. At September 30, 1995, borrowings
under these lines were $10,000,000 at a weighted average interest rate of 6.41%.
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<PAGE> 70
\ BETTIS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
relationship of selected items in the consolidated statements of operations as
a percentage of net revenues.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------- ---------------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
Manufacturing and direct expenses . . 66.6 65.2 65.1 64.7 61.7
------ ------ ------ ------ ------
Gross margin . . . . . . . . . . . . 33.4 34.8 34.9 35.3 38.3
Selling, general and administrative
expenses . . . . . . . . . . . . . 24.1 26.9 25.8 26.1 24.8
------ ------ ------ ------ ------
Operating income . . . . . . . . . . 9.3 7.9 9.1 9.2 13.5
Interest expense . . . . . . . . . . (1.8) (2.2) (2.0) (2.0) (1.8)
Other income (expense) . . . . . . . (.5) .5 .1 (.5) (.3)
---- ----- ------- ------- -------
Earnings before income tax provision 7.0 6.2 7.2 6.7 11.4
Income tax provision . . . . . . . . 3.4 2.5 3.1 2.7 4.3
------ ----- ------ ------ ------
Net earnings . . . . . . . . . . . . 3.6% 3.7% 4.1% 4.0% 7.1%
====== ===== ====== ====== =====
</TABLE>
Six Months Ended June 30, 1996 as Compared to the Six Months Ended June 30,
1995
Revenues for the six-month period ended June 30, 1996 totaled
$29,814,000 as compared to $26,394,000 for the same period in 1995, reflecting
an increase of $3,420,000, or 13.0%. The increase was due principally to
increased revenues from Bettis' United States and European operations and
revenues of $159,000 from the operations of Dantorque A/S ("Dantorque"), Prime
Actuator Control Systems, Ltd. ("Prime UK") and Prime Actuator Control Systems,
Inc. ("Prime Inc."), which were acquired in June 1996.
Gross margin as a percentage of revenues was 33.4% and 34.8% for the
six-month periods ended June 30, 1996 and 1995, respectively. The margin
decrease was due principally to a change in the mix of products to ones
carrying a lower margin.
Interest expense for the six months ended June 30, 1996 decreased by
$37,000 from the same period in 1995 principally due to decreased borrowings of
Bettis in the first quarter of 1996. Other income decreased by $287,000 due
principally to non-cash foreign exchange losses.
The effective tax rates for the six months ended June 30, 1996 and
1995 were 47.9% and 40.8%, respectively. The principal reason for the
difference between the statutory rate of 34% and the effective tax rate was the
effect of state income taxes and losses from operations at Bettis' French
subsidiary for which no tax benefit was available.
Comparison of the Results of Operations for the Years Ended December 31, 1995,
1994 and 1993
Net revenues for the year ended December 31, 1995 increased by
$3,168,000, or 6.1% over the same period in 1994. This increase was due
principally to increased sales of $4,761,000 from the United States operations,
including $1,992,000 from the Bettis Electric Division which was acquired in
August 1994. The United States operations benefitted from a strong
petrochemical and chemical marketplace for their products. This increase
offset a decline in revenues from Bettis's European operations which was due to
strong competition from Italian actuator manufacturers and a depressed oil and
gas market in the North Sea.
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<PAGE> 71
Revenues for the year ended December 31, 1994 decreased by $725,000 from the
1993 period due to lower sales by the United States operations principally due
to reduced project work in the construction and retrofit of plants in the
petrochemical and chemical industry.
Gross margin as a percentage of revenues was 34.9%, 35.3%, and 38.3%
for the periods ended December 31, 1995, 1994 and 1993, respectively. The
decrease in gross margin between the 1995 and 1994 periods was due to increased
depreciation expense principally on the acquisition noted above. The gross
margin decrease from 1993 to 1994 was due to the lower sales noted above and
lower margins attributable to the types of products sold.
Selling, general and administrative expense increased by $670,000
between 1995 and 1994 and by $513,000 between 1994 and 1993. The increases
were primarily due to the additional expenses of the Electric Division which
was acquired in August 1994 and increased sales expenses of the foreign sales
offices.
Interest expense for the year ended December 31, 1995 increased by
$47,000 from the same period in 1994 due principally to higher short term
working capital borrowings by Bettis's foreign subsidiaries. The 1994 increase
from 1993 of $88,000 was due to increased borrowings resulting from the
acquisition of the assets of the electric actuator subsidiary.
The effective tax rate in 1995, 1994 and 1993 was 42.5%, 40.4% and
38.0%, respectively. The principal reasons for the difference between the
United States statutory federal income tax rate of 34% and the effective tax
rate was the effect of state income taxes and foreign taxes in excess of the
United States federal income tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations was $532,000 for the six months ended June 30,
1996 as compared to cash provided from operations in the same 1995 period of
$1,259,000.
Net cash provided from operations in 1995 was $3,752,000 compared to
$5,684,000 in 1994, a decrease of $1,932,000. This decrease was due
principally to an increase in accounts receivable and inventories attributable
to the increase in sales in the last quarter of the year which was partially
offset by an increase in accounts payable.
Net cash used in investing activities was $1,695,000 and $5,282,000 in
1995 and 1994, respectively. The amount for 1995 principally represented
capital expenditures. In 1994, cash was principally used for the purchase of
the assets of the True Torq Division of Ruthman Pump and Engineering Inc.
("True-Torq"), to purchase land from GH and for capital expenditures.
Additional cash used in 1995 of $3,324,000 was principally for
payments of long and short term indebtedness. In 1994, cash provided from
operations and additional borrowings were used to pay for the items noted above
and to repay notes and to pay a dividend to GH.
Working capital at June 30, 1996 was $12,781,000. This was an
increase of $3,692,000 from December 31, 1995 and was due principally to the
earnings of Bettis and an increase in inventory due to projects to be shipped
in the third quarter of 1996.
At June 30, 1996, Bettis had a credit agreement with a bank for a term
loan facility, a $10,000,000 revolving credit facility and a $2,000,000 foreign
exchange facility. The term loan had an outstanding balance of $6,000,000 at
June 30, 1996, bears interest at the rate of 5.95% per annum and matures on
April 30, 1999. Principal in the amount of $500,000 plus
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interest is payable quarterly. The revolving credit facility had an
outstanding balance of $9,200,000 at June 30, 1996. Interest on the revolving
credit facility is payable quarterly and is adjusted quarterly based on Bettis'
ratio of total funded debt to earnings before interest, taxes, depreciation and
amortization. Interest rates range, at Bettis' option, from LIBOR plus 0.75%
or Prime Rate less 0.50% for a ratio of 1:1 or less to LIBOR plus 1.50% or
Prime Rate for a ratio of 3:1 or above. Bettis pays a quarterly fee of 3/16%
for the unused portion of the revolving credit facility plus a 1% fee for
letters of credit outstanding other than Canadian letters of credit and a fee
of 0.75% for Canadian letters of credit. The revolving credit facility matures
on April 30, 1998.
On July 8, 1996, the credit agreement described above was modified and
restated to increase the revolving credit facility available from $10,000,000
to $30,000,000. As collateral for the modified and restated credit facility,
Bettis pledged substantially all of its U.S. subsidiaries' assets and gave a
security interest in the stock of its foreign subsidiaries. The credit
facility contains covenants relating to: a minimum current ratio; a maximum
ratio of debt to earnings before taxes, interest and depreciation; a minimum
tangible net worth; a minimum fixed charge coverage ratio; and an annual
maximum amount of capital expenditures. In addition, Bettis is prohibited from
incurring additional collateralized indebtedness with the exception of a
permitted amount of purchase money indebtedness. Interest is payable
quarterly. The funds made available from the modified and restated credit
facility were used to acquire the stock of Prime UK, Prime Inc. and Shafer
Valve Company ("Shafer"). At July 31, 1996, the balance outstanding under this
loan agreement was approximately $21,000,000.
Each of Bettis' foreign subsidiaries has a credit facility with a bank
in the country in which its principal office is located. At June 30, 1996, the
aggregate amount of loans outstanding under these credit facilities was
approximately $7,175,000.
On August 15, 1994, Bettis, through a wholly-owned subsidiary,
acquired the assets of True Torq for $2,403,000 in cash. True Torq is located
in Cincinnati, Ohio and manufactures electric actuators with a torque of
between 140 and 10,000 pound/inches. Bettis borrowed amounts under the
revolving credit facility to fund the acquisition.
On June 7, 1996, Bettis acquired all of the outstanding stock of
Dantorque for $3,000,000 in cash which was funded from borrowings under Bettis'
revolving line of credit. Dantorque is located in Esjberg, Denmark and
manufactures a line of actuators used principally in subsea applications.
Dantorque's revenues in 1995 were approximately $3,000,000.
On June 20, 1996, Bettis acquired all of the issued and outstanding
stock of Prime UK, a company incorporated in Scotland and Prime Inc., a
Delaware corporation (collectively referred to as "Prime") from Sooner Pipe and
Supply Corporation ("Sooner"), pursuant to a Stock Purchase Agreement (the
"Agreement"). Pursuant to the Agreement, Bettis paid $4,000,000 in cash
consideration and caused Prime Inc. to issue and deliver a note in the
principal amount of $2,323,000 to Sooner for the shares of Prime UK and Prime
Inc. Prime's revenues in 1995 were approximately $9,000,000.
On July 9, 1996, Bettis acquired all of the outstanding stock of
Shafer, located in Mansfield, Ohio, from Valley City Steel Company for
$13,200,000. Bettis borrowed amounts under the revolving line of credit to
fund the acquisition. Shafer manufactures a line of rotary vane actuators
principally used in the oil and gas pipeline industry. Shafer had revenues in
1995 totaling approximately $16,500,000.
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<PAGE> 73
Capital expenditures for the six month period ended June 30, 1996 were
$461,000. Bettis anticipates that capital expenditures during the remainder of
1996 will be approximately $2,500,000. Bettis expects to fund these
expenditures and all working capital requirements through funds from operations
and borrowings under its revolving lines of credit.
Bettis anticipates that cash requirements, including working capital
and capital expenditures, will be met through funds generated from operations
and through borrowings under Bettis' revolving line of credit.
The FASB issued FASB No. 123, "Accounting for Stock-Based
Compensation," which encourages, but does not require, employers to adopt a
fair value method of accounting for employee stock-based compensation, and
which requires increased stock-based compensation disclosures if expense
recognition is not adopted. Bettis does not intend to elect expense
recognition for stock options and therefore implementation of FASB No. 123 will
have no effect on Bettis' operating results or financial condition.
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<PAGE> 74
MARKET PRICE OF COMMON STOCK AND DIVIDEND INFORMATION
Daniel Common Stock is traded on the NYSE under the symbol "DAN", and
Bettis Common Stock is traded on the Nasdaq National Market under the symbol
"BETT". The following table sets forth the range of high and low sale prices
for Daniel Common Stock and Bettis Common Stock for the periods indicated, as
reported on the NYSE and Nasdaq National Market, respectively.
<TABLE>
<CAPTION>
Daniel Bettis(1)
------------------------------------ -------------------
Dividends
High Low Paid High Low
-------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
TWELVE MONTHS ENDED SEPTEMBER 30, 1995
Quarter ended December 31, 1994 . . . $ 13.75 $11.63 $ .045 $ 4.00 $ 2.63
Quarter ended March 31, 1995 . . . . 15.50 12.63 .045 3.88 2.75
Quarter ended June 30, 1995 . . . . . 16.50 13.75 .045 3.88 2.75
Quarter ended September 30, 1995 . . 16.25 13.88 .045 4.38 3.50
TWELVE MONTHS ENDED SEPTEMBER 30, 1996
Quarter ended December 31, 1995 . . . 15.13 13.00 .045 5.38 3.88
Quarter ended March 31, 1996 . . . . 15.38 12.50 .045 5.63 4.75
Quarter ended June 30, 1996 . . . . . 16.63 13.38 .045 5.88 4.88
Quarter ended September 30, 1996 . . 14.88 12.75 .045 7.50 5.00
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
Quarter ended December 31, 1996
(through November 5) . . . . . . 13.13 12.63 7.38 7.00
</TABLE>
- ----------
(1) No cash dividends were declared or paid on the Bettis Common Stock
during any of the calendar quarters indicated. If the Merger is not
consummated, Bettis currently intends to retain any future earnings
to fund operations and the continued development of its business,
and, therefore, would not intend to pay any cash dividends in the
forseeable future.
On September 16, 1996, the last trading day prior to the announcement
by Daniel and Bettis that they had reached an agreement concerning the Merger,
the closing sale prices of Daniel Common Stock as reported by the NYSE and of
Bettis Common Stock as reported by the Nasdaq National Market were $13.00 and
$6.88 per share, respectively. Applying the .58 exchange ratio to Daniel's
closing price of $13.00, each share of Bettis Common Stock would be valued at
$7.54.
On November 5, 1996, the closing sale prices of Daniel Common Stock as
reported by the NYSE and of Bettis Common Stock as reported by the Nasdaq
National Market were $12.75 and $7.13 per share, respectively.
Following the Merger, Daniel Common Stock will continue to be traded
on the NYSE under the symbol "DAN"; Bettis Common Stock will cease to be traded
and there will be no further market for such stock.
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<PAGE> 75
DESCRIPTION OF BUSINESS
DANIEL
Daniel was incorporated under the laws of Delaware in 1988 as the
successor to a business started in 1930. Unless the context indicates
otherwise, references to "Daniel" refer to Daniel Industries, Inc., its
subsidiaries and their predecessors.
Daniel is engaged in providing products and systems used primarily by
producers, refiners and transporters of oil and natural gas. Daniel
manufactures a variety of measurement devices including orifice, turbine,
ultrasonic and oval gear meters and a wide range of electronic instruments used
in conjunction with flow measurement products. These measurement devices are
used to measure rates of flow and accumulated volumes of fluids, primarily oil
and natural gas. Daniel also designs, fabricates and assembles, automated flow
measurement systems to meet specific needs and applications. In addition,
Daniel manufactures and sells pipeline valves.
In connection with Daniel's restructuring plan announced in February
1995, Daniel 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.
ACQUISITIONS
On May 28, 1996 Daniel acquired all of the outstanding stock of
Spectra-Tek International Limited ("Spectra-Tek"). Spectra-Tek is a supplier
of data acquisition, monitoring and control systems for world-wide industrial
markets. Spectra-Tek also participates in the design, manufacture and project
management phases of these systems. The aggregate cash consideration paid for
the shares approximated $10,900,000, including certain transaction costs. The
purchase price was financed by bank borrowings. This acquisition has been
accounted for by the purchase method and, accordingly, the purchase price was
allocated to the net assets acquired based upon their estimated fair market
values. The excess of the purchase price over the estimated fair value of net
assets acquired amounted to approximately $6,900,000, which has been accounted
for as goodwill and is being amortized over 20 years using the straight-line
method. This allocation was based on preliminary estimates and may be revised
at a later date. The operations related to this acquisition are not material
to Daniel's results of operations.
In February 1996, Daniel acquired all of the outstanding stock of a
valve manufacturer and refurbisher. Acquisition costs of $2,733,000 were paid
in cash. The operations related to this acquisition, which was accounted for
by the purchase method, are not material to Daniel's results of operations.
DESCRIPTION OF PRODUCTS
Daniel operates in one business segment, the manufacture and sale of
fluid measurement and flow control products and systems.
Since its inception in 1930, Daniel 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, Daniel manufactures flow
measurement products using turbines whose frequency of rotation indicates rates
of flow and
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accumulated volumes of fluid, and oval gear meters for the measurement of
various liquid flows.
Daniel also manufactures a wide range of electronic instruments used
in conjunction with flow measurement products. Daniel's electronic flow
computers instantaneously compute and display the rate of flow and accumulated
volumes of fluid. Daniel has developed several software programs and has an
in-house programming capability to meet specific customer applications. Other
electronic products manufactured include chromatographs for analysis of natural
gas to determine its BTU content and ultrasonic flowmeters for nonintrusive gas
flow measurement. In addition, Daniel designs and manufactures electronic
products for the automation of liquid petroleum loading facilities.
Daniel designs, fabricates and assembles flow measurement systems,
including specialized electronic and control systems for the automation of
liquid petroleum product loading systems. 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 Daniel. In the
process of supplying a flow measurement system, Daniel first defines the total
measurement requirements, and subsequently designs the system. Daniel then
fabricates or supplies the various mechanical and electronic components of the
system. The system is assembled and tested at Daniel's Houston, Texas,
Falkirk, Scotland or Malton, England plants. Daniel 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.
In competing for the sale of systems, Daniel 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.
Daniel 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.
Daniel is engaged in the manufacture of gate valves that range in size
from 2" to 84" in diameter and pipeline valve repair. The gate valves are
manufactured from castings in 2" through 20" sizes and 8" through 84" are also
fabricated from plate steel which is cut and welded. Daniel offers both slab
and expanding gate valves with primary applications as pipeline block valves
and for on/off service in liquid and gas systems. The cast steel gate valves
are also used for geothermal wellhead and block valve service. Daniel
manufactures surge relief and flow control valves for liquid and gas pipeline
applications. Daniel also manufactures a line of forged-body trunnion ball
valves in 2" through 48" bore sizes. Their primary applications are as
pipeline block valves and for on/off service in liquid and gas systems.
Daniel has offices in seven United States cities; Calgary, Canada;
Dammam, Saudi Arabia; Datchet, England; Falkirk, Scotland; Leiden, Holland;
Malton, England; Moscow, Russia; Potsdam-Babelsberg, Germany and Singapore
through which it sells its 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
Daniel'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 Daniel's products and systems is worldwide.
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Daniel has not completed detailed market studies regarding its
competitive position. However, Daniel 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 and of large diameter pipeline
gate valves. In addition, management considers Daniel 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. In general, Daniel has numerous competitors, none of
which it considers to be dominant. The principal competitive factors include,
singularly or in various combinations, price, the ability to meet strict
delivery requirements, design, service, and efficiency.
At June 30, 1996 and September 30, 1995, Daniel's backlog of orders
was approximately $37,300,000 and $46,700,000, respectively. Daniel expects
that substantially all of the backlog at June 30, 1996, will be shipped prior
to September 30, 1997.
FOREIGN OPERATIONS
Approximately 18% of Daniel's revenues for the fiscal year ended
September 30, 1995, was attributable to sales of flow measurement products and
systems manufactured or assembled at Daniel's plants in Falkirk, Scotland, and
Potsdam-Babelsberg, Germany. Sales of Daniel's 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 Daniel's consolidated revenues in fiscal 1995, 1994 and 1993, respectively.
Daniel'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. Daniel endeavors to minimize these risks through
the use of letters of credit, United States dollar-denominated contracts and
hedging of specific foreign currency commitments.
RAW MATERIALS
Raw materials and other supplies used by Daniel in the manufacture and
fabrication of its products are purchased from suppliers and other
manufacturers. No significant purchases are made under long-term contracts,
and Daniel does not consider that it is materially dependent upon any single
source of supply. From time to time, however, Daniel encounters difficulty in
obtaining steel and steel castings.
CUSTOMERS
Occasionally, Daniel enters into contracts to design and assemble one
or more flow measurement systems for a single installation. Such systems can
be of material importance to the results of operations for a particular fiscal
period. However, Daniel is not dependent on a few customers on a continuing
basis.
PATENTS AND RESEARCH
Daniel seeks patent protection for products which it considers to have
significant commercial importance. Daniel does not consider that the patents
currently held by it are material to its operations.
Daniel 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 years ended September 30, 1995, 1994 and 1993, on research and
product development activities were approximately $2,700,000, $4,100,000 and
$5,300,000, respectively.
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EMPLOYEES
At June 30, 1996, Daniel employed 1,077 persons, none of whom are
subject to a collective bargaining agreement. Daniel considers its employee
relations to be satisfactory.
ENVIRONMENTAL COMPLIANCE
Compliance with existing governmental regulations 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 Daniel.
OTHER BUSINESS CONDITIONS AND REGULATIONS
Daniel's business is largely dependent upon the level and nature of
activity in the worldwide oil and natural gas industries. The level of such
activity is 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 Daniel is moderately seasonal to the extent that many
of Daniel'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.
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BETTIS
BACKGROUND
Bettis was incorporated in Delaware on March 1, 1994 as a wholly-owned
subsidiary of GH and is the successor to the business previously conducted by
Bettis Corporation, a Texas corporation ("Bettis-Texas"), founded in 1929, which
was acquired by GH in 1976. Bettis-Texas was merged into Bettis for the purpose
of reincorporating the business in Delaware. Pursuant to a distribution
agreement dated April 28, 1994, GH agreed to distribute to its stockholders all
of the common stock of Bettis and on May 20, 1994, each stockholder of record on
May 18, 1994 of GH Common Stock received one share of Bettis Common Stock for
every two shares of GH Common Stock they held. As a result of the distribution
Bettis became a public company.
GENERAL
Bettis manufactures and sells valve actuators and controls which are
used to remotely and automatically open or close quarter-turn or linear valves.
Bettis' market is any industry that uses pipes to transport liquids or gases in
supply, manufacture or distribution operations. These industries include
chemical and petrochemical, oil and gas transmission, refining, food and
beverage, power and pulp and paper.
As industrial operations have become increasingly automated, the need
to remotely and automatically open and close valves has become important.
Moreover, since many of the materials transported by pipes can cause
environmental damage if they escape from the pipes, companies have become more
concerned about their valve control systems. Such systems generally require
that valves be automatically closed if the pipe is damaged. Such damage can be
caused by fire, explosion or other hazardous events and, as a result, valve
control systems must be able to function effectively in such hostile
environments. In addition, many pipe systems are located in remote geographic
areas of the world and below the surface of land and water. The quality and
reliability of valve control systems, therefore, are significant competitive
factors in the market.
In order to meet increasingly higher standards for quality and
reliability, Bettis has expanded its emphasis on higher technology both in its
products offered and in its manufacturing process. Bettis continues research
and development in the area of enhanced control technology and expanded
diagnostics to provide value-added intelligent field instrumentation to its
product offering. In addition, Bettis' manufacturing facilities in Waller,
Texas, the United Kingdom and Canada have achieved ISO 9001 accreditation which
provides a quality standard for the manufacturing process acceptable worldwide.
Since Bettis' market for its products is world-wide, Bettis has
historically had manufacturing and sales facilities in the principal foreign
areas of its operations. Bettis has manufacturing facilities in the United
States, Canada, France and the United Kingdom. In order to improve market
penetration in areas where management believes opportunities for future sales
growth exist, Bettis opened sales offices in Abu Dhabi and Germany in 1993 and
in Singapore in 1994.
Bettis' international operations are subject in varying degrees to
risks inherent in doing business abroad. Such risks include, but are not
limited to, the possibility of unfavorable changes in tax or other laws,
partial or total expropriation, currency exchange rate fluctuations and
restrictions on currency repatriation, the disruption of operations from labor
and political disturbances, insurrection or war and other local factors.
Bettis attempts to lessen variations
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in currency fluctuation by receiving payments generally in United States
dollars, British pounds and Canadian dollars.
Bettis' operations are subject to a variety of federal and state
statutory regulations concerning protection of the environment. Management of
Bettis is of the belief that Bettis is in compliance in all material respects
with all applicable environmental laws to which it is subject.
RECENT ACQUISITIONS
On June 7, 1996, Bettis purchased all of the outstanding stock of
Dantorque for $3,000,000 in cash funded by borrowings under Bettis' revolving
credit facility. Dantorque's revenues in 1995 were approximately $3,000,000.
Dantorque manufactures a line of helical spline hydraulic double acting and
spring return actuators used principally in subsea applications. Dantorque has
a manufacturing/assembly facility in Esjberg, Denmark.
On June 20, 1996, Bettis purchased all of the outstanding stock of
Prime UK and Prime Inc. for $4,000,000 in cash funded by borrowings under
Bettis' revolving credit facility. Prime UK manufactures a line of hydraulic
and pneumatic scotch actuators from a facility in Glenrothes, Scotland. Prime
Inc. is located in Houston, Texas and is the United States sales operation for
Prime UK. In 1995, revenues of Prime UK and Prime Inc. were approximately
$9,000,000.
On July 9, 1996, Bettis purchased all of the stock of Shafer, located
in Mansfield, Ohio, from Valley City Steel Company for $13,200,000 in cash
funded by borrowings under Bettis' revolving credit facility. Shafer
manufactures a line of gas hydraulic rotary vane actuators and hydraulic power
units used primarily in the gas pipeline industry. Shafer's manufacturing
facilities are located in Mansfield and Orville, Ohio. Shafer had 1995
revenues totaling approximately $16,500,000.
PRODUCTS
Bettis provides products for the automation of valves with torque
requirements ranging from 45 pound/inches to those in excess of six million
pound/inches, permitting operation of valves for pipes ranging from one-quarter
inch to 144 inches in diameter. Bettis' actuators are powered by electricity,
air, gas or fluid and are used to open and close quarter-turn valves, such as
ball, butterfly and plug valves, and linear valves, such as gate and globe
valves. All of Bettis' actuators have enclosed housings that provide
protection from moving parts, minimize the possibility of internal misalignment
and reduce the chance of injury to operating personnel. External field
adjustable stops are provided to allow accurate adjustment and to assure
complete opening and closing of the valve. Moving parts and bearing surfaces
are supplied with a permanent lubricant, which also provides corrosion
protection.
Valve actuators are sold for original construction and for retrofit
applications. Remote automated operation of valves reduces personnel
requirements and provides safe, accurate, efficient and measurable means of
controlling valve positioning in any application.
Bettis has developed specialized lines of valve actuators for niche
markets that meet the requirements of a broad range of demanding applications.
For example, the FIREFOXX(TM) line is designed to operate in emergency fire
situations with short-term temperatures of up to 2000 degrees Fahrenheit, and
Bettis' S-Series actuators are designed to meet the rigorous demands encountered
in powering emergency shutdown systems for hostile environments, such as
offshore service in a submerged or splash zone application.
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<PAGE> 81
Bettis has continued to improve and expand its product line of valve
actuators. In 1990, a new line of linear actuators was introduced. During
1990 Bettis acquired Erichsen Industries Ltd. located in Edmonton, Alberta,
Canada, adding a gas/hydraulic product line to the overall product mix. In
1992, Bettis introduced the BettiSaf-T-Lok which may be incorporated with any
of its products and offers a high degree of safety for plant personnel in their
repair, retrofit and maintenance activities. In 1994, Bettis acquired the
assets of the True-Torq Division of Ruthman Pump and Engineering, Inc., a
manufacturer of electric actuators with a torque of between 140 and 10,000
pound/inches. During 1994 Bettis introduced the G-Series line of actuators
which offers advancements in sealing capability, wear resistance and
performance reliability in a modular design allowing for on-site servicing.
During 1995, Bettis redesigned its rack and pinion series of actuators to allow
for usage in the butterfly valve market and through use of bearings, increase
the cycle life of the product.
Valve actuator prices range from $75 for the smallest rack and pinion
model to more than $100,000 for the largest actuation system. The lower priced
rack and pinion line of actuators is sold in higher quantities than Bettis'
other products and is particularly appropriate for meeting confined space
configurations.
Generally, Bettis has a two year warranty on materials and workmanship
on all products manufactured. The new G-Series line of actuators has a five
year warranty on materials and workmanship. Based on past product experience
and product testing, management believes this five year warranty to be
appropriate for this product design. Bettis has not experienced any material
product warranty expense in any prior year.
Bettis secured the certification for ISO 9001 at its Waller, Texas and
Fareham, England facilities in June 1992, and the Edmonton, Canada facility was
certified in January 1994. Management believes that this certification
demonstrates Bettis' commitment to quality throughout all of its operations.
SALES AND MARKETING
Bettis sells its products on a worldwide basis with most of its sales
generated in the United States, Canada and Europe. Although the sales are made
in these geographic areas, the end user may be located virtually in any part of
the world. In the United States and Canada, Bettis sells its actuators to
approximately 90 independent valve automation centers and to valve companies.
Valve automation centers purchase actuators, design and mount the necessary
accessories, and then attach the actuators to valves. The majority of actuator
end users in the United States purchase completed valve actuator assemblies
from valve automation centers. Internationally, actuators are generally sold
through either valve automation centers or commissioned agents to valve
companies and end-users.
Bettis monitors major construction projects worldwide through
engineering companies and end-users to gain early knowledge of situations which
could require its products. Bettis continues to develop and strengthen its
working arrangements with valve companies through the development of
standardized valve/actuator combinations which include its products.
During 1995, Bettis sold its products to in excess of 710 customers in
approximately 50 countries. No one customer accounted for more than 8.9
percent of total 1995 net revenues of Bettis. Approximately $25.5, $27.5, and
$26.6 million of its net revenues during 1995, 1994 and 1993, respectively,
were derived from sales to customers outside the United States, including $2.1,
$2.2, and $3.8 million, respectively, of export sales from the United States.
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Various markets in Western Europe, Canada, South America, the Pacific Rim, and
the Middle East contribute to Bettis' revenue generation. For certain
information concerning foreign operations, see Note 11 to Notes to the
Consolidated Financial Statements.
COMPETITION
Management believes Bettis is a major competitor in both the domestic
and international markets for valve actuators. Major factors considered by the
purchasers of Bettis' products are price, quality and availability. Bettis'
competitive strengths are: products and controls designed with CAD-CAM
equipment in all four locations; the broad range of actuators offered; an
established network of valve automation centers in the United States and
Canada; an international marketing network which is enhanced by its facilities
in the United Kingdom and France; the flexibility of manufacturing at its
United States, Canadian and United Kingdom facilities; and the ability to react
quickly to special engineering requirements.
Domestically, management believes that Bettis' chief competitors are
Rotork, p.l.c., a publicly held British corporation and Automax, a subsidiary
of Duriron, Inc., a publicly held U.S. corporation. Internationally,
management believes that Bettis' primary competitors are Biffi, a wholly-owned
subsidiary of Keystone International, Inc., a publicly held U.S. corporation,
and Ledeen Italia, a wholly-owned subsidiary of Dresser Industries, Inc., a
publicly held U.S. corporation.
UNFILLED ORDERS
Sales of Bettis' products are made on the basis of written purchase
orders and faxed letters of commitment. Bettis estimates its unfilled orders,
which management believes to be firm, were approximately $13.7 million at
December 31, 1995, as compared to $11.4 and $12.4 million at December 31, 1994
and 1993, respectively. Substantially all of such unfilled orders will be
filled in 1996.
EMPLOYEES
As of June 30, 1996, Bettis employed a total of 456 persons, of whom
48 were in management positions, 93 in clerical positions and 315 in
production/technical positions. Bettis' employees are not represented by labor
unions. Bettis considers its employee relations to be satisfactory.
PROPERTIES
Corporate offices and principal manufacturing facilities as of June
30, 1996, are set forth in the following table:
<TABLE>
<CAPTION>
Operation Location Land Building Owned or Lease
--------- -------- (acres) (square feet Expiration Date
------ ------------ ---------------
<S> <C> <C> <C> <C>
Corporate offices and manufacturing Waller, Texas 219.4 145,698 Owned
Offices and manufacturing Fareham, England 3.7 70,257 2080
Offices and manufacturing Edmonton, Alberta, 6.4 58,800 Owned
Canada
Offices and manufacturing Cincinnati, Ohio 2.0 27,200 1997
Offices and manufacturing Villemomble, France 1.3 19,874 2010
</TABLE>
Bettis believes that its properties, including machinery and
equipment, are well-maintained, suitable for their intended uses and adequately
insured. Generally, Bettis utilizes
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its properties and principal manufacturing plants for one full day shift and
believes it has the ability to substantially increase capacity without
significantly increased capital expenditure levels.
LEGAL PROCEEDINGS
Bettis is a defendant in various civil lawsuits involving normal and
usual claims arising in the ordinary course of its business. In the opinion of
management, all such matters involve amounts such that an unfavorable
disposition of the proceedings would not have a material adverse effect on the
consolidated financial condition, results of operations or cash flows of
Bettis.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
DANIEL. Set forth below is certain information with respect to the
executive officers and directors of Daniel.
<TABLE>
<CAPTION>
Name Age Position with Daniel Director/Officer
-------------------------------- ---- ------------------------------------------------- ----------------
Since
------
<S> <C> <C> <C>
Ralph H. Clemons, Jr. . . . . 70 Director and Consultant to Daniel 1981
Ralph F. Cox . . . . . . . . . 64 Director 1996
Gibson Gayle, Jr. . . . . . . 69 Director 1985
W. A. Griffin . . . . . . . . 81 Chairman Emeritus of the Board of Directors of 1951
and Consultant to Daniel
W. A. Griffin, III . . . . . . 52 President and Chief Executive Officer of Daniel 1991
and Director
Ronald C. Lassiter . . . . . . 64 Chairman of the Board of Directors 1985
Leo E. Linbeck, Jr. . . . . . 62 Director 1988
Brian E. O' Neill . . . . . . 61 Director 1994
Richard L. O'Shields . . . . . 70 Director 1986
James M. Tidwell . . . . . . . 50 Vice President, Finance and Chief Financial 1996
Officer
W. C. Clingman . . . . . . . . 62 Vice President, Information Services 1977
Michael R. Yellin . . . . . . . 51 Vice President, Secretary and Treasurer 1981
Thomas L. Sivak . . . . . . . . 53 General Counsel 1987
Mary R. Beshears . . . . . . . 39 Controller and Chief Accounting Officer 1995
</TABLE>
Mr. Clemons, Jr. was President and Chief Operating Officer of Daniel
from 1985 until his retirement in 1991 and has served as a consultant to Daniel
since then.
Mr. Cox is a consultant on international petroleum activities and is
the retired President and Chief Operating Officer of Union Pacific Resources
Company. He is an independent Trustee for the Fidelity Group of Funds and a
member of the Board of Directors of CH2M Hill, Ltd., Sanifill, Inc., and Rio
Grand, Inc. Mr. Cox also serves on advisory boards at Texas A&M University and
the University of Texas. Mr. Cox is a former Vice Chairman of the Board of
Atlantic Richfield Company (ARCO); and, former President and Chief Operating
Officer of Champlin Petroleum Company (Union Pacific Resources Company).
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<PAGE> 84
Mr. Gayle, Jr. has been a partner in the law firm of Fulbright &
Jaworski L.L.P. since 1961, and he served as Chairman of that firm's Executive
Committee from 1979 to 1992. Fulbright & Jaworski L.L.P. provides legal
services to Daniel on an ongoing basis.
Mr. Griffin served as Chairman of the Board of Directors of Daniel
from 1957, and as Chief Executive Officer of Daniel from 1985, until his
retirement in February 1995. He is now a director and consultant to Daniel.
Mr. Griffin, III has served as President and Chief Executive Officer
of Daniel since July 1, 1991. From 1985 to 1989, Mr. Griffin, III was Vice
President, Finance and in 1989, he was elected Vice President, Finance and
Chief Financial Officer of Daniel. Mr. Griffin, III is the son of W.A.
Griffin, the Chairman Emeritus of the Board of Directors of Daniel.
Mr. Lassiter served as Acting Chief Operating Officer of Zapata
Corporation ("Zapata") from December 1994 to March 1995. He served as Chairman
of the Board of Directors of Zapata from December 1985 to July 1994, and Chief
Executive Officer from January 1983 to July 1994. From July 1994 until
December 1994, he was Chairman and Chief Executive Officer of Zapata Protein,
Inc. In December 1994, Mr. Lassiter withdrew from an active management role
with Zapata Protein, Inc. as a result of his participation in a group seeking
to acquire that subsidiary. That proposed acquisition was not consummated, and
Mr. Lassiter resumed his active management role as Chairman and Chief Executive
Officer of Zapata Protein, Inc. Mr. Lassiter has been a director of Zapata
since 1974.
Mr. Linbeck, Jr. has served as Chairman of the Board of Directors and
Chief Executive Officer of Linbeck Construction Corporation and Chairman of the
Board of Directors, Chief Executive Officer and President of Linbeck
Corporation for at least five years. He serves as a Life Director of the
Associated General Contractors of America and as a director of GeoQuest
International Holdings, Inc., John Hancock Advisors, Inc., and PanEnergy Corp
(formerly known as Panhandle Eastern Corporation). He also serves as a
director of The Bionomics Institute and the Texas Council on Economic
Education. He is currently serving as Chairman, Texans for Lawsuit Reform.
Mr. O'Neill has served as President and Chief Executive Officer of each
of the interstate natural gas pipeline interests owned by The Williams
Companies, Inc. (which include Northwest Pipeline Corporation, Williams Natural
Gas Company, Williams Western Company and, since May 1995, Transcontinental Gas
Pipeline Corporation and Texas Gas Transmission Company) since January 1994.
Prior to that, Mr. O'Neill served as President of Williams Natural Gas Company
since 1988. Mr. O'Neill is also a director of the Gas Research Institute and
the American Gas Association.
Mr. O'Shields, who retired as a member of the Board of Directors of
PanEnergy Corp (formerly known as Panhandle Eastern Corporation) in 1993, had
served as Chairman of that Board of Directors from 1979 until 1988.
Mr. Tidwell joined Daniel in September 1996, as Vice President,
Finance and Chief Financial Officer. Prior to that, Mr. Tidwell served as Vice
President of Finance of Hydril Company from August 1992 through August 1996.
Prior to that, Mr. Tidwell was Vice President Finance of ABB Vetco Gray, Inc.
from 1988 until 1992 and was President of Vetco Gray, Inc. from 1986 to 1988.
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<PAGE> 85
Ms. Beshears is a Certified Public Accountant and joined Daniel in
1984. From 1987 to 1991, she served as Internal Auditor, and from 1991 to
1995, she served as Manager of Financial Reporting. In 1995, she was named
Controller and Chief Accounting Officer.
BETTIS. Set forth below is certain information with respect to the
executive officers and directors of Bettis.
<TABLE>
<CAPTION>
Name Age Occupation
-------------------------------- ---- ---------------------------------------------------------------------
<S> <C> <C>
Nathan M. Avery . . . . . . . . 62 Chairman of the Board of Bettis; Chairman of the Board, President
and Chief Executive Officer of GH; Director, Cooper Cameron
Corporation, Prime Cable
Thomas J. Keefe . . . . . . . . 63 Director of Bettis; President and Chief Operating Officer,
G.H. Hensley Industries, Inc.
Sheldon R. Erikson . . . . . . 55 Director of Bettis; Chairman of the Board, President and Chief
Executive Officer of Cooper Cameron Corporation; Director, Triton
Energy Corporation
W. Todd Bratton . . . . . . . . 52 President, Chief Executive Officer and a Director of Bettis
Norman D. Quam . . . . . . . . 63 Senior Vice President of Bettis
Wilfred M. Krenek . . . . . . . 43 Vice President, Chief Financial Officer, Treasurer and Secretary of
Bettis
</TABLE>
Mr. Keefe had previously been President and Chief Operating Officer at
Lennox Industries, Inc. from July 1992 to June 1995. Mr. Keefe was previously
employed by Ameron, Inc. in the capacity of Group Vice President from 1986 to
1990, and President and Chief Operating Officer from 1990 to 1991.
Mr. Erikson had previously been Chairman, President and Chief
Executive Officer of the Western Company of North America from March 1987 to
April 1995.
Mr. Bratton joined Bettis in July 1988 as President and became Chief
Executive Officer in May 1994. Mr. Bratton served in varying capacities
including Executive Vice President, Operations of GH, Bettis' previous parent
company, from 1979 to May 1994.
Mr. Quam joined Bettis in August 1979 as Vice President of Sales and
Marketing. He became Senior Vice President in August 1988.
Mr. Krenek joined Bettis in May 1994 as Vice President, Chief Financial
Officer, Treasurer and Secretary. Mr. Krenek was previously employed by GH in
the capacity of Tax Manager from April 1985 to July 1987; as Controller from
July 1987 to May 1989; and as Vice President and Controller from May 1989 to May
1994.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
DANIEL. The following table sets forth certain information with
respect to Daniel Common Stock beneficially owned as of September 15, 1996 by
(i) persons who are known to Daniel to be the beneficial owners of 5% or more
of Daniel Common Stock, (ii) each of the five highest paid executive officers
of Daniel, (iii) each director of Daniel, and (iv) all Daniel officers and
directors as a group, including pro forma information for such persons assuming
that the Merger had been consummated at such date. The persons listed have
sole voting power and sole dispositive power with respect to all shares set
forth in the table unless otherwise specified in the footnotes to the table.
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<PAGE> 86
<TABLE>
<CAPTION>
Shares Owned Percent
Directly or Percent Owned Following
Name and Address Indirectly(1) of Class the Merger
----------------------------------------------- ---------------- ------------- --------------------
<S> <C> <C> <C>
W. A. Griffin
9753 Pine Lake Drive
Houston, TX 77055 . . . . . . . . . . . . 1,518,067(2) 12.5% 8.9%
State of Wisconsin Investment Board
121 East Wilson St.
Madison, WI 53702 . . . . . . . . . . . . 1,147,700 9.5% 6.7%
Farmers Group, Inc. (3)
468 Wilshire Blvd.
Los Angeles, CA 90010 . . . . . . . . . . 952,400 7.8% 5.6%
Ralph H. Clemons, Jr. . . . . . . . . . . . 12,721 * *
Ralph F. Cox . . . . . . . . . . . . . . . . 5,000 * *
Gibson Gayle, Jr. . . . . . . . . . . . . . 10,000 * *
W. A. Griffin, III . . . . . . . . . . . . . 170,033(4) 1.4% 1.0%
Ronald C. Lassiter . . . . . . . . . . . . . 10,800 * *
Leo E. Linbeck, Jr. . . . . . . . . . . . . --
Brian E. O'Neill . . . . . . . . . . . . . . 10,000(5) * *
Richard L. O'Shields . . . . . . . . . . . . 12,000 * *
W. C. Clingman . . . . . . . . . . . . . . . 43,890(6) * *
Michael R. Yellin . . . . . . . . . . . . . 21,439(7) * *
James M. Tidwell . . . . . . . . . . . . . . --
Thomas L. Sivak . . . . . . . . . . . . . . 17,709(8) * *
All directors and executive officers
as a group (14 in number) . . . . . . . . 1,833,789 14.9% 10.6%
</TABLE>
- -------------------
* Denotes ownership of less than one percent.
(1) Information with respect to beneficial ownership is based upon
information furnished by each stockholder or contained in filings made
with the Commission.
(2) W. A. Griffin owns 983,792 shares of Daniel Common Stock and is also
considered to be the beneficial owner of 534,275 shares held in his
capacity as trustee of a trust in which he has a vested beneficial
interest.
(3) Based upon information contained in a Schedule 13G dated February 1996,
Farmers Group, Inc. has shared voting and dispositive power with respect
to the shares beneficially owned by it.
(4) Includes 95,807 shares that may be acquired within 60 days of September
15, 1996 through the exercise of outstanding options and 4,469 shares
that are attributable to him through his participation in Daniel's profit
sharing and savings plan.
(5) Includes 10,000 shares that may be acquired within 60 days of September
15, 1996 through the exercise of outstanding options.
(6) Includes 35,000 shares that may be acquired within 60 days of September
15, 1996 through the exercise of outstanding options and 6,715 shares
that are attributable to him through his participation in Daniel's profit
sharing and savings plan.
-79-
<PAGE> 87
(7) Includes 17,667 shares that may be acquired within 60 days of September
15, 1996 through the exercise of outstanding options and 2,572 shares
that are attributable to him through his participation in Daniel's profit
sharing and savings plan.
(8) Includes 14,667 shares that may be acquired within 60 days of September
15, 1996 through the exercise of outstanding options and 1,842 shares
that are attributable to him through his participation in Daniel's profit
sharing and savings plan.
BETTIS.
Directors and Management. The following table sets forth the number of
shares of Bettis Common Stock beneficially owned on September 15, 1996 by each
non-employee director, by the executive officers of Bettis named in the Summary
Compensation Table for Bettis and by all directors and executive officers as a
group. Unless otherwise noted, each individual has sole voting and investment
power over all shares indicated as beneficially owned by him.
<TABLE>
<CAPTION>
SHARES OF BETTIS COMMON STOCK
BENEFICIALLY OWNED PERCENT OF DANIEL
----------------------------- COMMON STOCK OWNED
Name of Beneficial Owner NUMBER PERCENT AFTER THE MERGER
- ------------------------ ------- -------- ----------------
<S> <C> <C> <C>
Non-employee directors (1)
Nathan M. Avery . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,914 3.9% 1.1%
Sheldon R. Erikson . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 * *
Thomas J. Keefe . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,167 * *
Executive Officers
W. Todd Bratton . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,605(2) 1.2% *
Norman D. Quam . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,151(3) * *
Wilfred M. Krenek . . . . . . . . . . . . . . . . . . . . . . . . . . 28,000(4) * *
All directors and executive officers
as a group (6 persons) . . . . . . . . . . . . . . . . . . . . . . . . 512,837(5) 5.9% 1.7%
</TABLE>
- -------------------
* Less than 1%
(1) Includes 6,000 shares of Bettis Common Stock for each non-employee
director currently exercisable pursuant to options granted under
existing stock option plans.
(2) Includes 94,000 shares of Bettis Common Stock currently exercisable
pursuant to options granted to Mr. Bratton under existing stock option
plans.
(3) Includes 39,000 shares of Bettis Common Stock currently exercisable
pursuant to options granted to Mr. Quam under existing stock option
plans.
(4) Includes 27,000 shares of Bettis Common Stock currently exercisable
pursuant to options granted to Mr. Krenek under existing stock option
plans.
(5) Includes options held by directors and executive officers of Bettis
under existing stock option plans that are currently exercisable for
178,000 shares of Bettis Common Stock.
Significant Stockholders. The following table sets forth information
regarding the number of shares of Bettis Common Stock held as of June 28, 1996
by beneficial owners of more than five percent of the Bettis Common Stock.
Unless otherwise indicated, all persons named below have sole voting and
investment power over all shares shown as beneficially owned by them.
-80-
<PAGE> 88
<TABLE>
<CAPTION>
SHARES OF BETTIS COMMON STOCK
BENEFICIALLY OWNED PERCENT OF DANIEL
----------------------------- COMMON STOCK OWNED
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT AFTER THE MERGER
- ------------------------ --------- --------- ------------------
<S> <C> <C> <C>
First Manhattan Company (2)
437 Madison Avenue
New York, New York 10022 . . . . . . . . . . . . . . . . . . . . . . 1,147,973 13.5% 3.9%
The Killen Group, Inc.
1189 Lancaster Avenue
Berwyn, Pennsylvania 19312 . . . . . . . . . . . . . . . . . . . . . 882,150 10.4% 3.0%
Cowen & Company
Financial Square
New York, New York 10005-3597 . . . . . . . . . . . . . . . . . . . . 561,800 6.6% 1.9%
David L. Babson & Co.
1 Memorial Drive
Cambridge, Massachusetts 02142-1300 . . . . . . . . . . . . . . . . . 498,100 5.9% 1.7%
</TABLE>
- -------------------
(1) As reported in the Nasdaq Corporate Records dated June 28, 1996.
(2) Includes 6,000 shares owned by family members of General Partners of
First Manhattan Company for which First Manhattan Company disclaims
beneficial ownership.
-81-
<PAGE> 89
EXECUTIVE COMPENSATION AND OTHER INFORMATION OF BETTIS
REMUNERATION OF EXECUTIVE OFFICERS
The following table summarizes with respect to Bettis' Chief Executive
Officer and each of the two other most highly paid executive officers of Bettis
whose salary plus bonus exceed $100,000 in 1995, certain information relating
to the compensation earned for the services rendered in all capacities during
the years indicated.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (1)
------------------------------
Long Term Compensation
Annual Compensation ----------------------
------------------- Stock Option Other All Other
Name and Principal Year Salary Bonus (2) Payout (3) Options Compensation (4)
------------------ ---- ------ --------- ---------- ------- ----------------
Position
--------
<S> <C> <C> <C> <C> <C> <C>
W. Todd Bratton . . . . . 1995 $156,000 $49,725 0 0 $3,862
President and Chief 1994 $156,000 $32,200 $96,875 160,000 $2,920
Executive Officer 1993 $140,000 $38,920 0 0 $2,513
Norman Quam . . . . . . . 1995 $104,232 $20,765 0 0 $2,612
Senior Vice President 1994 $104,232 $13,029 $16,913 65,000 $1,580
1993 $100,117 $17,067 0 0 $1,944
Wilfred Krenek (5) . . . 1995 $ 91,199 $14,652 0 0 $2,281
Vice President and 1994 $ 56,950 $ 8,840 $30,750 45,000 $1,382
Chief Financial Officer
</TABLE>
- ------------------
(1) This table does not include columns for Other Annual Compensation and
Restricted Stock Awards. There were no Restricted Stock Awards
granted for the previous years and the amounts for Other Annual
Compensation paid to the named executive officers were in each case
granted for prerequisites that did not exceed the lesser of $50,000 or
10% of salary and bonus for each executive officer.
(2) Represents amounts earned under Bettis Management Incentive
Compensation Plan for 1995 and 1994 and the GH Management Incentive
Compensation Plan for 1993.
(3) Represents amounts received from the cancellations of options to
acquire GH Common Stock in connection with the distribution of Bettis'
Common Stock to the GH stockholders.
(4) Represents Bettis contributions to Bettis Retirement Savings Plan in
1995 and 1994 and the GH Retirement Savings Plan in 1993.
(5) Mr. Krenek became an employee of Bettis beginning in May 1994. The
amount paid in 1994 represents payments made by Bettis to Mr. Krenek
during this period.
-82-
<PAGE> 90
STOCK OPTIONS
No stock options were granted during 1995 to the named officers
reflected in the Summary Compensation Table. The following table sets forth
the information with respect to unexercised options at December 31, 1995 to the
named officers reflected in the Summary Compensation Table.
<TABLE>
<CAPTION>
Value of Unexercised
in the Money Options at
December 31, 1995
-----------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
W. Todd Bratton . . . . . . . . . . . . 64,000 96,000 $42,500 $170,000
Norman Quam . . . . . . . . . . . . . . 26,000 39,000 $17,000 $ 68,000
Wilfred M. Krenek . . . . . . . . . . . 18,000 27,000 $12,750 $ 51,000
</TABLE>
No stock options were exercised by the individuals named in the table in 1995.
EMPLOYMENT AGREEMENT
Effective May 20, 1994, Bettis entered into a three-year employment
agreement with W. Todd Bratton. The terms of such employment contract call for
a minimum annual salary of $156,000, and bonuses and other benefits as may be
determined by the Board of Directors of Bettis. Bettis can terminate the
employment contract for "cause" which is defined as material malfeasance,
material dishonesty or continued neglect by Mr. Bratton in connection with the
performance of his duties.
SEVERANCE AGREEMENTS
Bettis has entered into severance agreements with W. Todd Bratton,
Norman D. Quam and Wilfred M. Krenek. Under the terms of the severance
agreements, within 12 months after a Change of Control (as defined below) and
the occurrence of an involuntary termination, Bettis will pay to the employee a
lump sum cash payment equal to (i) two years' salary in the case of Mr. Bratton
or (ii) one year's salary in the case of Mr. Quam and Mr. Krenek. A change of
Control shall occur (a) if any corporation (other than Bettis), person or group
("Person") makes a tender or exchange offer for voting securities of Bettis
representing more than 50% of the total outstanding voting securities and,
pursuant to such offer, purchases are made; (b) if any Person becomes the
beneficial owner of voting securities of Bettis representing more than 50% of
the total outstanding voting securities; or (c) upon the occurrence of a change
in persons constituting more than 50% of the Board of Directors of Bettis as a
result of a contested proxy election. Upon involuntary termination as provided
in the severance agreements, employees will continue to be covered under
Bettis' health and medical benefit plans, will receive all amounts payable
under the Management Incentive Compensation Plan, and all options held by such
employees will become immediately exercisable. The severance agreements are
subject to review by the Board of Directors of Bettis on an annual basis and
Bettis' Board, in its discretion, may terminate, extend or modify the
agreements. Until the severance agreements are so terminated or modified, the
severance agreements will continue in effect for successive one-year periods.
REMUNERATION OF DIRECTORS
Directors who are not employees of Bettis receive an annual stipend of
$7,500 as well as a fee of $1,250 for each meeting of the Board of Directors
attended and a fee of $750 for each committee meeting attended. Directors are
also reimbursed for reasonable out-of-pocket expenses incurred in connection
with attendance at board and committee meetings. The Chairman of the Board
receives a monthly retainer fee of $10,000 and does not receive any fee for
attendance at meetings of the Board or for services on a committee.
Directors who are employees of Bettis do not receive any additional
compensation for services as a director or for services on committees of the
Board of Directors on which they serve.
-83-
<PAGE> 91
PROPOSAL TO AMEND DANIEL'S CERTIFICATE OF INCORPORATION
The Board of Directors of Daniel has recommended the adoption of an
amendment to Daniel's Certificate of Incorporation that will increase the
authorized shares of Daniel Common Stock from 20,000,000 shares to 40,000,000
shares. Of the 20,000,000 shares of Daniel Common Stock currently authorized,
at the Record Date, 12,139,813 shares were outstanding, and 1,479,662 shares
were reserved for issuance with respect to options or awards that have been or
may be granted under Daniel's employee and non-employee director stock option
and award plans or other employment related agreements. Upon consummation of
the Merger, 4,920,392 shares of Daniel Common Stock will be issued to former
Bettis stockholders and 453,000 shares will be reserved for issuance in
connection with Bettis Options assumed by Daniel, leaving only 1,007,133
shares of Daniel Common Stock authorized, unissued and available for future
issuance if Daniel's Certificate of Incorporation is not amended as proposed
hereby.
Although Daniel has no present intention of issuing any of the
unissued and unreserved shares of Daniel Common Stock, the Board of Directors
recognizes the importance of having the flexibility to take advantage of
potential future opportunities as they arise. The Board believes that the
proposed increase in the number of authorized shares would provide a sufficient
number of authorized shares available to facilitate possible acquisitions and
financings, as well as for the grant of stock options and in connection with
other employee or director-based plans. Such unissued and unreserved shares of
Common Stock are available for any proper corporate purpose as authorized from
time to time by the Board of Directors and will not require further approval by
the stockholders of Daniel, except in certain cases. Under Daniel's
listing agreement with the NYSE, stockholder approval is generally required in
connection with shares issued pursuant to employee or director-based plans.
Stockholders of Daniel do not have any preemptive rights to purchase additional
shares of Daniel Common Stock, whether now or hereafter authorized.
The first paragraph and subclause (ii) of Section A of Article IV of
Daniel's Certificate of Incorporation would be amended so that Section A would
read as follows:
"A. The total number of shares of all classes of stock
that the corporation shall have authority to issue is forty-one
million (41,000,000) shares, divided into the following two classes:
(i) one million (1,000,000) shares of Preferred
Stock, of the par value of $1 per share; and
(ii) forty million (40,000,000) shares of Common
Stock, of the par value of $1.25 per share."
Even if approved by the stockholders, the amendment to the Restated Certificate
of Incorporation will not be filed with the Secretary of State of Delaware
unless the Merger is consummated.
THE BOARD OF DIRECTORS OF DANIEL RECOMMENDS THAT YOU VOTE "FOR" THE
APPROVAL OF THE PROPOSED AMENDMENT TO THE DANIEL CERTIFICATE OF INCORPORATION.
-84-
<PAGE> 92
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS
It is expected that representatives of Price Waterhouse LLP will be
present at the Daniel Special Meeting, and that representatives of Coopers &
Lybrand L.L.P. will be present at the Bettis Special Meeting, to respond to
appropriate questions of stockholders and to make a statement if they so
desire.
LEGAL MATTERS
The validity of the shares of Daniel Common Stock to be issued in
connection with the Merger will be passed upon by Fulbright & Jaworski L.L.P.,
1301 McKinney, Suite 5100, Houston, Texas 77010. Certain tax consequences of
the Merger will be passed upon for Daniel by Fulbright & Jaworski L.L.P. and
for Bettis by Vinson & Elkins L.L.P., 1001 Fannin, Houston, Texas 77002.
EXPERTS
The consolidated financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference to the Annual Report on Form 10-K of Daniel
for the fiscal year ended September 30, 1995 have been so incorporated in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements and financial statement schedule
of Bettis Corporation and subsidiaries at December 31, 1995 and 1994, and for
each of the three years in the period ended December 31, 1995, included in this
Joint Proxy Statement/Prospectus have been included herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The combined financial statements of Prime Actuators Control Systems
Limited and Prime Actuator Control Systems, Inc. as of July 31, 1995 and 1994
and for the years then ended included in this Joint Proxy Statement/Prospectus,
have been included herein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The consolidated financial statements of Shafer Valve Company and
subsidiaries as of October 31, 1995 and 1994, and for each of the three years
in the period ended October 31, 1995 included in this Joint Proxy
Statement/Prospectus, have been included herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
STOCKHOLDERS' PROPOSALS
Any proposals of stockholders of Daniel Common Stock intended to be
presented at the Annual Meeting of Stockholders of Daniel to be held in 1998
must be received by Daniel, addressed at its principal executive offices, 9753
Pine Lake Drive, Houston, Texas 77055, no later than August 30, 1997, to be
considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
If the Merger is not consummated, any proposals of stockholders of
Bettis intended to be presented at the Annual Meeting of Stockholders of Bettis
to be held in 1997 must be received by Bettis, addressed to the Secretary at
18703 GH Circle, Waller, Texas 77484, no later than December 1, 1996, to be
considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
-85-
<PAGE> 93
INDEX TO FINANCIAL STATEMENTS
AND RELATED FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Bettis Corporation
Consolidated Balance Sheets (unaudited) as of June 30, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations (unaudited) for the six
months ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations (unaudited) for the three
months ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows (unaudited) for the six
months ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements (unaudited). . . . . . . . . . . . . . . . . F-6
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
Consolidated Balance Sheets as of December 31, 1995 and 1994. . . . . . . . . . . . . . F-10
Consolidated Statements of Operations for the three years ended December 31, 1995 . . . F-11
Consolidated Statement of Stockholders' Equity for the three
years ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-12
Consolidated Statements of Cash Flows for the three years ended December 31, 1995 . . . F-13
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . F-14
Financial Statement Schedule:
II Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . F-25
Prime Actuator Control Systems Limited and Prime Actuator Control Systems, Inc.
Report of Independent Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-26
Combined Balance Sheet as of July 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . F-27
Combined Statement of Operations for the years ended July 31, 1995 and 1994 . . . . . . F-28
Combined Statement of Stockholders' Equity for the years ended July 31, 1995 and 1994 . F-29
Combined Statement of Cash Flows for the years ended July 31, 1995 and 1994 . . . . . . F-30
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . F-31
Combined Balance Sheet (unaudited) as of April 30, 1996 and July 31, 1995 . . . . . . . F-36
Combined Statement of Operations (unaudited) for the nine months ended
April 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-37
Combined Statement of Cash Flows (unaudited) for the nine months ended
April 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-38
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . F-39
Bettis Corporation Pro Forma Statement of Operations (unaudited) for the six months
ended June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-40
Bettis Corporation Pro Forma Statement of Operations (unaudited) for the twelve months
ended December 31, 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . F-41
Notes to the Pro Forma Financial Statements (unaudited) . . . . . . . . . . . . . . . . F-42
Shafer Valve Company
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . F-43
Consolidated Balance Sheet as of October 31, 1995 and 1994. . . . . . . . . . . . . . . F-44
Consolidated Statement of Operations for the three years ended October 31, 1995 . . . . F-45
Consolidated Statement of Stockholders' Equity (Deficit) for the three years ended
October 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-46
Consolidated Statement of Cash Flows for the three years ended October 31, 1995 . . . . F-47
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . F-48
Consolidated Balance Sheet (unaudited) as of April 30, 1996 and October 31, 1995 . . . F-54
Consolidated Statement of Operations (unaudited) for the six months ended
April 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-55
Consolidated Statement of Cash Flows (unaudited) for the six months ended
April 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-56
Notes to the Financial Statements (unaudited) . . . . . . . . . . . . . . . . . . . . . F-57
Bettis Corporation Pro Forma Balance Sheet (unaudited) as of June 30, 1996 . . . . . . F-58
Bettis Corporation Pro Forma Statement of Operations (unaudited) for the six months
ended June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-59
Bettis Corporation Pro Forma Statement of Operations (unaudited) for the twelve
months ended December 31, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . F-60
Notes to the Pro Forma Financial Statements (unaudited) . . . . . . . . . . . . . . . . F-61
</TABLE>
F-1
<PAGE> 94
BETTIS CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 1,852 $ 801
Accounts receivable, net............................................ 15,641 12,321
Inventories......................................................... 14,386 9,097
Prepaid expenses.................................................... 1,391 931
Other current assets................................................ 651 418
------- -------
Total current assets........................................ 33,921 23,568
Property, plant and equipment, net.................................... 15,575 15,368
Excess cost over net assets acquired, less accumulated amortization
of $946 and $835, respectively...................................... 8,766 5,853
Other assets.......................................................... 2,186 1,087
------- -------
$60,448 $ 45,876
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank debt................................................ $ 5,013 $ 3,364
Accounts payable, trade............................................. 4,879 4,791
Accrued liabilities................................................. 8,482 3,741
Current maturities of long-term debt................................ 2,766 2,583
------- -------
Total current liabilities................................... 21,140 14,479
------- -------
Long-term debt........................................................ 16,730 9,898
------- -------
Deferred income taxes................................................. 579 624
------- -------
Other non-current liabilities......................................... 66 66
------- -------
Commitments and contingencies (Note 4)
Stockholders' equity:
Common stock, par value $.01 per share, 30,000,000 shares authorized
and 8,483,435 and 8,480,235 shares issued and outstanding at June
30, 1996 and December 31, 1995, respectively..................... 85 85
Paid-in capital..................................................... 5,777 5,767
Retained earnings................................................... 17,202 16,121
Cumulative translation adjustment................................... (1,131) (1,164)
------- -------
Total stockholders' equity.................................. 21,933 20,809
------- -------
$60,448 $ 45,876
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE> 95
BETTIS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net revenues....................................................... $ 29,814 $ 26,394
---------- ----------
Operating costs and expenses:
Manufacturing and direct......................................... 19,859 17,221
Selling, general and administrative.............................. 7,192 7,090
---------- ----------
27,051 24,311
---------- ----------
Operating income................................................... 2,763 2,083
---------- ----------
Other income (expense):
Interest......................................................... (548) (585)
Other, net....................................................... (142) 145
---------- ----------
(690) (440)
---------- ----------
Earnings before income tax provision............................... 2,073 1,643
Income tax provision............................................... 992 670
---------- ----------
Net earnings....................................................... $ 1,081 $ 973
========== ==========
Earnings per common share.......................................... $ .13 $ .11
========== ==========
Weighted average common and common equivalent shares outstanding... 8,611,299 8,499,019
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 96
BETTIS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net revenues....................................................... $ 14,993 $ 13,432
---------- ----------
Operating costs and expenses:
Manufacturing and direct......................................... 9,996 8,749
Selling, general and administrative.............................. 3,576 3,565
---------- ----------
13,572 12,314
---------- ----------
Operating income................................................... 1,421 1,118
---------- ----------
Other income (expense):
Interest......................................................... (299) (291)
Other, net....................................................... (105) 105
---------- ----------
(404) (186)
---------- ----------
Earnings before income tax provision............................... 1,017 932
Income tax provision............................................... 528 370
---------- ----------
Net earnings....................................................... $ 489 $ 562
========== ==========
Earnings per common share.......................................... $ .06 $ .07
========== ==========
Weighted average common and common equivalent shares outstanding... 8,613,145 8,502,137
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 97
BETTIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................................. $ 1,081 $ 973
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization.......................................... 1,269 1,169
(Gain) loss on sale of assets.......................................... (21) 11
Deferred income taxes.................................................. (70) (15)
Changes in assets and liabilities, net of effects from acquisitions:
(Increase) decrease in accounts receivable, net..................... 185 (1,420)
Increase in inventories............................................. (2,325) (371)
Increase in prepaid expenses and other current assets............... (632) (243)
Increase (decrease) in accounts payable, trade...................... (556) 910
Increase in accrued liabilities..................................... 537 245
------- -------
Net cash provided by (used in) operating activities............ (532) 1,259
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment............................... (461) (546)
Proceeds from sale of assets............................................. 44 5
Purchase of stock of Dantorque A/S, net of cash received................. (3,033) --
Purchase of stock of Prime Actuator Control Systems, Ltd. and Prime
Actuator Control Systems, Inc., net of cash received................... (2,468) --
------- -------
Net cash used in investing activities.......................... (5,918) (541)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term bank debt.............................. 447 (1,137)
Reduction of long-term debt.............................................. (1,273) (1,531)
Long-term debt borrowings................................................ 8,200 --
Exercise of stock options................................................ 10 --
------- -------
Net cash provided by (used in) financing activities............ 7,384 (2,668)
------- -------
Effect of exchange rate changes on cash.................................. 117 (252)
------- -------
Net increase (decrease) in cash and cash equivalents..................... 1,051 (2,202)
Cash and cash equivalents at beginning of period......................... 801 2,489
------- -------
Cash and cash equivalents at end of period............................... $ 1,852 $ 287
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 98
BETTIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of Bettis Corporation ("Bettis" or the "Company")
and its wholly-owned subsidiaries are presented on a consolidated basis and
include all adjustments, consisting of normal recurring adjustments and any
other financial adjustments considered necessary by management for the fair
presentation of the consolidated financial position of Bettis and its
subsidiaries at June 30, 1996 and the consolidated results of their operations
for the three and six months ended June 30, 1996 and 1995, and their cash flows
for the six months ended June 30, 1996 and 1995.
All significant intercompany transactions and balances are eliminated. This
presentation is consistent with the accounting policies reflected in the
financial statements included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission for the year ended December 31, 1995
and should be read in conjunction herewith.
2. INVENTORIES
At June 30, 1996 and December 31, 1995, inventories were comprised of the
following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------- ----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies....................................... $11,735 $8,470
Finished parts and sub-assemblies................................ 2,651 627
------- ------
$14,386 $9,097
======= ======
</TABLE>
3. LONG-TERM DEBT AND OBLIGATIONS
Long-term debt at June 30, 1996 and December 31, 1995 consisted of the
following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Note payable to bank, interest at 5.95% payable through 1999..... $ 6,000 $7,000
Revolving credit facility, interest at prime rate (8.25% at June
30, 1996) payable through April 30, 1998....................... 9,200 1,000
Term loan to bank, interest at the Canadian prime rate (6.5% at
June 30, 1996) payable through August 31, 2001................. 1,925 2,107
Term loan to bank, interest at the Danish rate (7.5% at June 30,
1996) payable through March 28, 1998........................... 192 --
Capital lease obligations........................................ 2,179 2,374
------- ------
19,496 12,481
Less current maturities.......................................... (2,766) (2,583)
------- ------
$16,730 $9,898
======= ======
</TABLE>
On June 6, 1996, the credit agreement between Bettis and its bank was
amended to increase the revolving credit facility from $7,000,000 to $10,000,000
and to extend the maturity date to April 30, 1998. Funds from the amended
facility were used for the acquisition of the stock of Dantorque A/S.
On July 8, 1996, the credit agreement described above was again modified
and restated to increase the revolving credit facility available from
$10,000,000 to $30,000,000. As collateral for the modified and restated credit
facility, the Company pledged substantially all of its assets in the United
States and gave a security
F-6
<PAGE> 99
BETTIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest in the stock of its foreign subsidiaries. The credit facility contains
covenants relating to: a minimum current ratio; a maximum ratio of debt to
earnings before taxes, interest and depreciation; a minimum tangible net worth;
a minimum fixed charge coverage ratio; and an annual maximum amount of capital
expenditures. In addition, the Company is prohibited from incurring additional
collateralized indebtedness with the exception of a permitted amount of purchase
money indebtedness. Interest is payable quarterly. The funds made available from
the modified and restated credit facility were used to acquire the stock of
Prime Actuator Control Systems, Ltd., Prime Actuator Control Systems, Inc. and
Shafer Valve Company.
4. COMMITMENTS AND CONTINGENCIES
The Company is a defendant from time to time in various civil lawsuits
involving normal and usual claims arising in the ordinary course of its
business. In the opinion of management, all such matters are either covered by
insurance or involve amounts such that an unfavorable disposition of the
proceedings would not have a material effect on the accompanying consolidated
financial statements of the Company.
5. INCOME TAXES
The components of pre-tax earnings and the income tax provision were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1996 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Pre-tax earnings:
Domestic......................................................... $1,945 $1,374
Foreign.......................................................... 128 269
------ ------
$2,073 $1,643
====== ======
Income tax provision (benefit):
Current:
U.S. Federal.................................................. $ 675 $ 496
State......................................................... 71 50
Foreign....................................................... 331 139
------ ------
1,077 685
------ ------
Deferred:
U.S. Federal.................................................. (16) (29)
Foreign....................................................... (69) 14
------ ------
(85) (15)
------ ------
Total income tax provision......................................... $ 992 $ 670
====== ======
</TABLE>
6. EARNINGS PER SHARE
At June 30, 1996, common stock outstanding aggregated 8,483,435 shares.
Primary earnings per share were calculated on the basis of 8,611,299 and
8,499,019 weighted shares for the six months ended June 30, 1996 and 1995,
respectively. Fully diluted earnings per share are not presented as the results
would not be materially different from primary earnings per share.
F-7
<PAGE> 100
BETTIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. ACQUISITIONS
On June 7, 1996, the Company purchased 100% of the outstanding stock of
Dantorque A/S ("Dantorque") for $3,000,000 in cash. Dantorque is located in
Esbjerg, Denmark and manufactures a line of actuators used principally in subsea
applications. Dantorque's revenues in 1995 were approximately $3,000,000.
On June 20, 1996, the Company purchased 100% of the outstanding stock of
Prime Actuator Control Systems, Ltd. ("Prime UK") and Prime Actuator Control
Systems, Inc. ("Prime US") for $4,000,000 in cash. Prime UK is located in
Glenrothes, Scotland and manufactures scotch yoke actuators. Prime US is located
in Houston, Texas and is the United States sales operation for Prime UK. In
1995, revenues of Prime UK and Prime US were approximately $9,000,000.
On July 9, 1996, the Company entered into an agreement to purchase 100% of
the stock of Shafer Valve Company ("Shafer"), located in Mansfield, Ohio, from
Valley City Steel Company for $13,200,000 in cash. Shafer manufactures a line of
rotary vane actuators principally used in the oil and gas pipeline industry.
Shafer had 1995 revenues totaling approximately $16,500,000.
The pro forma financial information with respect to the aforementioned
acquisitions for the six months ended June 30, 1996 and 1995 will be provided as
an amendment to the respective Form 8-K reporting the acquisition.
F-8
<PAGE> 101
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Bettis Corporation:
We have audited the consolidated balance sheets of Bettis Corporation
and subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. We have also audited the
financial statement schedule included on page F-25 of this Joint Proxy
Statement/Prospectus. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bettis
Corporation and subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
As discussed in Notes 7 and 8 to the consolidated financial statements, the
Company changed its methods for accounting for postretirement benefits and
income taxes in 1993.
COOPERS & LYBRAND L.L.P.
Houston, Texas
February 26, 1996
F-9
<PAGE> 102
BETTIS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 801 $ 2,489
Accounts receivable, net............................................... 12,321 10,424
Inventories............................................................ 9,097 7,602
Prepaid expenses....................................................... 931 1,032
Other current assets................................................... 418 294
------- -------
Total current assets........................................... 23,568 21,841
Property, plant and equipment, net....................................... 15,368 15,652
Excess cost over net assets acquired, less accumulated amortization
of $835 and $611, respectively......................................... 5,853 5,946
Other assets............................................................. 1,087 1,186
------- -------
$45,876 $44,625
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank debt................................................... $ 3,364 $ 3,500
Accounts payable, trade................................................ 4,791 3,142
Accrued liabilities.................................................... 3,741 3,380
Current maturities of long-term debt................................... 2,583 2,636
------- -------
Total current liabilities...................................... 14,479 12,658
------- -------
Long-term debt........................................................... 9,898 12,667
Deferred income taxes.................................................... 624 738
Other non-current liabilities............................................ 66 101
Commitments and contingencies (notes 1, 5, 6 & 7)
Stockholders' equity:
Common stock, par value $.01 per share, authorized 30,000,000 shares,
8,480,235 shares issued and outstanding............................. 85 85
Paid-in capital........................................................ 5,767 5,767
Retained earnings...................................................... 16,121 13,841
Cumulative translation adjustment...................................... (1,164) (1,232)
------- -------
Total stockholders' equity..................................... 20,809 18,461
------- -------
$45,876 $44,625
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-10
<PAGE> 103
BETTIS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net revenues............................................ $ 55,142 $ 51,974 $ 52,699
--------- --------- ---------
Operating costs and expenses:
Manufacturing and direct.............................. 35,882 33,607 32,514
Selling, general and administrative................... 14,235 13,565 13,052
--------- --------- ---------
50,117 47,172 45,566
--------- --------- ---------
Operating income........................................ 5,025 4,802 7,133
--------- --------- ---------
Other income (expense):
Interest.............................................. (1,094) (835) (324)
Interest -- GH........................................ -- (212) (635)
Other, net............................................ 32 (288) (148)
--------- --------- ---------
(1,062) (1,335) (1,107)
--------- --------- ---------
Earnings before income tax provision.................... 3,963 3,467 6,026
Income tax provision.................................... 1,683 1,400 2,289
--------- --------- ---------
Net earnings............................................ $ 2,280 $ 2,067 $ 3,737
========= ========= =========
Earnings per common share............................... $ .27 $ .24 $ .44
========= ========= =========
Weighted average common and common equivalent shares
outstanding........................................... 8,536,355 8,480,450 8,480,235
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-11
<PAGE> 104
BETTIS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK
------------------ CUMULATIVE
SHARES PAID-IN RETAINED TRANSLATION
ISSUED AMOUNT CAPITAL EARNINGS ADJUSTMENT TOTAL
-------- ------ ------- -------- ------------ -------
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1993......... 8,480,235 $ 85 $ 5,767 $ 12,903 $ (1,418) $17,337
Net earnings...................... -- -- -- 3,737 -- 3,737
Dividend to GH.................... -- -- -- (1,019) -- (1,019)
Cumulative translation
adjustment...................... -- -- -- -- (164) (164)
--------- ---- ------- ------- ------- ------
Balances, December 31, 1993....... 8,480,235 85 5,767 15,621 (1,582) 19,891
Net earnings...................... -- -- -- 2,067 -- 2,067
Dividend to GH.................... -- -- -- (3,847) -- (3,847)
Cumulative translation
adjustment...................... -- -- -- -- 350 350
--------- ---- ------- ------- ------- ------
Balances, December 31, 1994....... 8,480,235 85 5,767 13,841 (1,232) 18,461
Net earnings...................... -- -- -- 2,280 -- 2,280
Cumulative translation
adjustment...................... -- -- -- -- 68 68
--------- ---- ------- ------- ------- ------
Balances, December 31, 1995....... 8,480,235 $ 85 $ 5,767 $ 16,121 $ (1,164) $20,809
========= ===== ======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-12
<PAGE> 105
BETTIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................ $ 2,280 $ 2,067 $ 3,737
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................. 2,423 1,960 1,556
Provision for doubtful accounts........................... 133 442 44
Loss on sale of assets.................................... 135 73 5
Deferred income taxes..................................... (120) (111) 67
Changes in assets and liabilities:
(Increase) decrease in accounts receivable................ (1,808) 1,079 (1,318)
(Increase) decrease in inventories........................ (1,278) 1,406 (1,828)
(Increase) decrease in prepaid expenses and other......... 143 (295) 281
Increase (decrease) in accounts payable, trade............ 1,444 (625) 391
Increase (decrease) in accounts payable, GH............... -- (537) 512
Increase (decrease) in accrued liabilities................ 400 225 (649)
------- ------- -------
Net cash provided by operating activities................. 3,752 5,684 2,798
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.................. (1,826) (1,916) (1,831)
Proceeds from sale of assets................................ 131 45 15
Purchase of assets of True-Torq Division of Ruthman Pump
and Engineering, Inc...................................... -- (2,403) --
Addition to other assets.................................... -- (1,236) --
Other....................................................... -- 228 (248)
------- ------- -------
Net cash used in investing activities..................... (1,695) (5,282) (2,064)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term bank debt................. (196) (805) 2,901
Reduction of long-term debt................................. (3,128) (3,694) (807)
Long-term debt borrowings................................... -- 14,999 --
Dividends paid to GH........................................ -- (3,847) (1,019)
Reduction of notes payable -- GH............................ -- (5,460) (1,947)
Notes payable -- GH borrowings.............................. -- -- 504
------- ------- -------
Net cash provided by (used in) financing activities....... (3,324) 1,193 (368)
------- ------- -------
Effect of exchange rate changes on cash..................... (421) 389 70
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (1,688) 1,984 436
Cash and cash equivalents at beginning of year.............. 2,489 505 69
------- ------- -------
Cash and cash equivalents at end of year.................... $ 801 $ 2,489 $ 505
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-13
<PAGE> 106
BETTIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Bettis manufactures and sells valve actuators and controls which are used
to remotely and automatically open or close quarter-turn or linear valves.
Bettis' market is any industry that uses pipes to transport liquids or gases in
supply, manufacture or distribution operations. These industries include
chemical and petrochemical, oil and gas transmission, refining, food and
beverage, power and pulp and paper.
Bettis Corporation ("Bettis" or the "Company") was incorporated in Delaware
on March 1, 1994 as a wholly-owned subsidiary of Galveston-Houston Company
("GH") and is the successor to the business previously conducted by Bettis
Corporation, a Texas corporation, ("Bettis-Texas") founded in 1929, which was
acquired by GH in 1976. Bettis-Texas was merged into the Company (the "Merger")
for the purpose of reincorporating the business in Delaware. GH contributed the
stock of Bettis Canada Ltd. (the "Contribution"), a wholly-owned subsidiary, to
Bettis-Texas effective January 31, 1994. Both the Merger and the Contribution
were accounted for at historical cost in a manner similar to that in pooling of
interests accounting as the entities were under the common control of GH.
The consolidated financial statements of the Company and its wholly-owned
subsidiaries have been presented to effect the consolidation of the historical
results of Bettis, Bettis-Texas, and Bettis Canada Ltd. for all periods
presented. The significant operating subsidiaries include Bettis UK Limited,
Bettis Canada Ltd., Bettis France and Bettis Electric Actuator Corporation.
Earnings per share data since May 20, 1994 is based on the weighted average
number of common shares outstanding during the year plus the common equivalent
shares reflected under the treasury stock method. Earnings per share data prior
to May 20, 1994 and for 1993 are presented based on the number of shares of
Common Stock of Bettis distributed by GH on May 20, 1994 (the "Distribution
Date").
The Common Stock of Bettis was distributed effective on the Distribution
Date in the form of a tax-free dividend to the shareholders of GH. Such
distribution was on the basis of one share of Bettis for every two shares of GH
and resulted in 100% of the outstanding shares of Bettis Common Stock being
distributed to the holders of Common Stock of GH. GH and Bettis each have agreed
to indemnify the other party for certain matters, including potential claims
relating to the distribution.
Preparation of the Financial Statements
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) and include the accounts of
Bettis and its subsidiaries as described above. All material intercompany
transactions have been eliminated in consolidation.
The preparation of financial statements requires management to make
estimates and assumptions that affect (1) the reported amounts of asset and
liabilities, (2) the disclosures of contingent assets and liabilities, and (3)
the reported amounts of revenues and expenses during the reporting periods.
Ultimate results could differ from those estimates.
Cash and Cash Equivalents
The Company includes all highly liquid securities purchased with an
original maturity of three months or less in cash and cash equivalents. Cash
equivalents are stated at cost which approximates market.
Inventories
Inventories consisting of raw materials, finished parts and sub-assemblies
are stated at the lower of cost or market. Cost is determined by the last-in,
first-out (LIFO) or average first-in, first-out (FIFO) methods.
F-14
<PAGE> 107
BETTIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment is recorded at cost and depreciated over its
estimated useful life by the use of the straight line method. Assets recorded
under capital leases and leasehold improvements are amortized over the shorter
of their useful lives or the term of the related lease by use of the straight
line method.
Excess Cost Over Net Assets Acquired
The excess cost over the fair value of net assets of acquired businesses is
being amortized for periods of from 20 to 40 years using the straight line
method. Bettis' management periodically evaluates these intangible assets based
on expectations of non-discounted cash flows and operating income of those
subsidiaries which gave rise to the assets. Amortization expense amounted to
approximately $224,000, $156,000 and $142,000 for the years ended December 31,
1995, 1994 and 1993, respectively.
Revenue Recognition
The Company recognizes revenues from product sales when goods are shipped
or when ownership is assumed by the customer.
Bettis has a two year warranty on materials and workmanship on all products
manufactured. The new G-Series line of actuators has a five year warranty on
materials and workmanship. Bettis has not experienced any material product
warranty expense in any prior year.
Income Taxes
The Company files a consolidated federal income tax return including each
of its qualified subsidiaries. For the periods prior to May 20, 1994, Bettis was
included in the consolidated income tax returns of GH. The income tax provisions
for the periods included with GH have been presented in the consolidated
financial statements as if Bettis filed a separate tax return.
Federal income taxes have not been provided on undistributed earnings of
foreign subsidiaries because Bettis intends to reinvest their earnings or to
repatriate such earnings only when tax effective to do so.
Fair Value of Financial Instruments
The Company includes fair value information in the notes to consolidated
financial statements when the fair value of its financial instruments are
different from the book value. The carrying value of cash and cash equivalents,
receivables and accounts payable approximate fair value due to the short term
maturities of these instruments. The carrying amount of the Company's fixed
long-term borrowings approximate their fair value at December 31, 1995. The
carrying value of the Company's revolving credit agreements approximate their
fair value because the rate on such instruments is variable, based on current
market.
Foreign Currency Translation
Assets and liabilities of foreign operations are translated into U.S.
dollars at the exchange rate in effect at the end of each accounting period and
income statement accounts are translated at the average exchange rates
prevailing during the period. Gains and losses resulting from the translation of
foreign financial statements are reported as a separate component of
stockholders' equity. Gains and losses from foreign currency transactions are
included in other income and expense.
Concentration of Credit Risk
The Company's revenues for 1995 were generated from in excess of 710
customers, no customer of which accounted for more than 8.9 percent of total
revenues. The Company performs ongoing credit evaluations of
F-15
<PAGE> 108
BETTIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
its customers' financial condition and, generally, requires no collateral from
its customers. The allowance for doubtful accounts at December 31, 1995 and 1994
was $366,000 and $611,000, respectively.
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Information regarding certain balance sheet accounts at December 31, 1995
and 1994 is presented below:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Inventories
Raw materials and supplies............................................... $8,470 $7,000
Finished parts and sub-assemblies........................................ 627 602
------ ------
$9,097 $7,602
====== ======
</TABLE>
At December 31, 1995 and 1994, the LIFO method of inventory valuation was
used for approximately 34% and 43%, respectively, of total inventories and the
average FIFO method was used for the remaining inventories. The excess of
replacement cost over stated value of LIFO inventories at December 31, 1995 and
1994 was approximately $712,000 and $896,000, respectively.
<TABLE>
<CAPTION>
ESTIMATED
1995 1994 LIVES
------- ------- ----------
(IN THOUSANDS) (IN YEARS)
<S> <C> <C> <C>
Property, plant and equipment, at cost:
Land............................................... $ 1,140 $ 1,070
Buildings and improvements......................... 14,985 14,613 10-25
Machinery and equipment............................ 17,461 16,719 3-10
------- -------
33,586 32,402
Less accumulated depreciation........................ 18,218 16,750
------- -------
$15,368 $15,652
======= =======
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued liabilities:
Salaries, wages and commissions................................ $ 939 $ 1,082
Insurance...................................................... 515 9
Taxes.......................................................... 1,254 866
Other.......................................................... 1,033 1,423
------- -------
$ 3,741 $ 3,380
======= =======
</TABLE>
F-16
<PAGE> 109
BETTIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT AND OBLIGATIONS
Long-term debt at December 31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Term loan to bank, interest at 5.95% payable through April 30,
1999................................................................... $ 7,000 $ 9,000
Revolving credit facility, interest at prime rate (8.5% at
December 31, 1995) payable through April 30, 1997...................... 1,000 1,500
Term loan to bank, interest at the Canadian prime rate (7.5% at
December 31, 1995) payable through August 31, 2001..................... 2,107 2,406
Capital lease obligations (interest ranging from 4.8% to 8.9%
payable through 2010).................................................. 2,374 2,397
------- -------
12,481 15,303
Less current maturities.................................................. 2,583 2,636
------- -------
$ 9,898 $12,667
======= =======
</TABLE>
At December 31, 1995, Bettis had a credit agreement with a bank which
provides for a term loan facility, a $7,000,000 revolving credit facility and a
$2,000,000 foreign exchange facility. The term loan had an outstanding balance
of $7,000,000 at December 31, 1995, bears interest at a rate of 5.95% and
matures on April 30, 1999. Principal in the amount of $500,000 plus interest is
payable quarterly.
The $7,000,000 revolving credit facility is used for general corporate
purposes, including a $5,000,000 sub-limit for letters of credit. At December
31, 1995, $1,000,000 was borrowed under the facility. Interest on the revolving
credit facility is payable quarterly and is adjusted quarterly based on Bettis'
ratio of total funded debt to earnings before interest, taxes, depreciation and
amortization. Interest rates range, at Bettis' option, from LIBOR plus 0.75% or
Prime Rate less 0.50% for a ratio of 1:1 or less to LIBOR plus 1.50% or Prime
Rate for a ratio of 3:1 or above. Bettis pays a quarterly fee of 3/16% per annum
for the unused portion of the revolving credit facility plus a 1% fee for
letters of credit other than Canadian letters of credit and a fee of 0.75% for
Canadian letters of credit.
The above loans set forth in the credit agreement are uncollateralized with
a negative pledge on Bettis' accounts receivable, inventories and equipment. The
credit agreement contains covenants relating to a minimum current ratio, a
maximum debt to tangible net worth ratio, a minimum tangible net worth, a
minimum fixed charge coverage ratio and an annual maximum amount of capital
expenditures. In addition, Bettis is prohibited from incurring additional
collateralized indebtedness with the exception of a permitted amount of purchase
money indebtedness.
The $2,000,000 foreign exchange facility is to be used for spot or forward
foreign exchange contracts and is priced as quoted by capital markets. The
foreign exchange facility matures on April 30, 1996. No amounts were outstanding
at December 31, 1995.
F-17
<PAGE> 110
BETTIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following principal payments will be required subsequent to December
31, 1995:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
(IN THOUSANDS)
<S> <C>
1996.............................................................................. $ 2,583
1997.............................................................................. 3,513
1998.............................................................................. 2,474
1999.............................................................................. 1,483
2000.............................................................................. 493
Thereafter........................................................................ 1,935
----------
$ 12,481
==========
</TABLE>
Short term bank debt of $3,364,000 at December 31, 1995, includes revolving
lines of credit at the foreign subsidiaries of Bettis which have terms of one
year or less. The revolving lines of credit have interest rates which vary from
7.5% to 10.2%. The weighted average interest rate during 1995 was 8.4%. Such
revolving lines of credit are collateralized by the assets of the subsidiary or
by letters of credit.
Interest payments on debt in the years ended December 31, 1995, 1994 and
1993, were $1,120,000, $718,000 and $316,000, respectively.
4. RELATED PARTY TRANSACTIONS
The consolidated financial statements include direct charges incurred by GH
on behalf of Bettis for legal services, accounting fees, employee health and
insurance benefits, interest on net funds advanced to Bettis and other expenses
which amounted to approximately $1,128,000 and $2,449,000 for the years ended
December 31, 1994 and 1993, respectively. These direct charges were determined
by specific identification as representing actual costs incurred for Bettis by
GH. In addition to these direct expenses, Bettis has been charged a management
fee for various services rendered by GH which allocates corporate personnel who
assist in administering the insurance, cash management, taxation, personnel,
employee benefits and legal activities of Bettis. Such management fee was
determined based on the estimated time incurred by corporate personnel for the
benefit of Bettis. The management fee was approximately $254,000 and $782,000
for the years ended December 31, 1994 and 1993, respectively.
The notes payable with GH at December 31, 1993, principally comprised of
advances made to the foreign subsidiaries of Bettis, carried interest rates
which varied from 6% to 13% and matured at various dates in 1994. These notes
payable were retired at the Distribution Date with the proceeds from the term
loan described in Note 3.
Interest payments to GH in the years ended December 31, 1994 and 1993 were
$254,000 and $622,000, respectively.
5. LEASES
The Company leases various types of equipment and office space under
noncancellable operating leases which expire at various dates through 2080. Some
of the operating leases provide that the Company pay taxes, maintenance,
insurance and other occupancy expenses applicable to leased premises. Generally,
the leases provide for renewal for various periods at stipulated rates. Rental
expense under these leases totaled $447,000, $596,000 and $691,000 for the years
ended December 31, 1995, 1994 and 1993, respectively. Additionally, the Company
leases land, buildings and improvements, and machinery and equipment under
capital leases with an approximate cost of $2,882,000 and accumulated
amortization of $284,000 at December 31, 1995.
F-18
<PAGE> 111
BETTIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The approximate future minimum rental payments under noncancellable
operating and capital leases for the year ended December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
(IN THOUSANDS)
<S> <C> <C>
1996............................................................. $ 385 $ 413
1997............................................................. 327 328
1998............................................................. 182 279
1999............................................................. 131 278
2000............................................................. 108 277
Thereafter....................................................... 7,947 2,334
--------- -------
Total minimum lease payments..................................... $ 9,080 3,909
=======
Less amount representing interest................................ 1,535
-------
Present value of minimum lease payments.......................... $ 2,374
======
</TABLE>
6. LITIGATION
The Company is a defendant in various civil lawsuits involving normal and
usual claims arising in the ordinary course of its business. In the opinion of
management, all such matters involve amounts such that an unfavorable
disposition of the proceedings would not have a material adverse effect on the
consolidated financial condition, results of operations or cash flows of the
Company.
7. EMPLOYEE BENEFIT PLANS
Retirement Savings Plan
Bettis sponsors a Retirement Savings Plan which covers all employees who
have met certain eligibility requirements for the plan. Bettis matches the
contributions of the employee in an amount equal to 50 percent of the employee's
contribution up to a maximum amount of 2 1/2 percent of the employee's
compensation. The Company may make discretionary contributions to the plan.
During 1995, 1994, and 1993, Company matching contributions were $152,000,
$132,000 and $142,000, respectively.
Postretirement Benefits
Bettis sponsors a plan which provides certain health insurance benefits to
its retired employees and eligible dependents. The Company provides these
benefits at no cost to the retiree and at a nominal cost to the eligible
dependent.
On January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106 ("SFAS No. 106"), "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This statement requires that the costs associated
with the expected future payments of postretirement benefits be accrued during
the years that the employees render service necessary to receive the benefits.
The present value of the Company's pretax obligation for these benefits was
approximately $601,000 at January 1, 1996. The Company is currently amortizing
this obligation over 20 years. The effect of the adoption of SFAS No. 106 was
not material to the financial position or the results of operations of the
Company.
F-19
<PAGE> 112
BETTIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summary information on Bettis' unfunded plan is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated Postretirement Benefit Obligation ("APBO"):
Retirees....................................................... $ (417) $ (428)
Other fully eligible participants.............................. (146) (105)
Other active participants...................................... (464) (483)
------- -------
Total APBO............................................. (1,027) (1,016)
Unrecognized actuarial loss...................................... 49 128
Unrecognized transition obligation............................... 601 636
------- -------
Accrued postretirement health care cost liability................ $ (377) $ (252)
======= =======
</TABLE>
Net postretirement health care cost for the years ended December 31, 1995
and 1994 included the following components:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Service cost -- benefits attributed to service during the
period............................................................... $ 50 $ 56
Actual return on plan assets........................................... -- --
Interest cost on APBO.................................................. 80 73
Amortization of transition obligation.................................. 37 51
------- -------
Net postretirement health care cost.................................... $ 167 $ 180
======= =======
</TABLE>
For measurement purposes, health care cost trend rates for various services
varied from 7.5% annually for 1995; the rate was assumed to decrease gradually
to 6.0% for 2015 and remain at that level thereafter. Increasing the health care
cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1995 by
$151,200 and the aggregate of the service and interest cost components of net
postretirement health care cost for fiscal year 1995 by $34,000. The
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation as of December 31, 1995 and 1994 was 7.0% and
8.0%, respectively. There were no plan assets.
8. INCOME TAXES
Effective January 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 109, ("SFAS No. 109"), "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax and financial
reporting basis of assets and liabilities and their financial reporting amounts.
The effect of the adoption of SFAS 109 was not material to the financial
position or the results of operations of the Company.
F-20
<PAGE> 113
BETTIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of pretax earnings and the income tax provision (benefit)
for the following periods were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Pretax earnings:
Domestic............................................. $3,274 $2,346 $4,164
Foreign.............................................. 689 1,121 1,862
------ ------ ------
$3,963 $3,467 $6,026
====== ====== ======
Income tax provision:
Current:
U.S. Federal...................................... $ 999 $ 834 $1,413
State............................................. 98 61 143
Foreign........................................... 704 561 744
------ ------ ------
1,801 1,456 2,300
====== ====== ======
Deferred:
U.S. Federal...................................... 12 (28) (21)
Foreign........................................... (130) (28) 10
------ ------ ------
(118) (56) (11)
------ ------ ------
Total income tax provision............................. $1,683 $1,400 $2,289
====== ====== ======
</TABLE>
The difference between the effective rate reflected in the income tax
provision and the statutory federal tax rate is analyzed as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory rate of federal income tax provision............... 34.0% 34.0% 34.0%
Foreign taxes.............................................. 8.6 5.2 1.8
State income taxes......................................... 2.5 1.8 2.4
Other, net................................................. (2.6) (.6) (.2)
---- ---- ----
Effective tax rate......................................... 42.5% 40.4% 38.0%
==== ==== ====
</TABLE>
The components of the net deferred tax liability as of December 31, 1995
and 1994, respectively, were as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Depreciation..................................................... $1,122 $1,259
Other............................................................ 10 11
------ ------
Total deferred tax liability........................... 1,132 1,270
------ ------
Tax inventory.................................................... (108) (97)
Reserves for inventory........................................... (97) (81)
Bad debt......................................................... (24) (122)
Other............................................................ (279) (232)
------ ------
Total deferred tax asset............................... (508) (532)
------ ------
Net deferred tax liability............................. $ 624 $ 738
====== ======
</TABLE>
F-21
<PAGE> 114
BETTIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995 and 1994, undistributed earnings of foreign
subsidiaries were $7,004,000 and $6,669,000, respectively, for which no U.S.
federal income taxes have been provided.
Total income taxes paid during the years ended December 31, 1995, 1994 and
1993 were $1,766,000, $1,598,000 and $1,210,000, respectively.
9. ACQUISITION
On August 15, 1994, the Company, through a wholly-owned subsidiary,
acquired the assets of the True-Torq Division ("True-Torq") of Ruthman Pump and
Engineering, Inc. for $2,403,000 in cash. As a result of this transaction, the
Company recorded $1,102,000 of excess cost over net assets acquired, which is
being amortized over 20 years. True-Torq is located in Cincinnati, Ohio and
manufactures electric actuators with a torque of between 140 and 10,000
pound/inches. The effect on a proforma basis of this acquisition was immaterial
to the Company's financial position and results of operations.
10. STOCK OPTIONS
During 1994, the Company initiated the Bettis Corporation 1994 Nonemployee
Directors Stock Option Plan and the Bettis Corporation 1994 Stock Incentive Plan
(the "Plans"). The following table sets forth the pertinent information
regarding stock option transactions during 1994 and 1995:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- -------------
<S> <C> <C>
Shares granted during 1994................................. 486,000 $3.00 - $5.50
------
Outstanding December 31, 1994, including 97,200
currently exercisable.................................... 486,000 $3.00 - $5.50
Granted.................................................... 15,000 $3.13
Cancelled.................................................. (11,000) $3.00 - $5.50
------
Outstanding December 31, 1995, including 193,000
currently exercisable.................................... 490,000 $3.00 - $5.00
======
</TABLE>
No options were exercised during 1994 and 1995.
The Company had 310,000 and 314,000 shares of common stock available for
grant under the Plans at December 31, 1995 and 1994, respectively.
F-22
<PAGE> 115
BETTIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. GEOGRAPHIC SEGMENT INFORMATION
The following table summarizes financial information by domestic and
foreign area.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues from unaffiliated customers:
Domestic operations............................... $28,890 $24,129 $27,573
Foreign operations................................ 26,252 27,845 25,126
------- ------- -------
$55,142 $51,974 $52,699
======= ======= =======
Operating income:
Domestic operations............................... $ 3,320 $ 2,564 $ 4,291
Foreign operations................................ 1,705 2,238 2,842
------- ------- -------
$ 5,025 $ 4,802 $ 7,133
======= ======= =======
Earnings before income tax provision:
Domestic operations............................... $ 3,274 $ 2,346 $ 4,164
Foreign operations................................ 689 1,121 1,862
------- ------- -------
$ 3,963 $ 3,467 $ 6,026
======= ======= =======
Depreciation and amortization:
Domestic operations............................... $ 1,274 $ 995 $ 752
Foreign operations................................ 1,149 965 804
------- ------- -------
$ 2,423 $ 1,960 $ 1,556
======= ======= =======
Identifiable assets:
Domestic operations............................... $17,649 $16,507 $14,100
Foreign operations................................ 28,227 28,118 25,178
------- ------- -------
$45,876 $44,625 $39,278
======= ======= =======
Capital expenditures:
Domestic operations............................... $ 1,076 $ 548 $ 635
Foreign operations................................ 750 1,368 1,196
------- ------- -------
$ 1,826 $ 1,916 $ 1,831
======= ======= =======
Net revenues by geographic region:
United States..................................... $29,672 $24,481 $26,055
Canada............................................ 8,825 8,889 7,694
Europe............................................ 11,768 13,436 13,877
Latin America..................................... 2,231 1,318 1,181
Rest of the world................................. 2,646 3,850 3,892
------- ------- -------
$55,142 $51,974 $52,699
======= ======= =======
</TABLE>
12. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which establishes methods for determining when an impairment of long-lived
assets has occurred and for measuring the impairment of long-lived assets and is
effective for financial
F-23
<PAGE> 116
BETTIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statements for fiscal years beginning after December 15, 1995. Implementation of
SFAS No. 121 is not expected to have a material adverse effect on Bettis'
operating results or financial conditions.
The FASB also issued Statement of Financial Accounting Standards No. 123
("SFAS No. 123"), "Accounting for Stock-Based Compensation," which encourages,
but does not require, employers to adopt a fair value method of accounting for
employee stock-based compensation, and which requires increased stock-based
compensation disclosures if expense recognition is not adopted. The Company does
not intend to elect expense recognition for stock options and therefore
implementation of SFAS No. 123 will have no effect on Bettis' operating results
or financial condition.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes quarterly financial data for 1995 and 1994
(in thousands except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Net revenues......................... $12,962 $13,432 $14,013 $14,735 $55,142
Gross profit......................... 4,490 4,683 4,800 5,287 19,260
Net earnings......................... 411 562 672 635 2,280
Earnings per common share............ .05 .07 .08 .07 .27
YEAR ENDED DECEMBER 31, 1994:
Net revenues......................... $12,754 $13,490 $12,515 $13,215 $51,974
Gross profit......................... 4,657 4,846 4,115 4,749 18,367
Net earnings......................... 752 842 111 362 2,067
Earnings per common share............ .09 .10 .01 .04 .24
</TABLE>
F-24
<PAGE> 117
BETTIS CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(IN THOUSANDS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COL. A COL. B COL. C - ADDITIONS COL. D COL. E
- ---------------------------------------------------------------------------------------------------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(A) PERIOD
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1995.............. $611 $132 $ -- $ 377 $366
======= ======== ======== =========== =======
Year ended December 31, 1994.............. $206 $442 $ -- $ 37 $611
======= ======== ======== =========== =======
Year ended December 31, 1993.............. $267 $ 44 $ -- $ 105 $206
======= ======== ======== =========== =======
</TABLE>
- ---------------
(A) Uncollectible accounts written off.
F-25
<PAGE> 118
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Bettis Corporation:
We have audited the accompanying combined balance sheet of Prime Actuator
Control Systems Limited and Prime Actuator Control Systems, Inc. (collectively,
the "Company") as of July 31, 1995 and 1994, and the related combined statements
of operations, stockholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1, the Company entered into a stock purchase agreement
on June 20, 1996 for the sale of all of the outstanding common stock of the
Company to Bettis Corporation. The purchaser's basis in the assets will differ
from that reflected in the Company's historical financial statements at July 31,
1995. No adjustments have been made in the accompanying financial statements to
reflect this transaction.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Prime Actuator
Control Systems Limited and Prime Actuator Control Systems, Inc. as of July 31,
1995 and 1994, and the combined results of their operations and their cash flows
for the years then ended in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
September 3, 1996
F-26
<PAGE> 119
PRIME ACTUATOR CONTROL SYSTEMS LIMITED
AND
PRIME ACTUATOR CONTROL SYSTEMS, INC.
COMBINED BALANCE SHEET
JULY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 6,123 $ 2,830
Short term investments................................................ 766 --
Accounts receivable................................................... 2,081 4,762
Inventories........................................................... 3,995 2,922
Other current assets.................................................. 343 452
------- -------
Total current assets.......................................... 13,308 10,966
Property, plant and equipment, net...................................... 2,639 2,947
Other assets............................................................ 6 5
------- -------
$15,953 $13,918
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable -- trade............................................. $ 788 $ 1,342
Accounts payable -- Sooner............................................ 411 1,593
Accrued liabilities................................................... 373 488
Short-term borrowings from Sooner..................................... 6,045 2,485
------- -------
Total current liabilities..................................... 7,617 5,908
------- -------
Commitments and contingencies
Stockholders' equity:
Common Stock.......................................................... 10,349 10,349
Additional paid in capital............................................ 3,883 3,883
Accumulated deficit................................................... (6,553) (6,531)
Cumulative translation adjustment..................................... 657 309
------- -------
Total stockholders' equity.................................... 8,336 8,010
------- -------
$15,953 $13,918
======= =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-27
<PAGE> 120
PRIME ACTUATOR CONTROL SYSTEMS LIMITED
AND
PRIME ACTUATOR CONTROL SYSTEMS, INC.
COMBINED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Net revenues.............................................................. $7,814 $8,706
------ ------
Operating costs and expenses:
Manufacturing and direct................................................ 5,624 6,533
Selling, general and administrative..................................... 2,194 2,367
------ ------
7,818 8,900
------ ------
Operating income (loss)................................................... (4) (194)
Other income (expense):
Interest, net........................................................... (81) 79
Other, net.............................................................. 58 21
------ ------
(23) 100
------ ------
Loss before income tax provision (benefit)................................ (27) (94)
Income tax provision (benefit)............................................ (5) 15
------ ------
Net loss.................................................................. $ (22) $ (109)
====== ======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-28
<PAGE> 121
PRIME ACTUATOR CONTROL SYSTEMS LIMITED
AND
PRIME ACTUATOR CONTROL SYSTEMS, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1995 AND 1994
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- CUMULATIVE
SHARES PAID IN ACCUMULATED TRANSLATION
ISSUED AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
--------- ------- ------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at August 1, 1993......... 10,823,560 $10,349 $ 3,883 $(6,422) $ -- $ 7,810
Net loss........................... -- -- -- (109) -- (109)
Cumulative translation
adjustment....................... -- -- -- -- 309 309
---------- ------- ------ ------- ---- ------
Balances at July 31, 1994.......... 10,823,560 10,349 3,883 (6,531) 309 8,010
Net loss........................... -- -- -- (22) -- (22)
Cumulative translation
adjustment....................... -- -- -- -- 348 348
---------- ------- ------ ------- ---- ------
Balances at July 31, 1995.......... 10,823,560 $10,349 $ 3,883 $(6,553) $657 $ 8,336
========== ======= ====== ======= ==== ======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-29
<PAGE> 122
PRIME ACTUATOR CONTROL SYSTEMS LIMITED
AND
PRIME ACTUATOR CONTROL SYSTEMS, INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................. $ (22) $ (109)
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation............................................................. 716 640
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net........................ 2,815 (1,049)
Increase in inventories................................................ (971) (1,418)
(Increase) decrease in other current assets............................ 124 (437)
Increase (decrease) in accounts payable, trade......................... (596) 436
Increase (decrease) in accrued liabilities............................. (131) 185
Increase (decrease) in accounts payable -- Sooner...................... (1,183) 1,632
------- -------
Net cash provided by (used in) operating activities............ 752 (120)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment............................... (307) (580)
Proceeds from sale of assets............................................. 13 9
Purchase of short term investments....................................... (766) --
------- -------
Net cash used by investing activities.......................... (1,060) (571)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings from Sooner................. 3,560 (651)
------- -------
Net cash provided by (used in) financing activities............ 3,560 (651)
------- -------
Effect of exchange rate changes on cash.................................. 41 6
------- -------
Net increase (decrease) in cash and cash equivalents..................... 3,293 (1,336)
Cash and cash equivalents at beginning of year........................... 2,830 4,166
------- -------
Cash and cash equivalents at end of year................................. $ 6,123 $ 2,830
======= =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-30
<PAGE> 123
PRIME ACTUATOR CONTROL SYSTEMS LIMITED
AND
PRIME ACTUATOR CONTROL SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined financial statements include the financial
statements of Prime Actuator Control Systems Limited, a company incorporated in
Scotland with Number 95751 ("Prime UK") and Prime Actuator Control Systems,
Inc., a Delaware corporation, ("Prime Inc.") (collectively referred to as
"Prime").
Prime UK manufactures and sells valve actuators, which are used to remotely
and automatically open and close quarter turn valves, from a facility located in
Glenrothes, Scotland. Prime Inc. sells valve actuators manufactured by Prime UK
from offices in Houston, Texas. Prime's market is principally the chemical,
petrochemical and refining industries where pipes are used to transport liquids
and gases.
Bettis Corporation ("Bettis or the "Company") purchased 100% of the stock
of Prime UK and Prime Inc. from Sooner Pipe and Supply Corporation ("Sooner") on
June 20, 1996. Bettis paid $4,000,000 in cash consideration and caused Prime
Inc. to issue and deliver a note in the principal amount of $2,323,000 to Sooner
for the shares of Prime UK and Prime Inc. Prior to June 20, 1996, Prime repaid
with available cash a significant portion of the short-term borrowings from
Sooner. The acquisition of Prime was accounted for under the purchase method of
accounting.
Preparation of the Financial Statements
The combined financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) and include the accounts of
Prime Inc. and Prime UK as described above. On June 20, 1996, Bettis purchased
100% of the stock of Prime. The purchaser's basis in the assets will differ from
that reflected in Prime's historical financial statements at July 31, 1995. No
adjustments have been made in the accompanying financial statements to reflect
this transaction. All material intercompany transactions have been eliminated in
combination.
The preparation of financial statements requires management to make
estimates and assumptions that affect (1) the reported amounts of assets and
liabilities, (2) the disclosures of contingent assets and liabilities, and (3)
the reported amounts of revenues and expenses during the reporting periods.
Ultimate results could differ from those estimates.
Cash and Cash Equivalents
Prime includes all highly liquid securities purchased with an original
maturity of three months or less in cash and cash equivalents. Cash equivalents
are stated at cost which approximates market. The Company maintains cash
deposits in banks which from time to time exceed the amount of deposit insurance
available. Management periodically assesses the financial condition of the
institutions and believes that any credit loss is minimal.
Short Term Investments
Short term investments consist of investments in commercial paper with
terms of less than one year and are classified as held to maturity. Such
investments are carried at amortized cost which approximates fair value.
F-31
<PAGE> 124
PRIME ACTUATOR CONTROL SYSTEMS LIMITED
AND
PRIME ACTUATOR CONTROL SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories consisting of raw materials, supplies, finished parts and
sub-assemblies are stated at the lower of cost or market as determined by
management of Prime. Cost is determined by the average first-in, first-out
(FIFO) method.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost and depreciated over its
estimated useful life by the use of the straight line method. Leasehold
improvements are amortized over the shorter of their useful lives or the term of
the related lease by use of the straight line method. Disposals are removed at
cost less accumulated depreciation with the resulting gain or loss being
reflected in operations.
Revenue Recognition
The Company recognizes revenues from product sales when goods are shipped
or when ownership is assumed by the customer.
Prime has a two year warranty on materials and workmanship on all products
manufactured. Prime has not experienced any material product warranty expense.
Income Taxes
Prime UK and Prime Inc. each file income tax returns as members of the
consolidated group of Sooner, or Sooner subsidiaries, in the United Kingdom and
the United States, respectively. The income tax provisions for the periods
presented are calculated as if each had filed a separate tax return.
Fair Value of Financial Instruments
The Company includes fair value information in the notes to combined
financial statements when the fair value of its financial instruments are
different from the book value. The carrying value of cash and cash equivalents,
receivables and accounts payable approximate fair value due to the short term
maturities of these instruments. The carrying amount of the Company's short-term
borrowings from Sooner approximates its fair value at July 31, 1995.
Foreign Currency Translation
Assets and liabilities of Prime UK are translated into U.S. dollars at the
exchange rate in effect at the end of each accounting period and income
statement accounts are translated at the average exchange rates prevailing
during the period. Gains and losses resulting from the translation of foreign
financial statements are reported as a separate component of stockholders
equity. Gains and losses from foreign currency transactions are included in
other income and expense.
Concentration of Credit Risk
Prime performs ongoing credit evaluations of its customers financial
condition and, generally, requires no collateral from its customers. The Company
has made no allowance for doubtful accounts at July 31, 1995 and 1994.
F-32
<PAGE> 125
PRIME ACTUATOR CONTROL SYSTEMS LIMITED
AND
PRIME ACTUATOR CONTROL SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Information regarding certain balance sheet accounts at July 31, 1995 and
1994 is presented below:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Inventories
Raw materials and supplies.................................................. $1,954 $2,345
Finished parts and sub assemblies........................................... 2,041 577
------ ------
$3,995 $2,922
====== ======
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
1995 1994 LIVES
------ ------ ---------
<S> <C> <C> <C>
(IN THOUSANDS) (IN YEARS)
Property, plant and equipment, at cost:
Land................................................ $ 320 $ 306
Buildings and improvements.......................... 782 589 50
Machinery and equipment............................. 5,214 4,913 3-10
------ ------
6,316 5,808
Less accumulated depreciation......................... 3,677 2,861
------ ------
$2,639 $2,947
====== ======
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accrued liabilities:
Salaries, wages and commissions................................... $ 145 $ 317
Other............................................................. 228 171
------ ------
$ 373 $ 488
====== ======
</TABLE>
3. RELATED PARTY TRANSACTIONS
The combined financial statements include direct charges incurred by Sooner
on behalf of Prime for legal services, accounting fees, employee health and
insurance benefits, interest on net funds advanced to Prime and other expenses
which amounted to approximately $686,000 and $492,000 for the years ended July
31, 1995 and 1994, respectively. These direct charges were determined by
specific identification as representing actual costs incurred for Prime by
Sooner.
The long term payable to Sooner at July 31, 1995 and 1994 carried interest
rates which varied from approximately 3.5% to 7.5%.
Interest payments to Sooner in the years ended July 31, 1995 and 1994 were
$320,000 and $154,000, respectively.
4. LEASE
Prime leases certain buildings on a short term operating lease which
expires in 1996. The operating lease provides that Prime pay taxes, maintenance,
insurance and other occupancy expenses applicable to leased premises. The lease
provides for renewal for various periods at stipulated rates. Rental expense
totaled $67,000 and $33,000 for the years ended July 31, 1995 and 1994,
respectively.
F-33
<PAGE> 126
PRIME ACTUATOR CONTROL SYSTEMS LIMITED
AND
PRIME ACTUATOR CONTROL SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The approximate future minimum rental payments under the short term
operating lease for 1996 is $68,000.
5. COMMON STOCK
The Common Stock authorized, issued and outstanding of Prime consists of
the following at July 31, 1995 and 1994:
<TABLE>
<CAPTION>
COMMON STOCK
------------
(IN
THOUSANDS)
<S> <C>
Prime UK
Ordinary A -- par value 1 UK pound each, 7,000,000 authorized and
6,965,000 issued and outstanding............................................. $ 10,288
Ordinary B -- par value .01 UK pound each, 100,000,000 authorized and
3,854,060 issued and outstanding............................................. 56
Prime Inc.
Common Stock -- par value $1.00 each, 10,000 authorized and 4,500
issued and outstanding....................................................... 5
----------
$ 10,349
==========
</TABLE>
6. INCOME TAXES
Deferred income taxes are recorded to reflect the tax consequences on
future years of differences between the tax and financial reporting basis of
assets and liabilities and their financial reporting amounts.
The components of pretax earnings and the income tax provision (benefit)
for the periods were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------
1995 1994
----- -----
(IN THOUSANDS)
<S> <C> <C>
Pretax earnings (loss)
Domestic................................................................................ $(660) $(625)
Foreign................................................................................. 633 531
----- -----
$ (27) $ (94)
===== =====
Income tax provision (benefit):
Foreign................................................................................. (5) 15
----- -----
Total income tax benefit.................................................................. $ (5) $ 15
===== =====
</TABLE>
The difference between the income tax provision and the effective tax rate
of 34% is principally due to: (1) the utilization of net operating loss
carryforwards of approximately $919,000 and $527,000 at Prime UK for the years
ended July 31, 1995 and 1994, respectively, for which no tax benefit had been
accrued in previous years; and (2) current net operating losses of Prime US for
which no tax benefit would be recorded on a separate return basis. At July 31,
1995 and 1994, the balance of the unused tax loss carryforwards of Prime UK were
approximately $2,325,000 and $3,174,000, respectively, for which no deferred tax
benefit has been recorded and is available to reduce future taxable income.
F-34
<PAGE> 127
PRIME ACTUATOR CONTROL SYSTEMS LIMITED
AND
PRIME ACTUATOR CONTROL SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. GEOGRAPHIC SEGMENT INFORMATION
The following table summarizes financial information by domestic and
foreign area:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net revenues from unaffiliated customers:
Domestic operations........................................... $ 521 $ 294
Foreign operations............................................ 7,293 8,412
------- -------
$ 7,814 $ 8,706
======= =======
Operating income (loss):
Domestic operations........................................... $ (585) $ (619)
Foreign operations............................................ 581 425
------- -------
$ (4) $ (194)
======= =======
Earnings (loss) before income tax provision (benefit):
Domestic operations........................................... $ (660) $ (625)
Foreign operations............................................ 633 531
------- -------
$ (27) $ (94)
======= =======
Depreciation:
Domestic operations........................................... $ 28 $ 16
Foreign operations............................................ 688 624
------- -------
$ 716 $ 640
======= =======
Identifiable assets:
Domestic operations........................................... $ 3,626 $ 975
Foreign operations............................................ 12,327 12,943
------- -------
$15,953 $13,918
======= =======
Capital expenditures:
Domestic operations........................................... $ 31 $ 127
Foreign operations............................................ 276 453
------- -------
$ 307 $ 580
======= =======
</TABLE>
F-35
<PAGE> 128
PRIME ACTUATOR CONTROL SYSTEMS LIMITED
AND
PRIME ACTUATOR CONTROL SYSTEMS, INC.
COMBINED BALANCE SHEET (UNAUDITED)
APRIL 30, 1996 AND JULY 31, 1995
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 5,186 $ 6,123
Short term investments . . . . . . . . . . . . . . . . . . . . . - 766
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . 1,957 2,081
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,013 3,995
Other current assets . . . . . . . . . . . . . . . . . . . . . . 252 343
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . 11,408 13,308
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . 2,416 2,639
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6
-------- --------
$ 13,860 $ 15,953
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . $ 415 $ 788
Accounts payable - Sooner . . . . . . . . . . . . . . . . . . . . 661 411
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 433 373
Short-term borrowings from Sooner . . . . . . . . . . . . . . . . 6,067 6,045
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . . 7,576 7,617
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . 10,349 10,349
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 3,883 3,883
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . (8,064) (6,553)
Cumulative translation gain . . . . . . . . . . . . . . . . . . . 116 657
-------- --------
Total Stockholders' equity: . . . . . . . . . . . . . . . . . . . 6,284 8,336
-------- --------
$ 13,860 $ 15,953
======== ======
</TABLE>
See notes to combined financial statements.
F-36
<PAGE> 129
PRIME ACTUATOR CONTROL SYSTEMS LIMITED
AND
PRIME ACTUATOR CONTROL SYSTEMS, INC.
COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,018 $ 6,266
------- -------
Operating costs and expenses:
Manufacturing and direct . . . . . . . . . . . . . . . . . . . . 3,737 4,449
Selling, general and administrative . . . . . . . . . . . . . . . 1,816 1,573
------- -------
5,553 6,022
------- -------
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . (1,535) 244
------- -------
Other income (expense):
Interest, net . . . . . . . . . . . . . . . . . . . . . . . . . . - (60)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 86
------- -------
24 26
------- -------
Earnings (loss) before income tax benefit . . . . . . . . . . . . . . . (1,511) 270
Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . - -
------- -------
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,511) $ 270
======== =======
</TABLE>
See notes to combined financial statements.
F-37
<PAGE> 130
PRIME ACTUATOR CONTROL SYSTEMS LIMITED
AND
PRIME ACTUATOR CONTROL SYSTEMS, INC.
COMBINED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
NINE MONTHS ENDED APRIL 30,
---------------------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,511) $ 270
Adjustments to reconcile net earnings (loss) to net
cash used in operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472 532
Gain on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . (8) -
Changes in assets and liabilities:
Decrease in accounts receivable, net . . . . . . . . . . . . . . 8 1,912
Increase in inventories . . . . . . . . . . . . . . . . . . . . . (171) (505)
Decrease in other current assets . . . . . . . . . . . . . . . . 44 59
Decrease in accounts payable - trade . . . . . . . . . . . . . . (316) (1,050)
Increase in accrued liabilities . . . . . . . . . . . . . . . . . 81 6
Increase (decrease) accounts payable - Sooner . . . . . . . . . . 250 (1,437)
------- --------
Net cash used in operating activities . . . . . . . . . . . . (1,151) (213)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment . . . . . . . . . . . . . . (403) (298)
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . 15 -
Maturities of short term investments . . . . . . . . . . . . . . . . . 766 -
------- -------
Net cash used in investing activities . . . . . . . . . . . . . 378 (298)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings from Sooner . . . . . . . . . . . . 22 3,287
------- -------
Net cash provided by financing activities . . . . . . . . . . 22 3,287
------- -------
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . (186) 278
------- -------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . (937) 3,054
Cash and cash equivalents at beginning of period . . . . . . . . . . . 6,123 2,830
-------- -------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . $ 5,186 $ 5,884
======== ========
</TABLE>
See notes to combined financial statements.
F-38
<PAGE> 131
PRIME ACTUATOR CONTROL SYSTEMS LIMITED
AND
PRIME ACTUATOR CONTROL SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
APRIL 30, 1996
(UNAUDITED)
1. Business and Basis of Presentation
The accompanying combined financial statements include the accounts of
Prime Actuator Control Systems Limited, a company incorporated in Scotland with
Number 95751 ("Prime UK") and Prime Actuator Control Systems, Inc., a Delaware
corporation, ("Prime Inc."), collectively referred to as Prime. All material
intercompany transactions have been eliminated.
Prime UK manufactures and sells valve actuators from a facility
located in Glenrothes, Scotland. Prime Inc. sells valve actuators
manufactured by Prime UK from offices in Houston, Texas.
Bettis Corporation ("Bettis") purchased 100% of the stock of Prime UK
and Prime Inc. from Sooner Pipe and Supply Corporation ("Sooner") on June 20,
1996. Bettis paid $4,000,000 in cash consideration and caused Prime Inc. to
issue and deliver a note in the principal amount of $2,323,000 to Sooner for
the shares of Prime UK and Prime Inc.
Prime utilizes a July 31 fiscal year-end. These interim financial
statements have not been audited; however, in the opinion of management, only
adjustments consisting of normal recurring accruals considered necessary for
fair presentation have been included. Results of interim periods are not
necessarily indicative of results to be expected for the full year.
This presentation is consistent with the accounting policies reflected
in the financial statements included in Note 1 to the July 31, 1995 and 1994
Combined Financial Statements and should be read in conjunction herewith.
2. Summary of Significant Accounting Policies
There have been no significant changes in the accounting policies of
Prime during the periods presented. For a description of these policies, see
Note 1 to the July 31, 1995 Combined Financial Statements.
F-39
<PAGE> 132
BETTIS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
BETTIS PROFORMA PROFORMA
CORPORATION PRIME ADJUSTMENTS TOTAL
----------- ----- ----------- -----
<S> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . . . $ 29,814 $ 2,294 $ - $ 32,108
-------- ------ -------- --------
Operating costs and expenses:
Manufacturing and direct . . . . . . . . . . . . 19,859 2,292 (224)(A) 21,927
Selling, general and administrative . . . . . . 7,192 1,207 (27)(A) 8,372
-------- ------ -------- --------
27,051 3,499 (251) 30,299
-------- ------ -------- --------
Operating income (loss) . . . . . . . . . . . . . . . 2,763 (1,205) 251 1,809
Other income (expense):
Interest, net . . . . . . . . . . . . . . . . . (548) (6) (210)(B) (764)
Other, net . . . . . . . . . . . . . . . . . . . (142) 25 - (117)
-------- ------ -------- --------
(690) 19 (210) (881)
-------- ------ -------- --------
Earnings (loss) before income tax provision . . . . . 2,073 (1,186) 41 928
Income tax provision (benefit) . . . . . . . . . . . 992 (126) (89)(C) 777
-------- ------ -------- --------
Net earnings (loss) . . . . . . . . . . . . . . . . . $ 1,081 $(1,060) $ 130 $ 151
======== ======= ======== ========
Earnings per common share . . . . . . . . . . . . . . $ .13 $ .02
======== ========
Weighted average common and common
equivalent shares outstanding . . . . . . . . . 8,611,299 8,611,299
========= =========
</TABLE>
See the accompanying Notes to Pro Forma Financial Statements.
F-40
<PAGE> 133
BETTIS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
BETTIS PROFORMA PROFORMA
CORPORATION PRIME ADJUSTMENTS TOTAL
----------- ----- ----------- -----
<S> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . . . $ 55,142 $ 6,543 $ - $ 61,685
------- ------- ------- -------
Operating costs and expenses:
Manufacturing and direct . . . . . . . . . . . . 35,882 4,908 (521)(A) 40,269
Selling, general and administrative . . . . . . 14,235 2,226 (54)(A) 16,407
------- ------- ------- -------
50,117 7,134 (575) 56,676
------- ------- ------- -------
Operating income (loss) . . . . . . . . . . . . . . . 5,025 (591) 575 5,009
Other income (expense):
Interest . . . . . . . . . . . . . . . . . . . . (1,094) (70) (360)(B) (1,524)
Other, net . . . . . . . . . . . . . . . . . . . 32 3 - 35
------- ------- ------- --------
(1,062) (67) (360) (1,489)
------- ------- ------- --------
Earnings (loss) before income tax provision
(benefit) . . . . . . . . . . . . . . . . . . . 3,963 (658) 215 3,520
Income tax provision (benefit) . . . . . . . . . . . 1,683 (235) (178)(C) 1,270
------- ------- ------- --------
Net earnings (loss) . . . . . . . . . . . . . . . . . $ 2,280 $ (423) $ 393 $ 2,250
======= ======= ======= ========
Earnings per common share . . . . . . . . . . . . . . $ .27 $ .27
======= ========
Weighed average common and common
equivalent shares outstanding . . . . . . . . . 8,536,355 8,536,355
========= ===========
</TABLE>
See the accompanying notes to Pro Forma Financial Statements.
F-41
<PAGE> 134
BETTIS CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
THE PRO FORMA ADJUSTMENTS TO THE ACCOMPANYING STATEMENTS OF OPERATIONS ARE
SUMMARIZED BELOW:
(A) Adjustments to depreciation expense related to the preliminary
allocation of the purchase price.
(B) To record the effects of historical interest expense related to
intercompany debt with Sooner not assumed in the acquisition and to record
interest expense on the amount drawn down on the Company's revolving credit
facility in connection with the acquisition of Prime net of cash available.
(C) To record the income tax benefit that would have been realized if
Prime would have been acquired at the beginning of the period presented.
F-42
<PAGE> 135
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Bettis Corporation:
We have audited the accompanying consolidated balance sheet of Shafer Valve
Company as of October 31, 1995 and 1994, and the related consolidated statements
of operations, stockholder's equity (deficit), and cash flows for each of the
three years in the period ended October 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1, the Company entered into a stock purchase agreement
on July 9, 1996 for the sale of all of the outstanding common stock of the
Company to Bettis Corporation. The purchaser's basis in the assets will differ
from that reflected in the Company's historical financial statements at October
31, 1995. No adjustments have been made in the accompanying financial statements
to reflect this transaction.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Shafer Valve
Company as of October 31, 1995 and 1994, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
September 20, 1996
F-43
<PAGE> 136
SHAFER VALVE COMPANY
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 8 $ 578
Accounts receivable -- trade, net..................................... 2,205 2,209
Accounts receivable -- Valley City.................................... 1,505 4
Inventories, net...................................................... 4,665 4,394
Deferred income tax................................................... 959 1,113
Other current assets.................................................. 101 361
------- -------
Total current assets.......................................... 9,443 8,659
Property, plant and equipment, net...................................... 8,878 9,827
Excess cost over net assets acquired less accumulated amortization
net of $1,465 and $1,030, respectively................................ 11,013 11,428
Other assets............................................................ 201 132
------- -------
$29,535 $30,046
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable -- trade............................................. $ 695 $ 336
Accrued liabilities................................................... 2,036 2,271
Payable to Valley City................................................ 25,176 24,477
------- -------
Total current liabilities..................................... 27,907 27,084
------- -------
Deferred income tax..................................................... 2,716 3,004
Other non current liabilities........................................... 380 313
Commitments and contingencies (Notes 4 & 5)
Stockholder's equity (deficit):
Common stock, no par value, 1,000 shares authorized and outstanding... 1 1
Accumulated deficit................................................... (1,469) (356)
------- -------
Total stockholder's equity (deficit).......................... (1,468) (355)
------- -------
$29,535 $30,046
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-44
<PAGE> 137
SHAFER VALVE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE YEARS ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues.................................................. $16,462 $15,253 $21,595
------- ------- -------
Operating costs and expenses:
Manufacturing and direct.................................... 12,479 10,971 14,313
Selling, general and administrative......................... 3,872 4,085 5,440
------- ------- -------
16,351 15,056 19,753
------- ------- -------
Operating income (loss)....................................... 111 197 1,842
------- ------- -------
Other income (expense):
Interest, net............................................... (1,695) (1,711) (1,785)
Other, net.................................................. 12 (7) (8)
------- ------- -------
(1,683) (1,718) (1,793)
Earnings (loss) before income tax provision (benefit)......... (1,572) (1,521) 49
------- ------- -------
Income tax provision (benefit)................................ (459) (419) (61)
------- ------- -------
Net earnings (loss)........................................... $(1,113) $(1,102) $ 110
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-45
<PAGE> 138
SHAFER VALVE COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED OCTOBER 31, 1995
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ACCUMULATED
SHARES EARNINGS
ISSUED AMOUNT (DEFICIT) TOTAL
------ ------ ----------- -----------
<S> <C> <C> <C> <C>
Balances at November 1, 1992...................... 1,000 $ 1 $ 636 $ 637
Net earnings...................................... -- -- 110 110
----- ------ ------- -------
Balances at October 31, 1993...................... 1,000 1 746 747
Net loss.......................................... -- -- (1,102) (1,102)
----- ------ ------- -------
Balances at October 31, 1994...................... 1,000 1 (356) (355)
Net loss.......................................... -- -- (1,113) (1,113)
----- ------ ------- -------
Balances at October 31, 1995...................... 1,000 $ 1 $(1,469) $ (1,468)
===== ====== ======= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-46
<PAGE> 139
SHAFER VALVE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE YEARS ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)........................................... $(1,113) $(1,102) $ 110
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................... 1,602 1,636 1,699
Deferred taxes.............................................. (134) (216) (421)
(Gain) loss on sale of assets............................... 6 7 (3)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net............. 4 1,936 (2,100)
Increase in accounts receivable -- Valley City.............. (1,501) (5) --
(Increase) decrease in inventories.......................... (271) (505) 545
Decrease in other current assets............................ 259 36 68
(Increase) decrease in other assets......................... (69) 14 86
Increase (decrease) in accounts payable, trade.............. 360 (49) 139
Increase (decrease) in accrued liabilities.................. (235) (903) 28
Increase in non current liabilities......................... 67 106 208
------- ------- -------
Net cash provided by (used in) operating
activities........................................ (1,025) 955 359
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.................... (254) (318) (420)
Proceeds from sale of assets.................................. 10 142 11
Maturities of short term investments.......................... -- -- 1,290
------- ------- -------
Net cash provided by (used in) investing
activities........................................ (244) (176) 881
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in payable to Valley City................. 699 (566) (1,159)
------- ------- -------
Net cash provided by (used in) financing
activities........................................ 699 (566) (1,159)
------- ------- -------
Net increase (decrease) in cash and cash equivalents.......... (570) 213 81
Cash and cash equivalents at beginning of year................ 578 365 284
------- ------- -------
Cash and cash equivalents at end of year...................... $ 8 $ 578 $ 365
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-47
<PAGE> 140
SHAFER VALVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the financial
statements of Shafer Valve Company and its wholly owned subsidiaries, Shafer
Foreign Sales Corporation and Shafer Valve Company -- Houston (collectively
referred to as "Shafer").
Shafer manufactures and sells valve actuators, which are used to remotely
and automatically open and close quarter turn valves, from facilities located in
Mansfield and Orrville, Ohio. Shafer's market is principally the oil and gas
pipeline industry where pipes are used to transport liquids and gases.
Bettis Corporation ("Bettis" or the "Company") purchased 100% of the issued
and outstanding stock of Shafer from Valley City Steel Company on July 9, 1996
pursuant to a Stock Purchase Agreement with Valley City Steel Company, Shiloh
Industries Inc., a Delaware corporation, and Shiloh Corporation, an Ohio
corporation (the latter two being shareholders of Valley City Steel Company)
(collectively referred to as "Valley City"). Bettis paid $13,200,000 in cash
consideration to Valley City for the shares of Shafer. The acquisition of Shafer
was accounted for under the purchase method of accounting.
Preparation of the Financial Statements
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) and include the accounts of
Shafer as described above. On July 9, 1996, Bettis purchased 100% of the issued
and outstanding stock of Shafer. The purchaser's basis in the assets will differ
from that reflected in Shafer's historical financial statements at October 31,
1995. No adjustments have been made in the accompanying financial statements to
reflect this transaction. All material intercompany transactions have been
eliminated in consolidation.
The preparation of financial statements requires management to make
estimates and assumptions that affect (1) the reported amounts of assets and
liabilities, (2) the disclosures of contingent assets and liabilities, and (3)
the reported amounts of revenues and expenses during the reporting periods.
Ultimate results could differ from those estimates.
Cash and Cash Equivalents
Shafer includes all highly liquid debt securities purchased with an
original maturity of three months or less in cash and cash equivalents. Cash
equivalents are stated at cost which approximates market. The Company maintains
cash deposits in banks which from time to time exceed the amount of deposit
insurance available. Management periodically assesses the financial condition of
the institutions and believes that any credit loss is minimal.
Short Term Investments
Short term investments consist of investments in commercial paper with
terms of less than one year and are classified as held to maturity. Such
investments are carried at amortized cost which approximates fair value.
Inventories
Inventories consisting of raw materials, supplies, finished parts and
sub-assemblies are stated at the lower of cost or market as determined by
management of Shafer. Cost is determined by the average first-in, first-out
method.
F-48
<PAGE> 141
SHAFER VALVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment is recorded at cost and depreciated over its
estimated useful life by the use of the straight line method. Leasehold
improvements are amortized over the shorter of their useful lives or the term of
the related lease by use of the straight line method. Disposals are removed at
cost less accumulated depreciation with the resulting gain or loss being
reflected in operations.
Revenue Recognition
The Company recognizes revenues from product sales when goods are shipped
or when ownership is assumed by the customer.
Shafer has a ten year warranty on materials and workmanship on all products
manufactured. Shafer has not experienced any material product warranty expense.
Excess Cost Over Net Assets Acquired
The excess cost over fair value of the net assets of the Company upon
acquisition by Valley City is being amortized over a period of 30 years using
the straight line method. Shafer's management periodically evaluates this
intangible asset based on expectations of undiscounted cash flows and operating
income which gave rise to the assets. Amortization expense amounted to
approximately $415,000, $415,000 and $383,000 for the three years ended October
31, 1995, 1994 and 1993, respectively.
Income Taxes
Shafer files income tax returns as members of the consolidated group with
Valley City. The income tax provisions for the periods presented are calculated
as if Shafer had filed a separate tax return.
Fair Value of Financial Instruments
The Company includes fair value information in the notes to consolidated
financial statements when the fair value of its financial instruments are
different from the book value. The carrying value of cash and cash equivalents,
receivables and accounts payable approximate fair value due to the short term
maturities of these instruments. The carrying amount of the Company's payable to
Valley City approximates its fair value at October 31, 1995.
Concentration of Credit Risk
The Company's revenues in 1995 were generated from in excess of 270
customers. Only one customer accounted for more than 10 percent of total
revenues, with no one customer accounting for more than 13.9 percent of total
revenues. Shafer performs ongoing credit evaluations of its customers financial
condition and, generally, requires no collateral from its customers. The
Company's allowance for doubtful accounts at October 31, 1995 and 1994 was
$120,000.
F-49
<PAGE> 142
SHAFER VALVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Information regarding certain balance sheet accounts at October 31, 1995
and 1994 is presented below:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Inventories
Raw materials and supplies............................................... $ 3,418 $ 3,402
Finished parts and sub assemblies........................................ 1,247 992
------- -------
$ 4,665 $ 4,394
======= =======
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
1995 1994 LIVES
------- ------- ---------
(IN THOUSANDS) (IN YEARS)
<S> <C> <C> <C>
Property, plant and equipment, at cost:
Land.............................................. $ 256 $ 256
Buildings and improvements........................ 4,009 3,978 20-40
Machinery and equipment........................... 8,716 8,514 5-10
------- -------
12,981 12,748
Less accumulated depreciation....................... 4,103 2,921
------- -------
$ 8,878 $ 9,827
======= =======
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued liabilities:
Salaries, wages and commissions................................................ $ 556 $ 382
Pension liability.............................................................. 1,185 1,314
Insurance...................................................................... 258 247
Other.......................................................................... 37 328
------- -------
$ 2,036 $ 2,271
======= =======
</TABLE>
3. RELATED PARTY TRANSACTIONS
The consolidated financial statements include direct charges incurred by
Valley City on behalf of Shafer for legal services, accounting fees, employee
health and insurance benefits, interest on net funds advanced to Shafer and
other expenses which amounted to approximately $2,336,000, $1,928,000 and
$1,808,000 for the years ended October 31, 1995, 1994 and 1993, respectively.
These direct charges were determined by specific identification as representing
actual costs incurred for Shafer by Valley City.
The short term payable to Valley City at October 31, 1995 and 1994 carried
interest rates of approximately 7.1%.
Interest payments to Valley City in the years ended October 31, 1995, 1994
and 1993 were $1,708,000, $1,726,000 and $1,808,000, respectively.
4. LEASES
The Company leases various types of equipment and office space under
noncancellable operating leases which expire at various dates through 1998. Some
of the operating leases provide that the Company pay taxes, maintenance,
insurance and other occupancy expenses related to the leased property.
Generally, the leases provide for renewal for various periods at stipulated
rates. Rental expense under these leases totaled $87,000, $32,000 and $26,000
for the years ended October 31, 1995, 1994 and 1993, respectively.
F-50
<PAGE> 143
SHAFER VALVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The approximate future minimum annual rental payments under these
noncancellable operating leases is as follows (in thousands):
<TABLE>
<S> <C>
1996....................................................................................... $108
1997....................................................................................... 98
1998....................................................................................... 53
1999....................................................................................... 9
----
Total minimum lease payments............................................................... $268
====
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various lawsuits involving claims arising in
the ordinary course of its business. In the opinion of management of Shafer, all
such matters involve amounts such that an unfavorable disposition of the
proceedings would not have a material adverse effect on the consolidated
financial condition, results of operations or cash flows of the Company.
Shafer is a guarantor to a credit agreement of Valley City with its bank.
At October 31, 1995 and 1994, borrowings of $13,500,000 and $11,000,000,
respectively, were outstanding under this agreement.
6. EMPLOYEE BENEFIT PLANS
401(k) Plan
Shafer sponsors a 401(k) Plan which covers all employees who have met
certain eligibility requirements for the plan. The Company matches the
contributions of the employees up to a maximum of the employee's contribution of
3% of the employee's compensation. The Company can make discretionary
contributions to the plan. During the years ended October 31, 1995, 1994 and
1993, the Company matching contributions were $82,000, $113,000 and $118,000,
respectively.
Defined Benefit Pension Plan
The Company sponsors a defined benefit pension plan that covers
substantially all employees. The plan calls for benefits to be paid to eligible
employees at retirement based primarily upon years of service with the Company
and compensation during employment. The Company's funding policy is to make
periodic contributions within minimum funding requirements and maximum
deductible limitations. Plan assets consist primarily of insurance and annuity
contracts.
The following sets forth the funded status of the plan and amounts
reflected in the Company's balance sheet at October 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Projected benefit obligation................................... $ 2,084 $1,804
Fair value of assets held in the plan.......................... (1,320) (979)
------- ------
Unfunded excess of projected benefit obligation over plan
assets...................................................... 764 825
Net unrecognized loss from past experience different than
assumed..................................................... (128) --
Unrecognized (gain) loss....................................... 549 489
------- ------
Pension liability included in the balance sheet................ $ 1,185 $1,314
======= ======
</TABLE>
F-51
<PAGE> 144
SHAFER VALVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pension expense for the three years ended October 31, 1995, 1994 and 1993
includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost of the current period.......................... $180 $217 $188
Interest cost on the projected benefit obligation........... 149 158 230
Actual return on assets held in the plan.................... (78) (56) (144)
Loss due to settlements..................................... -- -- 88
Net amortization of unrecognized (gain) loss................ (19) -- --
---- ---- ----
$232 $319 $362
==== ==== ====
</TABLE>
The Company's economic assumptions used in determining the pension cost and
pension liability shown above are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Discount rate................................................ 8.25% 7.25% 6.0%
Long-term rate of return on assets........................... 8.0% 6.0% 6.0%
Rate of increase in compensation levels...................... 5.0% 4.5% 5.0%
</TABLE>
8. INCOME TAXES
Deferred income taxes are recorded to reflect the tax consequences on
future years of differences between the tax and financial reporting basis of
assets and liabilities and their financial reporting amounts.
The components of income tax provision (benefit) for the periods were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision (benefit):
Current................................................ $ (408) $ (236) $ 331
Deferred............................................... (134) (217) (421)
State.................................................. 83 34 29
------ ------ ------
Total income tax benefit................................. $ (459) $ (419) $ (61)
====== ====== ======
</TABLE>
The difference between the effective rate reflected in the income tax
provision and the statutory federal tax rate is analyzed as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------
1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
Statutory rate of federal income tax provision.......... (34.0)% (34.0)% 34.0%
State income tax........................................ 5.2 2.2 58.4
Goodwill amortization................................... 9.0 9.3 278.8
Foreign sales corporation............................... (2.7) (1.5) (84.9)
Other................................................... (6.7) (3.5) (411.7)
------ ------ ------
Effective tax rate...................................... (29.2)% (27.5)% (125.4)%
====== ====== ======
</TABLE>
Total income taxes paid (refunded) during the years ended October 31, 1995,
1994 and 1993 were $(326,000), $(622,000), and $331,000, respectively.
F-52
<PAGE> 145
SHAFER VALVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the deferred tax asset and liability at October 31, 1995
and 1994, respectively, were as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset:
Pension liability.................................................. $ 373 $ 438
Inventory reserves................................................. 47 177
Property tax accrued............................................... 62 60
Accrued deferred compensation...................................... 62 56
Vacation pay accrued............................................... 58 62
Other.............................................................. 357 320
------ ------
$ 959 $1,113
====== ======
Deferred tax liability:
Property, plant and equipment.................................... $2,716 $3,004
====== ======
</TABLE>
F-53
<PAGE> 146
SHAFER VALVE COMPANY
CONSOLIDATED BALANCE SHEET (UNAUDITED)
APRIL 30, 1996 AND OCTOBER 31, 1995
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 2 $ 8
Accounts receivable - trade, net . . . . . . . . . . . . . . . . 2,996 2,205
Accounts receivable - Valley City . . . . . . . . . . . . . . . . - 1,505
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,647 4,665
Deferred income tax . . . . . . . . . . . . . . . . . . . . . . . 1,054 959
Other current assets . . . . . . . . . . . . . . . . . . . . . . 164 101
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . 9,863 9,443
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . 8,328 8,878
Excess cost over net assets acquired less accumulated
amortization net of $1,653 and $1,445, respectively . . . . . . . . . 10,805 11,013
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 201
--------- ---------
$ 29,201 $ 29,535
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . $ 891 $ 695
Accounts payable - Valley City . . . . . . . . . . . . . . . . . 440 -
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 2,242 2,036
Payable to Valley City . . . . . . . . . . . . . . . . . . . . . 24,597 25,176
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . 28,170 27,907
--------- ---------
Deferred income tax . . . . . . . . . . . . . . . . . . . . . . . . . . 2,697 2,716
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . 405 380
Commitments and contingencies
Stockholder's equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . (2,072) (1,469)
--------- ---------
Total stockholder's equity: . . . . . . . . . . . . . . . . . . . (2,071) (1,468)
--------- ---------
$ 29,201 $ 29,535
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-54
<PAGE> 147
SHAFER VALVE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,728 $ 8,137
-------- --------
Operating costs and expenses:
Manufacturing and direct . . . . . . . . . . . . . . . . . . . . 5,753 6,463
Selling, general and administrative . . . . . . . . . . . . . . . 2,027 1,991
-------- --------
7,780 8,454
-------- --------
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . (52) (317)
Other income (expense):
Interest, net . . . . . . . . . . . . . . . . . . . . . . . . . . (845) (831)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 (7)
-------- --------
(775) (838)
-------- --------
Loss before income tax benefit . . . . . . . . . . . . . . . . . . . . (827) (1,155)
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . (224) (340)
-------- --------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (603) $ (815)
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-55
<PAGE> 148
SHAFER VALVE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
--------------------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (603) $ (815)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 772 793
Gain on sale of assets . . . . . . . . . . . . . . . . . . . . . (70) -
Deferred income tax . . . . . . . . . . . . . . . . . . . . . . . (114) (38)
Changes in assets and liabilities:
Decrease in accounts receivable, net . . . . . . . . . . . . . . (791) (1,352)
(Increase) decrease in accounts receivable - Valley City . . . . 1,505 (7)
Increase in inventories . . . . . . . . . . . . . . . . . . . . . (982) (153)
(Increase) decrease in other current assets . . . . . . . . . . . (63) 146
Increase in other assets . . . . . . . . . . . . . . . . . . . . (4) (54)
Increase in accounts payable - trade . . . . . . . . . . . . . . 196 517
Increase in accrued liabilities . . . . . . . . . . . . . . . . . 206 822
Increase in accounts payable - Valley City . . . . . . . . . . . 440 340
Increase in non current liabilities . . . . . . . . . . . . . . . 24 33
-------- --------
Net cash provided by operating activities . . . . . . . . . . . 516 232
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment . . . . . . . . . . . . . . (14) (92)
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . 70 -
-------- --------
Net cash provided by (used in) investing activities . . . . . . 56 (92)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in payable to Valley City . . . . . . . . . . . . . . . . . (578) (242)
-------- --------
Net cash provided by financing activities . . . . . . . . . . (578) (242)
-------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . (6) (102)
Cash and cash equivalents at beginning of period . . . . . . . . . . . 8 578
-------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . $ 2 $ 476
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-56
<PAGE> 149
SHAFER VALVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996
(UNAUDITED)
1. Business and Basis of Presentation
The accompanying consolidated financial statements include the
financial statements of Shafer Valve Company and its wholly owned subsidiaries,
Shafer Foreign Sales Corporation and Shafer Valve Company-Houston (collectively
referred to as "Shafer").
Shafer manufactures and sells valve actuators, which are used to
remotely and automatically open and close quarter turn valves, from a facility
located in Mansfield, Ohio. Shafer also manufactures certain actuators and
components at a facility in Orrville, Ohio. Shafer's market is principally the
chemical, petrochemical and refining industries where pipes are used to
transport liquids and gases.
Bettis Corporation ("Bettis" or the "Company") purchased 100% of the
stock of Shafer from Valley City Steel Company pursuant to a Stock Purchase
Agreement with Valley City Steel Company, Shiloh Industries Inc. and Shiloh
Corporation (the latter two being shareholders of Valley City Steel Company)
(collectively referred to as "Valley City") on July 9, 1996. Bettis paid
$13,200,000 in cash consideration to Valley City for the shares of Shafer. The
acquisition of Shafer was accounted for under the purchase method of
accounting.
Shafer utilizes an October 31 fiscal year-end. These interim
financial statements have not been audited; however, in the opinion of
management, only adjustments consisting of normal recurring accruals considered
necessary for fair presentation have been included. Results of interim periods
are not necessarily indicative of results to be expected for the full year.
This presentation is consistent with the accounting policies reflected
in the financial statements included in Note 1 to the October 31, 1995 and 1994
Consolidated Financial Statements and should be read in conjunction herewith.
2. Summary of Significant Accounting Policies
There have been no significant changes in the accounting policies of
Shafer during the periods presented. For a description of these policies, see
Note 1 to the October 31, 1995 Consolidated Financial Statements.
F-57
<PAGE> 150
BETTIS CORPORATION
PRO FORMA BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
BETTIS SHAFER ADJUSTMENTS TOTAL
------ ------ ----------- -----
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . $ 1,852 $ 2 $ - $ 1,854
Accounts receivable, net . . . . . . . . . . . 15,641 2,996 - 18,637
Inventories, net . . . . . . . . . . . . . . 14,386 5,647 - 20,033
Deferred income tax . . . . . . . . . . . . . - 1,054 (301)(A) 753
Other current assets . . . . . . . . . . . . . 2,042 164 - 2,206
--------- ---------- ---------- ----------
Total current assets . . . . . . . . . . . . 33,921 9,863 (301) 43,483
Property, plant and equipment, net . . . . . . . . 15,575 8,328 - 23,903
Excess cost over net assets acquired . . . . . . . 8,766 10,805 (10,394)(B) 9,177
Other assets . . . . . . . . . . . . . . . . . . . 2,186 205 - 2,391
--------- ---------- ---------- ----------
$ 60,448 $ 29,201 $ (10,695) $ 78,954
========= ========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short term bank debt . . . . . . . . . . . . . $ 5,013 $ - $ - $ 5,013
Accounts payable - trade . . . . . . . . . . . 4,879 891 - 5,770
Accounts payable - Valley City . . . . . . . . - 440 (440)(C) -
Accrued liabilities . . . . . . . . . . . . . 8,482 2,242 (524)(D) 10,200
Payable to Valley City . . . . . . . . . . . . - 24,597 (24,597)(C) -
Current maturities of long term debt . . . . . 2,766 - - 2,766
--------- ---------- ---------- ----------
Total current liabilities . . . . . . . . . 21,140 28,170 (25,561) 23,749
--------- ---------- ---------- ----------
Long term debt . . . . . . . . . . . . . . . . . . 16,730 - 13,200 (G) 29,930
Deferred income taxes . . . . . . . . . . . . . . . 579 2,697 - 3,276
Other non current liabilities . . . . . . . . . . . 66 405 (405)(E) 66
Commitments and contingencies
Stockholder's equity:
Common Stock . . . . . . . . . . . . . . . . . 85 1 (1)(F) 85
Additional paid in capital . . . . . . . . . . 5,777 - - 5,777
Accumulated earnings (deficit) . . . . . . . . 17,202 (2,072) 2,072 (F) 17,202
Cumulative translation adjustment . . . . . . (1,131) - - (1,131)
--------- ---------- ---------- ----------
Total stockholder's equity (deficit) . . . . 21,933 (2,071) 2,071 21,933
--------- ---------- ---------- ----------
$ 60,448 $ 29,201 $ (10,695) $ 78,954
========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
F-58
<PAGE> 151
BETTIS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
BETTIS PROFORMA PROFORMA
CORPORATION PRIME SHAFER ADJUSTMENTS TOTAL
----------- ----- -------- ----------- -----
<S> <C> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . . . $ 29,814 $ 2,294 $ 7,728 $ - $39,836
-------- --------- --------- --------- -------
Operating costs and expenses:
Manufacturing and direct . . . . . . . . . . . . 19,859 2,292 5,753 (224)(A) 27,680
Selling, general and administrative . . . . . . 7,192 1,207 2,027 (27)(A) 10,029
(190)(B)
(180)(C)
-------- --------- --------- --------- -------
27,051 3,499 7,780 (621) 37,709
-------- --------- --------- --------- -------
Operating income (loss) . . . . . . . . . . . . . . . 2,763 (1,205) (52) 621 2,127
Other income (expense):
Interest, net . . . . . . . . . . . . . . . . . (548) (6) (845) (210)(D) (1,325)
284 (E)
Other, net . . . . . . . . . . . . . . . . . . . (142) 25 70 - (47)
-------- --------- --------- --------- -------
(690) 19 (775) 74 (1,372)
-------- --------- --------- --------- -------
Earnings (loss) before income tax
provision (benefit) . . . . . . . . . . . . . . . . 2,073 (1,186) (827) 695 755
Income tax provision (benefit) . . . . . . . . . . . 992 (126) (224) (89)(F) 711
158 (G)
-------- --------- --------- --------- -------
Net earnings (loss) . . . . . . . . . . . . . . . . . $ 1,081 $ (1,060) $ (603) $ 626 $ 44
======== ========= ======== ======== =======
Earnings per common share . . . . . . . . . . . . . . $ .13 $ -
======== ========
Weighted average common and common
equivalent shares outstanding . . . . . . . . . 8,611,299 8,611,299
========= =========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
F-59
<PAGE> 152
BETTIS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
BETTIS PROFORMA PROFORMA
CORPORATION PRIME SHAFER ADJUSTMENTS TOTAL
----------- ----- ------ ----------- --------
<S> <C> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . . . $ 55,142 $ 6,543 $ 16,462 $ - $78,147
-------- --------- -------- ------- -------
Operating costs and expenses:
Manufacturing and direct . . . . . . . . . . . . 35,882 4,908 12,479 (521)(A) 52,748
Selling, general and administrative . . . . . . 14,235 2,226 3,872 (54)(A) 19,603
(378)(B)
(298)(C)
-------- --------- -------- ------- -------
50,117 7,134 16,351 (1,251) 72,351
-------- --------- -------- ------- -------
Operating income (loss) . . . . . . . . . . . . . . . 5,025 (591) 111 1,251 5,796
Other income (expense):
Interest . . . . . . . . . . . . . . . . . . . . (1,094) (70) (1,695) (360)(D) (2,646)
573 (E)
Other, net . . . . . . . . . . . . . . . . . . . 32 3 12 - 47
-------- --------- -------- ------- -------
(1,062) (67) (1,683) 213 (2,599)
-------- --------- -------- ------- -------
Earnings (loss) before income tax
provision (benefit) . . . . . . . . . . . . . . 3,963 (658) (1,572) 1,464 3,197
Income tax provision (benefit) . . . . . . . . . . . 1,683 (235) (459) (178)(F) 1,107
296 (G)
-------- --------- -------- ------- -------
Net earnings (loss) . . . . . . . . . . . . . . . . . $ 2,280 $ (423) $ (1,113) $ 1,346 $ 2,090
======== ========= ======== ======= =======
Earnings per common share . . . . . . . . . . . . . . $ .27 $ .25
======== =======
Weighed average common and common
equivalent shares outstanding . . . . . . . . . 8,536,355 8,536,355
========== =========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
F-60
<PAGE> 153
BETTIS CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
THE PRO FORMA ADJUSTMENTS TO THE ACCOMPANYING PRO FORMA BALANCE SHEET ARE
SUMMARIZED BELOW:
(A) Adjustment to deferred tax benefit for adjustment to pension and
deferred compensation liability.
(B) To adjust excess cost over net assets acquired for purchase of Shafer
by Bettis.
(C) To eliminate intercompany accounts not assumed in the acquisition.
(D) To adjust pension liability for freezing plan effective date of the
acquisition.
(E) To adjust for deferred compensation plans not assumed in acquisition.
(F) To eliminate Shafer common stock and accumulated deficit at date of
acquisition.
(G) To record increase in borrowings under the Company's revolving line of
credit as a result of the acquisitions of Shafer and Prime.
THE PRO FORMA ADJUSTMENTS TO THE ACCOMPANYING STATEMENTS OF OPERATIONS ARE
SUMMARIZED BELOW:
(A) To record depreciation and amortization expense related to the
preliminary allocation of the purchase price of Prime.
(B) To adjust historical goodwill expense.
(C) To record effect of freezing Shafer pension plan as of date of
acquisition.
(D) To reverse the effects of historical interest expense related to
intercompany debt with Sooner not assumed in the acquisition and to
record interest expense on the amount drawn down on the Company's
revolving credit facility in connection with the acquisition of Prime,
net of cash available.
(E) To reverse the effects of historical interest expense related to
intercompany debt with Valley City not assumed in the acquisition and
to record interest expense on the amount drawn down on the Company's
revolving credit facility in connection with the acquisition of Shafer
net of cash available.
(F) To record income tax benefit that would have been realized if Prime
would have been acquired at the beginning of the period presented.
(G) To record income tax provision that would have been realized if Shafer
would have been acquired at the beginning of the period presented.
F-61
<PAGE> 154
APPENDIX A
AGREEMENT AND PLAN OF MERGER
By and Among
DANIEL INDUSTRIES, INC.,
BLUE ACQUISITION INC.
and
BETTIS CORPORATION
September 17, 1996
<PAGE> 155
<TABLE>
<CAPTION>
Page*
-----
<S> <C> <C>
ARTICLE I
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.3. Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.4. Certificate of Incorporation and By-laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.5. Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.6. Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.7. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES . . . . . . . . . . . . . . . 2
SECTION 2.1. Effect on Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Capital Stock of Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Cancellation of Company and Parent Owned Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(d) No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.2. Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Payment of Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(c) Exchange Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(d) Distributions with Respect to Unexchanged Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(e) No Further Ownership Rights in Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 4
SECTION 3.1. Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(d) Authority; Non-contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(e) SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(f) Information Supplied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(g) Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(h) State Takeover Statutes; Absence of Supermajority Provision . . . . . . . . . . . . . . . . . . . . 7
(i) Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(j) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(k) Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(l) Employee Benefit Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(m) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(n) No Excess Parachute Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
- ---------------
* Printed pages and table of contents references thereto are renumbered from the
actual Agreement and Plan of Merger.
-i-
<PAGE> 156
<TABLE>
<S> <C> <C>
(o) Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(p) Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(q) Material Contracts and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(r) Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(s) Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(t) Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(u) Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(v) Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(w) Board Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3.2. Representations and Warranties of Parent and Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(a) Organization; Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(b) Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(c) Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(d) Authority; Non-contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(e) SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(f) Information Supplied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(g) Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(h) State Takeover Statutes; Absence of Supermajority Provision . . . . . . . . . . . . . . . . . . . . 14
(i) Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(j) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(k) Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(l) Employee Benefit Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(m) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(n) No Excess Parachute Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(o) Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(p) Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(q) Material Contracts and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(r) Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(s) Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(t) Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(u) Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(v) Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(w) Board Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . 18
SECTION 4.1. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(a) Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Changes in Employment Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(c) Severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(d) Other Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 4.2. Conduct of Business of Parent and Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Other Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
-ii-
<PAGE> 157
<TABLE>
<S> <C> <C>
ARTICLE V
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 5.1. Stockholder Approval; Preparation of Proxy Statement; Preparation of Registration Statement . . . . . . 20
SECTION 5.2. Letter of the Company's Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 5.3. Letter of Parent's Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 5.4. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 5.5. Reasonable Efforts; Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 5.6. Employee Benefit Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 5.7. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.8. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.9. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.10. Stockholder Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.11. Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5.12. Parent's Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5.13. Appointment of Directors to Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5.14. Appointment of W. Todd Bratton as Executive Vice President . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5.15. Affirmation of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VI
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 6.1. Conditions to Each Party's Obligation to Effect the Merger . . . . . . . . . . . . . . . . . . . . . . 28
(a) Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(b) NYSE Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(c) HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(d) No Injunctions or Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(e) Registration Statement Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(f) Blue Sky Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 6.2. Conditions of Parent and Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(a) Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(b) Certifications and Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(c) Representations and Warranties True . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(d) Affiliate Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(e) Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(f) Pooling Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(g) Consents, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(h) No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(i) Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(j) No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 6.3. Conditions of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(a) Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(b) Certifications and Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(c) Representations and Warranties True . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(d) Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
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<TABLE>
<S> <C> <C>
(e) Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(f) No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . 32
SECTION 7.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.2. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.3. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.4. Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.5. Procedure for Termination, Amendment, Extension or Waiver . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VIII
SPECIAL PROVISIONS AS TO CERTAIN MATTERS . . . . . . . . . . . . . . . . . . 33
SECTION 8.1. Takeover Defenses of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 8.2. No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 8.3. Fee and Expense Reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE IX
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 9.1. Nonsurvival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 9.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 9.3. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 9.4. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 9.5. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 9.6. Entire Agreement; No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 9.7. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 9.8. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 9.9. Enforcement of the Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 9.10. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
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AGREEMENT AND PLAN OF MERGER dated as of
September 17, 1996, by and among DANIEL INDUSTRIES,
INC., a Delaware corporation ("Parent"), BLUE
ACQUISITION INC., a Delaware corporation ("Sub") and a
wholly-owned subsidiary of Parent, and BETTIS
CORPORATION, a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and
the Company have approved the acquisition of the Company by Parent on the terms
and subject to the conditions of this Agreement and Plan of Merger (the
"Agreement");
WHEREAS, the respective Boards of Directors of Parent, Sub and
the Company have approved the merger of Sub with and into the Company (the
"Merger"), upon the terms and subject to the conditions of this Agreement,
whereby each issued and outstanding share of the Company's Common Stock, $.01
par value, including the related right to purchase one one-thousandth of a
share of Series A Junior Participating Preferred Stock, $.01 par value, of the
Company (collectively, a "Share") not owned by the Company, Parent, Sub or any
wholly-owned subsidiary of the Company, Parent or Sub will be converted into
fifty-eight one-hundredths (.58) of a share of Common Stock, $1.25 par value,
including the related right to purchase one one-hundredth interest in a share
of Series A Junior Participating Preferred Stock, $1.00 par value, of Parent
(collectively, a "Parent Share");
WHEREAS, for federal income tax purposes, it is intended that
the Merger shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for accounting purposes, it is intended that the
Merger shall be accounted for as a pooling of interests; and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties agree
as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. Upon the terms and subject to the
conditions hereof and in accordance with the Delaware General Corporation
Law (the "DGCL"), Sub shall be merged with and into the Company at the
Effective Time of the Merger (as hereinafter defined). At the election of
Parent, any direct wholly-owned subsidiary (as defined in Section 9.3) of Parent
may be substituted for Sub as a constituent corporation in the Merger. In such
event, the parties agree to execute an appropriate amendment to this Agreement
in order to reflect the foregoing. Following the Merger, the separate corporate
existence of Sub shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation") and shall succeed to and assume all
the rights and obligations of Sub in accordance with the DGCL.
SECTION 1.2. Effective Time. As soon as practicable
following the satisfaction or, to the extent permitted hereunder, waiver of the
conditions set forth in Article VI, the Surviving Corporation shall file the
officer's certificate required by the DGCL with respect to the Merger and other
appropriate documents (the "Certificate of Merger") executed in accordance with
the relevant provisions of the DGCL. The Merger shall become effective at such
time as the Certificate of Merger is duly filed with the Delaware Secretary of
State, or at such other time as Sub and the Company shall agree should be
specified in the Certificate of Merger (the time the Merger becomes effective
being the "Effective Time of the Merger"). The closing of the Merger (the
"Closing") shall take place at the offices of Fulbright & Jaworski L.L.P., in
Houston, Texas, on the date of the meetings of the Company's stockholders (the
"Company Stockholders Meeting") and of Parent's stockholders (the "Parent
Stockholders Meeting"), in each case, to approve the Merger, or, if any of the
conditions set forth in Article VI have not been satisfied, then as soon as
practicable thereafter, or at such other time and place or such other date as
Parent and the Company shall agree (the "Closing Date"). If such
<PAGE> 160
meetings are not held or concluded on the same date, then the Closing Date
shall be on the date of the latter of such meetings.
SECTION 1.3. Effects of the Merger. The Merger shall have
the effects set forth in Section 259 of the DGCL. If at any time after the
Effective Time of the Merger, the Surviving Corporation shall consider or be
advised that any further assignments or assurances in law or otherwise are
necessary or desirable to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation, all rights, title and interests in all real estate
and other property and all privileges, powers and franchises of the Company and
Sub, the Surviving Corporation and its proper officers and directors, in the
name and on behalf of the Company and Sub, shall execute and deliver all such
proper deeds, assignments and assurances in law and do all things necessary and
proper to vest, perfect or confirm title to such property or rights in the
Surviving Corporation and otherwise to carry out the purpose of this Agreement,
and the proper officers and directors of the Surviving Corporation are fully
authorized in the name of the Company or otherwise to take any and all such
action.
SECTION 1.4. Certificate of Incorporation and By-laws. (a)
The Certificate of Incorporation of the Company, as in effect immediately prior
to the Effective Time of the Merger shall be the Certificate of Incorporation
of the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
(b) The By-laws of Sub as in effect immediately prior to
the Effective Time of the Merger shall be the By-laws of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
SECTION 1.5. Directors. The directors of Sub immediately
prior to the Effective Time of the Merger shall be the directors of the
Surviving Corporation and shall hold office in accordance with the Certificate
of Incorporation and By-laws of the Surviving Corporation from the Effective
Time of the Merger until the earlier of their resignation or removal or until
their respective successors are duly elected and qualified, as the case may be.
SECTION 1.6. Officers. The officers of the Company
immediately prior to the Effective Time of the Merger shall be the officers of
the Surviving Corporation and shall hold office in accordance with the
Certificate of Incorporation and By-laws of the Surviving Corporation from the
Effective Time of the Merger until the earlier of their resignation or removal
or until their respective successors are duly elected and qualified, as the
case may be.
SECTION 1.7. Vacancies. If at the Effective Time of the
Merger a vacancy shall exist in the Board of Directors or in any of the offices
of the Surviving Corporation, such vacancy may thereafter be filled in the
manner provided by the DGCL and the Certificate of Incorporation and By-laws of
the Surviving Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1. Effect on Capital Stock. As of the Effective
Time of the Merger, by virtue of the Merger and without any action on the part
of the holder of any Shares:
(a) Capital Stock of Sub. Each issued and outstanding
share of the capital stock of Sub shall be converted into and become one fully
paid and nonassessable share of Common Stock of the Surviving Corporation.
(b) Cancellation of Company and Parent Owned Stock. All
Shares that are owned by any wholly-owned subsidiary of the Company and any
Shares owned by Parent, Sub or any other wholly-owned subsidiary of Parent or
Sub shall be canceled and no consideration shall be delivered in exchange
therefor.
(c) Conversion of Shares. Subject to Section 2.1(d) and
(e), each issued and outstanding Share shall be converted into the right to
receive, upon the surrender of the certificate formerly representing such
Shares pursuant to Section 2.2, .58 of a Parent Share (the "Merger
Consideration").
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(d) No Fractional Shares. No fractional Parent Shares
shall be issued in the Merger. All fractional Parent Shares that a holder of
Shares would otherwise be entitled to receive as a result of the Merger shall
be aggregated and if a fractional Parent Share results from such aggregation,
such holder shall be entitled to receive, in lieu thereof, an amount in cash
determined by multiplying the average of the daily closing sale price
per Parent Share on the New York Stock Exchange ("NYSE") for the ten trading
days next preceding the Effective Time of the Merger by the fraction of a Parent
Share to which such holder would otherwise have been entitled. Alternatively,
Parent and Sub shall have the option of instructing the Exchange Agent (as
defined in Section 2.2(a)) to aggregate all fractional Parent Shares, sell such
Parent Shares in the public market and distribute to holders of fractional
Parent Shares a pro rata portion of the proceeds of such sale. No such cash in
lieu of fractional Parent Shares shall be paid to any holder of fractional
Parent Shares until Certificates (as defined in Section 2.2(c)) representing
such Parent Shares are surrendered and exchanged in accordance with Section
2.2(c).
SECTION 2.2. Exchange of Certificates. (a) Exchange
Agent. Prior to the Effective Time of the Merger, Parent shall engage Wachovia
Bank of North Carolina, N.A., or such other bank or trust company reasonably
acceptable to the Company, to act as exchange agent (the "Exchange Agent") for
the issue of the Merger Consideration upon surrender of certificates
representing Shares.
(b) Payment of Merger Consideration. Parent shall take
all steps necessary to enable and cause there to be provided to the Exchange
Agent on a timely basis, as and when needed after the Effective Time of the
Merger, certificates for the Parent Shares to be issued upon the conversion of
the Shares pursuant to Section 2.1. Parent or the Surviving Corporation shall
timely make available to the Exchange Agent any cash necessary to make payments
in lieu of fractional shares.
(c) Exchange Procedure. As soon as practicable after the
Effective Time of the Merger, the Exchange Agent shall mail to each holder
of record of a certificate or certificates that immediately prior to the
Effective Time of the Merger represented outstanding Shares (the
"Certificates"), other than the Company, Parent, Sub and any wholly-owned
subsidiary of the Company, Parent or Sub, (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in a form and have such other provisions as Parent and Sub
may reasonably specify) and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for the certificates representing the Parent
Shares and any cash in lieu of a fractional share. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by the Surviving Corporation, together with such
letter of transmittal, duly executed, and such other documents as may reasonably
be required by the Exchange Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate or certificates
representing the number of whole Parent Shares into which the Shares theretofore
represented by such Certificate shall have been converted pursuant to Section
2.1 and any cash payable in lieu of a fractional Share, and the Certificate so
surrendered shall forthwith be canceled. If the Parent Shares are to be issued
to a person other than the person in whose name the Certificate so surrendered
is registered, it shall be a condition of exchange that such Certificate shall
be properly endorsed or otherwise in proper form for transfer and that the
person requesting such exchange shall pay any transfer or other taxes required
by reason of the exchange to a person other than the registered holder of such
Certificate or establish to the reasonable satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until surrendered
as contemplated by this Section 2.2, each Certificate shall be deemed at any
time after the Effective Time of the Merger to represent only the right to
receive upon such surrender the number of Parent Shares and cash, if any, in
lieu of fractional Parent Shares into which the Shares theretofore represented
by such Certificate shall have been converted pursuant to Section 2.1. The
Exchange Agent shall not be entitled to vote or exercise any rights of ownership
with respect to the Parent Shares held by it from time to time hereunder, except
that it shall receive and hold all dividends or other distributions paid or
distributed with respect thereto for the account of persons entitled thereto.
(d) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the Effective Time of
the Merger with respect to the Parent Shares with a record date after the
Effective Time of the Merger shall be paid to the holder of any unsurrendered
Certificate with respect to the Parent Shares represented thereby and no cash
payment in lieu of fractional shares shall be paid to any such
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<PAGE> 162
holder pursuant to Section 2.1(d) until the holder of record of such
Certificate shall surrender such Certificate. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the record holder of the Certificates representing the Parent Shares
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional Parent Share
to which such holder is entitled pursuant to Section 2.1(d) and the amount of
dividends or other distributions with a record date after the Effective Time of
the Merger theretofore paid with respect to such whole Parent Shares, as the
case may be, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time of the Merger
but prior to surrender and a payment date subsequent to surrender payable with
respect to such whole Parent Shares.
(e) No Further Ownership Rights in Shares. All Parent
Shares issued upon the surrender of Certificates in accordance with the terms
of this Article II, together with any dividends payable thereon to the extent
contemplated by this Section 2.2, shall be deemed to have been exchanged and
paid in full satisfaction of all rights pertaining to the Shares theretofore
represented by such Certificates and there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
Shares that were outstanding immediately prior to the Effective Time of the
Merger. If, after the Effective Time of the Merger, Certificates are presented
to the Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of the Company.
The Company agrees that it will, on or before October 1, 1996, affirm in
writing (the "Company Affirmation and Disclosure Document") that, as of the
date of this Agreement, it represents and warrants to, and agrees with, Parent
and Sub as follows, subject to any exceptions specified in the Company
Affirmation and Disclosure Document:
(a) Organization, Standing and Power. The Company is a
corporation duly organized, validly existing and in good standing under the law
of the jurisdiction in which it is incorporated and has the requisite corporate
power and authority to carry on its business as now being conducted. The
Company is duly qualified to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification necessary, other than in such
jurisdictions where the failure to be so qualified to do business or in good
standing (individually or in the aggregate) would not have a material adverse
effect (as defined in Section 9.3) on the Company and its subsidiaries, taken
as a whole.
(b) Subsidiaries. The Company's subsidiaries that are
corporations are corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation and
have the requisite corporate power and authority to carry on their respective
businesses as they are now being conducted and to own, operate and lease the
assets they now own, operate or hold under lease. The Company's subsidiaries
are duly qualified to do business and are in good standing in each jurisdiction
in which the nature of their respective businesses or the ownership or leasing
of their respective properties makes such qualification necessary, other than
in such jurisdictions where the failure to be so qualified or in good standing
would not have a material adverse effect on the Company and its subsidiaries,
taken as a whole. All the outstanding shares of capital stock of the Company's
subsidiaries that are corporations have been duly authorized and validly issued
and are fully paid and non-assessable and were not issued in violation of any
preemptive rights or other preferential rights of subscription or purchase of
any person. Except as disclosed in the SEC Documents (as defined in Section
3.1(e)), all such stock and ownership interests are owned of record and
beneficially by the Company or by a wholly-owned subsidiary of the Company,
free and clear of all liens, pledges, security interests, charges, claims and
other encumbrances of any kind or nature ("Liens"). Except for the capital
stock of, or ownership interests in, its subsidiaries, the Company does not
own, directly or indirectly, any capital stock, equity interest or other
ownership interest in any corporation, partnership, association, joint venture,
limited liability company or other entity.
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<PAGE> 163
(c) Capital Structure. The authorized capital stock of
the Company consists of 30,000,000 shares of common stock, $.01 par value
("Company Common Stock"), and 1,000,000 shares of preferred stock, $.01
par value ("Preferred Stock"), of which 250,000 shares have been designated
Series A Junior Participating Preferred Stock and reserved for issuance pursuant
to the Rights Agreement dated October 31, 1995 between the Company and American
Stock Transfer & Trust Company, as rights agent (the "Company Rights
Agreement"). At the close of business on August 31, 1996: 8,483,435 Shares were
issued and outstanding; 45,000 and 736,000 shares of Company Common Stock were
reserved for issuance pursuant to outstanding options granted under the
Company's 1994 Nonemployee Directors' Stock Option Plan and 1994 Stock Incentive
Plan, respectively; and 30,000 and 10,800 shares of Company Common Stock were
reserved for issuance pursuant to awards not yet granted under the Company's
1994 Nonemployee Directors' Stock Option Plan and 1994 Stock Incentive Plan,
respectively. Except as set forth above, no shares of capital stock or other
equity or voting securities of the Company are reserved for issuance or
outstanding. All outstanding shares of capital stock of the Company are, and
all such shares issuable upon the exercise of stock options will be, validly
issued, fully paid and nonassessable and not subject to preemptive rights. No
capital stock has been issued by the Company since August 31, 1996, other than
shares of Common Stock issued pursuant to options outstanding on or prior to
such date in accordance with their terms at such date. Except for options
outstanding under the Company's 1994 Nonemployee Directors' Stock Option Plan
and 1994 Stock Incentive Plan as set forth above, as of August 31, 1996, there
were no outstanding or authorized securities, options, warrants, calls, rights,
commitments, preemptive rights, agreements, arrangements or undertakings of any
kind to which the Company or any of its subsidiaries is a party, or by which any
of them is bound, obligating the Company or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, any shares of capital
stock or other equity or voting securities of, or other ownership interests in,
the Company or of any of its subsidiaries or obligating the Company or any of
its subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or undertaking.
(d) Authority; Non-contravention. The Company has the
requisite corporate power and authority to enter into this Agreement and,
subject to Company Stockholder Approval (as defined in Section 3.1(h)), to
consummate the transactions contemplated hereby and to take such actions, if
any, as shall have been taken with respect to the matters referred to in Section
3.1(h). The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company,
subject to Company Stockholder Approval. This Agreement has been duly and
validly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws or judicial
decisions now or hereafter in effect relating to creditors' rights generally and
(ii) the remedy of specific performance and injunctive relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. The execution and delivery of this
Agreement by the Company do not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of or "put" right with respect to any obligation or to loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company or any of its subsidiaries under, any provision of (i) the Certificate
of Incorporation or By-laws of the Company or any provision of the comparable
organizational documents of its subsidiaries, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease, or other agreement, instrument, permit,
concession, franchise or license applicable to the Company or any of its
subsidiaries or their respective properties or assets or (iii) subject to
governmental filing and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule or regulation or
arbitration award applicable to the Company or any of its subsidiaries or their
respective properties or assets, other than, in the case of clause (ii), any
such conflicts, violations, defaults, rights or liens, security interests,
charges or encumbrances that individually or in the aggregate would not have a
material adverse effect on the Company and would not materially impair the
ability of the Company to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby. No consent,
approval, order or authorization of, or registration, declaration
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<PAGE> 164
or filing with, any court, administrative agency or commission or other
governmental authority or agency, domestic or foreign, including local
authorities (a "Governmental Entity"), is required by or with respect to the
Company or any of its subsidiaries in connection with the execution and delivery
of this Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except for (i) the filing of a premerger
notification and report form by the Company under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) the filing
with the Securities and Exchange Commission (the "SEC") of (A) a joint proxy
statement relating to the Company Stockholder Approval and Parent Stockholder
Approval (as defined in Section 3.2(d) (such proxy statement as amended or
supplemented from time to time, the "Proxy Statement") and (B) the Registration
Statement (as defined in Section 5.1(b)); and (C) such reports under Section
13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
as may be required in connection with this Agreement and the transactions
contemplated hereby, and (iii) the filing of the Certificate of Merger with the
Delaware Secretary of State with respect to the Merger as provided in the DGCL
and appropriate documents with the relevant authorities of other states in which
the Company is qualified to do business and such other consents, approvals,
orders, authorizations, registrations, declarations and filings the failure of
which to be obtained or made would not have a material adverse effect on the
Company.
(e) SEC Documents. The Company has filed all required
reports, schedules, forms, statements and other documents with the SEC
since March 7, 1994, including any and all such reports, schedules, forms,
statements and other documents filed with the SEC in connection with the
distribution of shares of Company Common Stock to shareholders of
Galveston-Houston Company (such documents, together with all exhibits and
schedules thereto and documents incorporated by reference therein, collectively
referred to herein as the "SEC Documents"). As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements of the Company included in
the SEC Documents comply in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of the Company and its consolidated subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments and other adjustments described
therein).
(f) Information Supplied. None of the information
supplied or to be supplied by the Company for inclusion or incorporation by
reference in (i) the Registration Statement (as defined in Section 5.1(b))
will, at the time the Registration Statement is filed with the SEC, and at any
time it is amended or supplemented or at the time it becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Proxy Statement will, at the
date the Proxy Statement is first mailed to the Company's stockholders and at
the time of the Company Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement,
as it relates to the Company Stockholders Meeting, will comply as to form in
all material respects with the requirements of the Exchange Act and the rules
and regulations thereunder, except that no representation or warranty is made
by the Company with respect to statements made or incorporated by reference
therein based on information supplied by Parent or Sub for inclusion or
incorporation by reference therein.
(g) Absence of Certain Changes or Events. Except as
disclosed in the SEC Documents, since December 31, 1995, the Company has
conducted its business only in the ordinary course consistent with past
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practice, and there has not been (i) any material adverse change with
respect to the Company, (ii) any declaration, setting aside or payment of any
dividend (whether in cash, stock or property) with respect to any of the
Company's capital stock, (iii) (A) any granting by the Company or any of its
subsidiaries to any executive officer of the Company or any of its subsidiaries
of any increase in compensation, except in the ordinary course of business
consistent with prior practice or as was required under employment agreements in
effect as of December 31, 1995, (B) any granting by the Company or any of its
subsidiaries to any such executive officer of any increase in severance or
termination pay, except as was required under employment, severance or
termination agreements in effect as of December 31, 1995, or (C) any entry by
the Company or any of its subsidiaries into any employment, severance or
termination agreement with any such executive officer, (iv) any damage,
destruction or loss, whether or not covered by insurance, that has or reasonably
could be expected to have a material adverse effect on the Company, (v) any
change in accounting methods, principles or practices by the Company materially
affecting its assets, liabilities or business, except insofar as may have been
required by a change in generally accepted accounting principles, or (vi) any
event which, if it had taken place following the execution of this Agreement,
would not have been permitted by Section 4.1.
(h) State Takeover Statutes; Absence of Supermajority
Provision. The Company has taken all action to assure that no state takeover
statute or similar statute or regulation, including, without limitation Section
203 of the DGCL, shall apply to the Merger or any of the other transactions
contemplated hereby. Except for the approval of the Merger by the holders of a
majority of the outstanding Shares ("Company Stockholder Approval"), no other
stockholder action on the part of the Company is required for approval of the
Merger and the transactions contemplated hereby. No provision of the Company's
Certificate of Incorporation or By-laws or other governing instruments of its
subsidiaries or the terms of any rights plan or other takeover defense
mechanism of the Company would, directly or indirectly, restrict or impair the
ability of Parent to vote, or otherwise to exercise the rights of a stockholder
with respect to, securities of the Company and its subsidiaries that may be
acquired or controlled by Parent or permit any stockholder to acquire
securities of the Company on a basis not available to Parent in the event that
Parent were to acquire securities of the Company.
(i) Brokers. Except for Jefferies & Company, Inc.
("Jefferies"), which will be rendering the opinion referred to in Section
6.3(e) and whose fees are to be paid by the Company, no broker, investment
banker or other person is entitled to receive from the Company or any of its
subsidiaries any investment banking, brokerage or finder's fees in connection
with this Agreement or the transactions contemplated hereby, including any fee
for any opinion rendered by any investment banker. The engagement letter
between the Company and Jefferies provided to Parent on or prior to the date of
this Agreement constitutes the entire understanding of the Company and
Jefferies with respect to the matters referred to therein, and has not been
amended or modified, nor will it be amended or modified prior to the Effective
Time of the Merger.
(j) Litigation. Except as disclosed in the SEC
Documents, there is no suit, action, proceeding or investigation pending or, to
the best of the Company's knowledge, threatened against or affecting the
Company or any of its subsidiaries that could reasonably be expected to have a
material adverse effect on the Company or prevent, hinder or materially delay
the ability of the Company to consummate the transactions contemplated by this
Agreement, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against the Company or any of its
subsidiaries having, or which, insofar as reasonably can be foreseen, in the
future could have, any such effect.
(k) Accounting Matters. Neither the Company nor, to the
best of its knowledge, any of its affiliates, has through the date of this
Agreement taken or agreed to take any action that (without giving effect to any
action taken or agreed to be taken by Parent or any of its affiliates) would
prevent Parent from accounting for the business combination to be effected by
the Merger as a pooling of interests.
(l) Employee Benefit Matters. As used in this Section
3.1(l), the term "Employer" shall mean the Company as defined in the preamble
of this Agreement and any member of a controlled group or affiliated service
group, as defined in Sections 414(b), (c), (m) and (o) of the Internal Revenue
Code of 1986, as amended ("Code") of which the Company is a member.
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(i) With respect to each employee welfare benefit plan,
employee pension benefit plan and employee benefit plan as defined in
Sections 3(1), 3(2), and 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), which have been or are
sponsored by, participated in or contributed to by or required to be
contributed to by the Employer, and except for any matter that would
not individually or in the aggregate have a material adverse effect on
the Company: (A) the plan is in substantial compliance with the Code
and ERISA, including all reporting and disclosure requirements of Part
1 of Subtitle B of Title I of ERISA; (B) the appropriate Form 5500 has
been timely filed for each year of its existence; (C) there has been no
transaction described in Sections 406 or 407 of ERISA or Section 4975
of the Code unless exempt under Section 408 of ERISA or Section 4975 of
the Code, as applicable; (D) the bonding requirements of Section 412 of
ERISA have been satisfied; (E) there is no issue pending nor any issue
resolved adversely to the Employer which may subject the Company to the
payment of a penalty, interest, tax or other amount, (F) the plan can
be unilaterally terminated or amended on no more than 90 days notice
other than collectively bargained union plans; (G) all contributions or
other amounts payable by the Employer as of the Effective Time of the
Merger with respect to the plan have either been paid or accrued in the
Employer's most recent financial statements included in the SEC
Documents and (H) no notice has been received by the Employer of an
increase or proposed increase in the cost of any such plan or any other
employee benefit agreement or arrangement, including deferred
compensation plans, incentive plans, bonus plans or arrangements, stock
option plans, stock purchase plans, golden parachute agreements,
severance pay plans or agreements, dependent care plans, cafeteria
plans, employee assistance programs, scholarship programs, employment
contracts and other similar plans, agreements and arrangements that are
currently in effect or were maintained within three years of the date
hereof, or have been approved before this date but are not yet
effective, for the benefit of directors, officers or employees, or
former directors, officers or employees (or their beneficiaries) of the
Employer (each, a "Company Benefit Plan"). There are no pending or, to
the Company's knowledge, threatened or anticipated claims (other than
routine claims for benefits) by, on behalf of or against any Company
Benefit Plan or their related trusts.
(ii) Neither the Company nor any entity (whether or not
incorporated) that was at any time during the six years before the date
of this Agreement treated as a single employer together with the
Company under Section 414 of the Code has ever maintained, had any
obligation to contribute to or incurred any liability with respect to a
pension plan that is or was subject to the provisions of Title IV of
ERISA or Section 412 of the Code. Neither the Company nor any entity
(whether or not incorporated) that was at any time during the six years
before the date of this Agreement treated as a single employer together
with the Company under Section 414 of the Code has ever maintained, had
an obligation to contribute to, or incurred any liability with respect
to a multiemployer pension plan as defined in Section 3(37) of ERISA.
During the last six years, the Company has not maintained, had an
obligation to contribute to or incurred any liability with respect to a
voluntary employees beneficiary association that is or was intended to
satisfy the requirements of Section 501(c)(9) of the Code. No plan,
arrangement or agreement with any one or more employees will cause the
Employer to have liability for severance pay as a result of the Merger,
except as otherwise set forth in the severance agreements between the
Company and each of W. Todd Bratton, Wilfred M. Krenek and Norman D.
Quam (the "Severance Agreements"). The Employer does not provide
employee benefits, including without limitation, death, post-retirement
medical or health coverage (whether or not insured) or contribute to or
maintain any employee benefit plan which provides for benefit coverage
following termination of employment except (A) as is required by
Section 4980B(f) of the Code or other applicable statute, (B) death
benefits or retirement benefits under any employee pension benefit plan
as defined in Section 3(2) of ERISA, (C) benefits the full cost of
which is borne by the current or former employee (or his beneficiary)
nor has it made any representations, agreements, covenants or
commitments to provide that coverage or (D) deferred compensation
benefits which have been accrued as liabilities on the books of the
Employer and disclosed on its financial statements included in the SEC
Documents. All group health plans maintained by the Employer have been
operated in material compliance with Section 4980B(f) of the Code.
(iii) All Company Benefit Plans as defined in Section 3(2)
of ERISA which are intended to qualify under Section 401(a) of the Code
have been submitted to and approved as qualifying under Sec-
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tion 401(a) of the Code by the Internal Revenue Service or the
applicable remedial amendment period will not have ended prior to the
Effective Time of the Merger. No facts have occurred which if known
by the IRS could cause disqualification of those plans.
(iv) Except as expressly provided in this Agreement or the
Severance Agreements and except for options granted under the Company's
1994 Nonemployee Directors' Stock Option Plan, the transactions
contemplated by this Agreement will not accelerate the time of payment
or vesting, or increase the amount, of compensation due any director,
officer or employee or former director, officer or employee (including
any beneficiary) from the Company.
(v) With respect to any entity (whether or not
incorporated) that is both treated as a single employer together with
the Company under Section 414 of the Code and located outside of the
United States, any benefit plans maintained by it for the benefit of
its directors, officers, employees or former employees (or any of their
beneficiaries) are in compliance with applicable laws pertaining to
such plans in the jurisdiction of such entity, except where such
failure to be in compliance would not, either individually or in the
aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(m) Taxes. Each of the Company and each of its
subsidiaries, and any consolidated, combined, unitary or aggregate group for
Tax (as defined below) purposes of which the Company or any of its subsidiaries
is or has been a member, has timely filed all Tax Returns (as defined below)
required to be filed by it on or before the Effective Time of the Merger and
has timely paid or deposited (or the Company has paid or deposited on its
behalf) all Taxes which are required to be paid or deposited on or before the
Effective Time of the Merger. Each of the Tax Returns filed by the Company or
any of its subsidiaries is accurate and complete in all material respects. The
most recent consolidated financial statements of the Company contained in the
filed SEC Documents reflect an adequate reserve for all Taxes payable by the
Company and its subsidiaries for all taxable periods and portions thereof
through the date of such financial statements whether or not shown as being due
on any Tax Returns. No material deficiencies for any Taxes have been proposed,
asserted or assessed against the Company or any of its subsidiaries, no
requests for waivers of the time to assess any such Taxes have been granted or
are pending, and there are no tax liens upon any assets of the Company or any
of its subsidiaries. The Federal income Tax Returns of the Company and its
subsidiaries consolidated in such Tax Returns have never been examined by the
IRS. There are no current examinations of any Tax Return of the Company or any
of its subsidiaries being conducted and there are no settlements or any prior
examinations which could reasonably be expected to adversely affect any taxable
period for which the statute of limitations has not run. As used herein, "Tax"
or "Taxes" shall mean all taxes of any kind, including, without limitation,
those on or measured by or referred to as income, gross receipts, sales, use,
ad valorem, franchise, profits, license, withholding, payroll, employment,
estimated, excise, severance, stamp, occupation, premium, value added, property
or windfall profits taxes, customs, duties or similar fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any Governmental Entity,
domestic or foreign. As used herein, "Tax Return" shall mean any return,
report, statement or information required to be filed with any governmental
authority with respect to Taxes.
(n) No Excess Parachute Payments. Any amount that could
be received (whether in cash or property or the vesting of property) as a
result of any of the transactions contemplated by this Agreement by any
employee, officer or director of the Company or any of its affiliates who is a
"disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Company Benefit Plan currently in
effect would not be characterized as an "excess parachute payment" (as such
term is defined in Section 280G(b)(1) of the Code).
(o) Environmental Matters. Except as would not have a
material adverse effect on the Company and its subsidiaries, taken as a whole,
(i) the business operations of the Company and its subsidiaries are being
conducted in compliance with all limitations, restrictions, standards and
requirements established under environmental laws, (ii) no facts or
circumstances exist that impose on the Company or any of its subsidiaries an
obligation under environmental laws to conduct any removal, remediation, or
similar response action,
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(iii) there is no obligation, undertaking or liability arising out of or
relating to environmental laws that the Company or any of its subsidiaries has
agreed to, assumed or retained, by contract or otherwise, or that has been
imposed on the Company or any of its subsidiaries by any writ, injunction,
decree, order or judgment, and (iv) there are no lawsuits, claims or proceedings
pending against the Company or any of its subsidiaries that arise out of or
relate to environmental laws.
(p) Compliance with Laws. The Company and its
subsidiaries hold all required, necessary or applicable permits, licenses,
variances, exemptions, orders, franchises and approvals of all Governmental
Entities, except where the failure to so hold would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole (the "Company
Permits"). The Company and its subsidiaries are in compliance with the terms
of the Company Permits except where the failure to so comply would not have a
material adverse effect on the Company and its subsidiaries, taken as a whole.
Neither the Company nor any of its subsidiaries has violated or failed to
comply with any statute, law, ordinance, regulation, rule, permit or order of
any Federal, state or local government, domestic or foreign, or any
Governmental Entity, any arbitration award or any judgment, decree or order of
any court or other Governmental Entity, applicable to the Company or any of its
subsidiaries or their respective business, assets or operations, except for
violations and failures to comply that could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(q) Material Contracts and Agreements. All material
contracts of the Company or its subsidiaries have been included in the SEC
Documents, except for those contracts not required to be filed pursuant to the
rules and regulations of the SEC.
(r) Title to Properties.
(i) Each of the Company and each of its subsidiaries has
good and defensible title to, or valid leasehold interests in, all its
properties and assets purported to be owned by it in the SEC Documents,
except for such as are no longer used or useful in the conduct of its
businesses or as have been disposed of in the ordinary course of
business and except for minor defects in title, easements, restrictive
covenants and similar encumbrances or impediments that, in the
aggregate, do not and will not materially interfere with its ability to
conduct its business as currently conducted or as reasonably expected
to be conducted. All such assets and properties, other than assets and
properties in which the Company or any of the subsidiaries has
leasehold interests, are free and clear of all Liens, other than those
set forth in the SEC Documents and except for minor Liens, that, in the
aggregate, do not and will not materially interfere with the ability of
the Company or any of its subsidiaries to conduct business as currently
conducted or as reasonably expected to be conducted.
(ii) Except as would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole, each of the Company
and each of its subsidiaries has complied in all material respects with
the terms of all leases to which it is a party and under which it is in
occupancy, and all such leases are in full force and effect. Each of
the Company and each of its subsidiaries enjoys peaceful and
undisturbed possession under all such leases.
(s) Intellectual Property. The Company and its
subsidiaries own, or are licensed or otherwise have the right to use, all
patents, patent rights, trademarks, trademark rights, trade names, trade name
rights, service marks, service mark rights, copyrights, technology, know-how,
processes and other proprietary intellectual property rights and computer
programs which are material to the condition (financial or otherwise) or
conduct of the business and operations of the Company and its subsidiaries
taken as a whole. To the Company's knowledge, (i) the use of such patents,
patent rights, trademarks, trademark rights, service marks, service mark
rights, trade names, copyrights, technology, know-how, processes and other
proprietary intellectual property rights and computer programs by the Company
and its subsidiaries does not infringe on the rights of any person, subject to
such claims and infringements as do not, in the aggregate, give rise to any
liability on the part of the Company and its subsidiaries which could have a
material adverse effect with respect to the Company and its subsidiaries, taken
as a whole, and (ii) no person is infringing on any right of the Company or any
of its subsidiaries with respect to any such patents, patent rights,
trademarks, trademark rights, service marks, service mark rights, trade names,
copyrights, technology, know-how, processes and other proprietary
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intellectual property rights and computer programs. No claims are pending
or, to the Company's knowledge, threatened that the Company or any of
its subsidiaries is infringing or otherwise adversely affecting the rights of
any person with regard to any patent, license, trademark, trade name, service
mark, copyright or other intellectual property right. To the Company's
knowledge, no person is infringing the rights of the Company or any of its
subsidiaries with respect to any patent, license, trademark, trade name, service
mark, copyright or other intellectual property right.
(t) Labor Matters. There are no collective bargaining
agreements or other labor union agreements or understandings to which the
Company or any of its U.S. subsidiaries is a party or by which any of them is
bound, nor is it or any of its subsidiaries the subject of any proceeding
asserting that it or any subsidiary has committed an unfair labor practice or
seeking to compel it to bargain with any labor organization as to wages or
conditions. To the Company's knowledge, since December 31, 1993, neither the
Company nor any of its significant subsidiaries has encountered any labor union
organizing activity, or had any actual or threatened employee strikes, work
stoppages, slowdowns or lockouts. As used in this Agreement, "significant
subsidiary" shall have the meaning given it in the regulations promulgated
under the Exchange Act.
(u) Undisclosed Liabilities. Except as set forth in the
SEC Documents, at the date of the most recent audited financial statements
of the Company included in the SEC Documents, neither the Company nor any
of its subsidiaries had, and since such date neither the Company nor any of
such subsidiaries has incurred (except in the ordinary course of business), any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise), required by generally accepted accounting principles to be set
forth on a financial statement or in the notes thereto or which, individually or
in the aggregate, could reasonably be expected to have a material adverse effect
on the Company and its subsidiaries, taken as a whole.
(v) Opinion of Financial Advisor. The Company has been
advised by Jefferies & Company, Inc. that the Merger Consideration is fair to
the holders of the Shares from a financial point of view, a signed copy of
which opinion will be delivered to Parent for inclusion in the Registration
Statement (as defined in Section 5.1(b)).
(w) Board Recommendation. The Board of Directors of the
Company, at a meeting duly called and held, has by vote of those directors
present (i) determined that this Agreement and the transactions contemplated
hereby, including the Merger and the transactions contemplated thereby, are
fair to and in the best interests of the stockholders of the Company, and (ii)
resolved to recommend that the holders of the Shares approve the Merger and the
transactions contemplated thereby.
SECTION 3.2. Representations and Warranties of Parent and
Sub. Parent and Sub agree that they will, on or before October 1, 1996, affirm
in writing (the "Parent Affirmation and Disclosure Document") that, as of the
date of this Agreement, they represent and warrant to, and agree with, the
Company as follows, subject to any exceptions specified in the Parent
Affirmation and Disclosure Document:
(a) Organization; Standing and Power. Parent is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority to carry on its business as now being conducted. Parent is duly
qualified to do business and in good standing in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes such
qualification necessary, other than in such jurisdictions where the failure to
be so qualified to do business (individually or in the aggregate) would not
have a material adverse effect on Parent and its subsidiaries, taken as a
whole.
(b) Subsidiaries. Parent's subsidiaries that are
corporations are corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation and
have the requisite corporate power and authority to carry on their respective
businesses as they are now being conducted and to own, operate and lease the
assets they now own, operate or hold under lease. Parent's subsidiaries are
duly qualified to do business and are in good standing in each jurisdiction in
which the nature of their respective businesses or the ownership or leasing of
their respective properties makes such qualification necessary, other than in
jurisdictions where the failure to be so qualified or in good standing would
not have a material adverse effect on Parent and its subsidiaries, taken as a
whole. All the outstanding
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shares of capital stock of Parent's subsidiaries that are corporations
have been duly authorized and validly issued and are fully paid and
non-assessable and were not issued in violation of any preemptive rights or
other preferential rights of subscription or purchase of any person. Except as
disclosed in the Parent SEC Documents (as defined in Section 3.2(e)), all such
stock and ownership interests are owned of record and beneficially by Parent or
by a wholly-owned subsidiary of Parent, free and clear of all Liens. Except for
the capital stock of, or ownership interests in, its subsidiaries, Parent does
not own, directly or indirectly, any capital stock, equity interest or other
ownership interest in any corporation, partnership, association, joint venture,
limited liability company or other entity.
(c) Capital Structure. The authorized capital stock of
Parent consists of 20,000,000 shares of common stock, $1.25 par value, and
1,000,000 shares of preferred stock, $1.00 par value, of which 150,000 shares
have been designated Series A Junior Participating Preferred Stock and reserved
for issuance pursuant to the Rights Agreement dated May 31, 1990, between
Parent and Wachovia Bank and Trust Company, N.A., as rights agent. At the
close of business on August 31, 1996, 12,136,813 Parent Shares were issued and
outstanding, (ii) 35,000 and 295,876 shares of Parent common stock were
reserved for issuance pursuant to options not yet granted under Parent's 1995
Non-Employee Directors' Stock Option Plan and 1977 Stock Option Plan,
respectively, (iii) 79,979 shares of Parent common stock were reserved for
issuance under Parent's Stock Award Plan, (iv) 135,000 and 785,579 shares of
Parent common stock were reserved for issuance pursuant to outstanding options
granted under Parent's 1995 Non-Employee Director Stock Option Plan and 1977
Stock Option Plan and (v) 60,000 shares of Parent common stock were reserved
for issuance pursuant to stock options granted in certain continuation of
service agreements. Except as set forth above, no shares of capital stock or
other equity or voting securities of Parent are reserved for issuance or
outstanding. All outstanding shares of capital stock of Parent are, and all
such shares issuable upon the exercise of options will be, validly issued,
fully paid and nonassessable and not subject to preemptive rights. No capital
stock has been issued by Parent since August 31, 1996, other than Parent Shares
issued pursuant to options outstanding on or prior to such date in accordance
with their terms at such date. Except for the stock options described above,
as of August 31, 1996, there were no outstanding or authorized securities,
options, warrants, calls, rights, commitments, preemptive rights, agreements,
arrangements or undertakings of any kind to which Parent or any of its
subsidiaries is a party, or by which any of them is bound, obligating Parent or
any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, any shares of capital stock or other equity or voting
securities of, or other ownership interests in, Parent or of any of its
subsidiaries or obligating Parent or any of its subsidiaries to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. Prior to the Effective Time
of the Merger, Parent shall have taken all necessary action to permit it to
issue the number of Parent Shares required to be issued pursuant to terms of
this Agreement. The Parent Shares issued pursuant to the terms of this
Agreement will, when issued, be validly issued, fully paid and nonassessable
and not subject to preemptive rights. Such Parent Shares will, when issued, be
registered under the Securities Act and the Exchange Act and will, when issued,
be listed on the NYSE, subject to notice of official issuance.
(d) Authority; Non-contravention. Parent and Sub have
the requisite corporate power and authority to enter into this Agreement
and, subject to approval of the Merger and this Agreement by the holders of a
majority of the Parent Shares present in person or represented by proxy at the
Parent Stockholder Meeting ("Parent Stockholder Approval"), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and Sub and the consummation by Parent and Sub of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent and Sub. This Agreement has been duly executed and
delivered by Parent and Sub and constitutes a valid and binding obligation of
Parent and Sub, enforceable against Parent and Sub in accordance with its terms,
except that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws or judicial decisions now or
hereafter in effect relating to creditors' rights generally and (ii) the remedy
of specific performance and injunctive relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. The execution and delivery of this Agreement by Parent and Sub
do not, and the consummation of the transactions contemplated hereby and
compliance with the provisions hereof will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or
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acceleration of or "put" right with respect to any obligation or to loss of
a material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of Parent
or Sub or any of their subsidiaries under, any provision of (i) the Certificate
of Incorporation or By-laws of Sub or of Parent or any comparable organizational
documents of their subsidiaries, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to Parent or Sub or any of their subsidiaries or
their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any judgment,
order, decree, statute, law, ordinance, rule or regulation or arbitration
account applicable to Parent or Sub or any of their subsidiaries or their
respective properties or assets, other than, in the case of clause (ii), any
such conflicts, violations or defaults that individually or in the aggregate
would not materially impair the ability of Parent and Sub to perform their
respective obligations hereunder or prevent the consummation of any of the
transactions contemplated hereby. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity is
required by or with respect to Parent or Sub or any of their subsidiaries in
connection with the execution and delivery of this Agreement by Parent and Sub
or the consummation by Parent and Sub of the transactions contemplated hereby,
except for (i) the filing by Parent of a premerger notification and report form
under the HSR Act, (ii) the filing with the SEC of (A) the Proxy Statement with
respect to Parent Stockholder Approval and (B) such reports under Section 13(a)
of the Exchange Act as may be required in connection with this Agreement and the
transactions contemplated hereby, (iii) the filing and effectiveness of the
Registration Statement under the Securities Act, and (iv) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under the "takeover" or "blue sky" laws of various states and
such other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would not
have a material adverse effect on Parent.
(e) SEC Documents. Parent has filed all required
reports, schedules, forms, statements and other documents with the SEC since
October 1, 1994 (such documents, together with all exhibits and schedules
thereto and documents incorporated by reference therein, collectively referred
to herein as the "Parent SEC Documents"). As of their respective dates, the
Parent SEC Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Parent SEC
Documents, and none of the Parent SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of Parent included in the Parent SEC Documents comply in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of Parent
and its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments and
other adjustments described therein).
(f) Information Supplied. None of the information
supplied or to be supplied by Parent for inclusion or incorporation by
reference in (i) the Registration Statement will, at the time the Registration
Statement is filed with the SEC, and at any time it is amended or supplemented
or at the time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading, and (ii) the Proxy Statement will, at the date the Proxy Statement
is first mailed to the Parent's stockholders and at the time of the Parent
Stockholders Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. The Proxy Statement, as it relates to the Parent
Stockholder Meeting, will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder,
except that no representation or warranty is made by Parent or Sub with
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respect to statements made or incorporated by reference therein based on
information supplied by the Company for inclusion or incorporation by reference
therein.
(g) Absence of Certain Changes or Events. Except as
disclosed in the Parent SEC Documents, since December 31, 1995, Parent has
conducted its business only in the ordinary course consistent with past
practice, and there has not been (i) any material adverse change with respect
to Parent, (ii) any declaration, setting aside or payment of any dividend
(whether in cash, stock or property) with respect to any of Parent's capital
stock, (iii) any damage, destruction or loss, whether or not covered by
insurance, that has or reasonably could be expected to have a material adverse
effect on Parent or (iv) any change in accounting methods, principles or
practices by Parent materially affecting its assets, liabilities or business,
except insofar as may have been required by a change in generally accepted
accounting principles.
(h) State Takeover Statutes; Absence of Supermajority
Provision. Parent has taken all action to assure that no state takeover
statute or similar statute or regulation, including, without limitation Section
203 of the DGCL, shall apply to the Merger or any of the other transactions
contemplated hereby. Except for the Parent Stockholder Approval, no other
stockholder action on the part of Parent is required for approval of the Merger
and the transactions contemplated hereby.
(i) Brokers. Except for Simmons & Company International,
whose fees are to be paid by Parent, no broker, investment banker or other
person, is entitled to any broker's, finder's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent or Sub, including any
fee for any opinion rendered by any investment banker.
(j) Litigation. Except as disclosed in the Parent SEC
Documents, there is no suit, action, proceeding or investigation pending or, to
the knowledge of Parent, threatened against or affecting Parent or any of its
subsidiaries that could reasonably be expected to have a material adverse
effect on Parent or prevent, hinder or materially delay the ability of Parent
to consummate the transactions contemplated by this Agreement, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Parent or any of its subsidiaries having, or
which, insofar as reasonably can be foreseen, in the future could have, any
such effect.
(k) Accounting Matters. Neither Parent nor, to the best
of its knowledge, any of its affiliates, has through the date of this Agreement
taken or agreed to take any action that (without giving effect to any action
taken or agreed to be taken by Parent or any of its affiliates) would prevent
Parent from accounting for the business combination to be effected by the
Merger as a pooling of interests.
(l) Employee Benefit Matters. As used in this Section
3.2(l), the term "Parent Employer" shall mean Parent as defined in the preamble
of this Agreement and any member of a controlled group or affiliated service
group, as defined in Sections 414(b), (c), (m) and (o) of the Code of which
Parent is a member.
(i) With respect to each employee welfare benefit plan,
employee pension benefit plan and employee benefit plan as defined in
Sections 3(1), 3(2), and 3(3) of ERISA, which have been or are
sponsored by, participated in or contributed to by or required to be
contributed to by Parent Employer, and except for any matter that would
not individually or in the aggregate have a material adverse effect on
Parent: (A) the plan is in substantial compliance with the Code and
ERISA, including all reporting and disclosure requirements of Part 1 of
Subtitle B of Title I of ERISA; (B) the appropriate Form 5500 has been
timely filed for each year of its existence; (C) there has been no
transaction described in Sections 406 or 407 of ERISA or Section 4975
of the Code unless exempt under Section 408 of ERISA or Section 4975 of
the Code, as applicable; (D) the bonding requirements of Section 412 of
ERISA have been satisfied; (E) there is no issue pending nor any issue
resolved adversely to Parent Employer which may subject Parent to the
payment of a penalty, interest, tax or other amount; (F) the plan can
be unilaterally terminated or amended on no more than 90 days notice
other than collectively bargained union plans; (G) all contributions
or other amounts payable by Parent Employer as of the Effective
Time of the Merger with respect to the plan have either been paid
or accrued in Parent Employer's most recent financial statements
included in the Parent SEC Documents; and (H) no notice has been
received by Parent Employer of an increase or proposed increase in the
cost of any such plan or any other employee
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benefit agreement or arrangement, including deferred compensation
plans, incentive plans, bonus plans or arrangements, stock option
plans, stock purchase plans, golden parachute agreements, severance
pay plans or agreements, dependent care plans, cafeteria plans,
employee assistance programs, scholarship programs, employment
contracts and other similar plans, agreements and arrangements that
are currently in effect or were maintained within three years of the
date hereof, or have been approved before this date but are) not yet
effective, for the benefit of directors, officers or employees, or
former directors, officers or employees (or their beneficiaries) of
the Parent Employer (each, a "Parent Benefit Plan"). There are no
pending or, to Parent's knowledge, threatened or anticipated claims
(other than routine claims for benefits) by, or on behalf of or
against any Parent Benefit Plan or their related trusts.
(ii) Neither Parent nor any entity (whether or not
incorporated) that was at any time during the six years before the date
of this Agreement treated as a single employer together with Parent
under Section 414 of the Code has ever maintained, had any obligation
to contribute to or incurred any liability with respect to a pension
plan that is or was subject to the provisions of Title IV of ERISA or
Section 412 of the Code. Neither Parent nor any entity (whether or not
incorporated) that was at any time during the six years before the date
of this Agreement treated as a single employer together with Parent
under Section 414 of the Code has ever maintained, had an obligation to
contribute to, or incurred any liability with respect to a
multiemployer pension plan as defined in Section 3(37) of ERISA.
During the last six years, Parent has not maintained, had an obligation
to contribute to or incurred any liability with respect to a voluntary
employees beneficiary association that is or was intended to satisfy
the requirements of Section 501(c)(9) of the Code. Parent Employer
does not provide employee benefits, including without limitation,
death, post-retirement medical or health coverage (whether or not
insured) or contribute to or maintain any employee benefit plan which
provides for benefit coverage following termination of employment
except (A) as is required by Section 4980B(f) of the Code or other
applicable statute, (B) death benefits or retirement benefits under any
employee pension benefit plan as defined in Section 3(2) of ERISA, (C)
benefits the full cost of which is borne by the current or former
employee (or his beneficiary) nor has it made any representations,
agreements, covenants or commitments to provide that coverage or (D)
deferred compensation benefits which have been accrued as liabilities
on the books of Parent Employer and disclosed on its financial
statements included in the Parent SEC Documents. All group health
plans maintained by Parent Employer have been operated in material
compliance with Section 4980B(f) of the Code.
(iii) All Parent Benefit Plans as defined in Section 3(2)
of ERISA which are intended to qualify under Section 401(a) of the Code
have been submitted to and approved as qualifying under Section 401(a)
of the Code by the IRS or the applicable remedial amendment period
will not have ended prior to the Effective Time of the Merger. No
facts have occurred which if known by the IRS could cause
disqualification of those plans.
(iv) The transactions contemplated by this Agreement will
not accelerate the time of payment or vesting, or increase the amount,
of compensation due any director, officer or employee or former
director, officer or employee (including any beneficiary) from Parent.
(v) With respect to any entity (whether or not
incorporated) that is both treated as a single employer together with
Parent under Section 414 of the Code and located outside of the United
States, any benefit plans maintained by it for the benefit of its
directors, officers, employees or former employees (or any of their
beneficiaries) are in compliance with applicable laws pertaining to
such plans in the jurisdiction of such entity, except where such
failure to be in compliance would not, either individually or in the
aggregate, have a material adverse effect on Parent and its
subsidiaries, taken as a whole.
(m) Taxes. Each of Parent and each of its subsidiaries,
and any consolidated, combined, unitary or aggregate group for Tax purposes of
which Parent or any of its subsidiaries is or has been a member, has timely
filed all Tax Returns required to be filed by it on or before the Effective
Time of the Merger and has timely paid or deposited (or Parent has paid of
deposited on its behalf) all Taxes which are required to be paid or deposited
on or before the Effective Time of the Merger. Each of the Tax Returns filed
by Parent or any of its subsidiaries is accurate and complete in all material
respects. The most recent consolidated financial
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statements of Parent contained in the filed Parent SEC Documents reflect an
adequate reserve for all Taxes payable by Parent and its subsidiaries for all
taxable periods and portions thereof through the date of such financial
statements whether or not shown as being due on any Tax Returns. No material
deficiencies for any Taxes have been proposed, asserted or assessed against
Parent or any of its subsidiaries, no requests for waivers of the time to assess
any such Taxes have been granted or are pending, and there are no tax liens upon
any assets of Parent or any of its subsidiaries. The Federal income Tax Returns
of Parent and its subsidiaries consolidated in such Tax Returns have been
examined by the IRS through the year ended September 30, 1990. There are no
current examinations of any Tax Return of Parent or any of its subsidiaries
being conducted and there are no settlements or any prior examinations which
could reasonably be expected to adversely affect any taxable period for which
the statute of limitations has not run.
(n) No Excess Parachute Payments. Any amount that could
be received (whether in cash or property or the vesting of property) as a
result of any of the transactions contemplated by this Agreement by any
employee, officer or director of Parent or any of its affiliates who is a
"disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Parent Benefit Plan currently
in effect would not be characterized as an "excess parachute payment"
(as such term is defined in Section 280G(b)(1) of the Code).
(o) Environmental Matters. Except as would not have a
material adverse effect on Parent and its subsidiaries, taken as a whole, (i)
the business operations of Parent and its subsidiaries are being conducted in
compliance with all limitations, restrictions, standards and requirements
established under environmental laws, (ii) no facts or circumstances exist that
impose on Parent or any of its subsidiaries an obligation under environmental
laws to conduct any removal, remediation, or similar response action, (iii)
there is no obligation, undertaking or liability arising out of or relating to
environmental laws that Parent or any of its subsidiaries has agreed to,
assumed or retained, by contract or otherwise, or that has been imposed on
Parent or any of its subsidiaries by any writ, injunction, decree, order or
judgment, and (iv) there are no lawsuits, claims or proceedings pending against
Parent or any of its subsidiaries that arise out of or relate to environmental
laws.
(p) Compliance with Laws. Parent and its subsidiaries
hold all required, necessary or applicable permits, licenses, variances,
exemptions, orders, franchises and approvals of all Governmental Entities,
except where the failure to so hold would not have a material adverse effect on
Parent and its subsidiaries taken as a whole (the "Parent Permits"). Parent
and its subsidiaries are in compliance with the terms of Parent Permits except
where the failure to so comply would not have a material adverse effect on
Parent and its subsidiaries, taken a whole. Neither Parent nor any of its
subsidiaries has violated or failed to comply with any statute, law, ordinance,
regulation, rule, permit or order of any Federal, state or local government,
domestic or foreign, or any Governmental Entity, any arbitration award or any
judgment, decree or order of any court or other Governmental Entity, applicable
to Parent or any of its subsidiaries or their respective business, assets or
operations, except for violations and failures to comply that could not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on Parent and its subsidiaries, taken as a whole.
(q) Material Contracts and Agreements. All material
contracts of Parent or its subsidiaries have been included in the SEC
Documents, except for those contracts not required to be filed pursuant to the
rules and regulations of the SEC.
(r) Title to Properties.
(i) Each of Parent and each of its subsidiaries has good
and defensible title to, or valid leasehold interests in, all its
properties and assets purported to be owned by it in the Parent SEC
Documents, except for such as are no longer used or useful in the
conduct of its businesses or as have been disposed of in the ordinary
course of business and except for minor defects in title, easements,
restrictive covenants and similar encumbrances or impediments that, in
the aggregate, do not and will not materially interfere with its
ability to conduct its business as currently conducted or as reasonably
expected to be conducted. All such assets and properties, other than
assets and properties in which Parent or any of the subsidiaries has
leasehold interests, are free and clear of all Liens, other than those
set forth in the Parent SEC
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Documents and except for minor Liens, that, in the aggregate, do not
and will not materially interfere with the ability of Parent or any of
its subsidiaries to conduct business as currently conducted or as
reasonably expected to be conducted.
(ii) Except as would not have a material adverse effect on
Parent and its subsidiaries, taken as a whole, each of Parent and each
of its subsidiaries has complied in all material respects with the
terms of all leases to which it is a party and under which it is in
occupancy, and all such leases are in full force and effect. Each of
Parent and each of its subsidiaries enjoys peaceful and undisturbed
possession under all such leases.
(s) Intellectual Property. Parent and its subsidiaries
own, or are licensed or otherwise have the right to use, all patents, patent
rights, trademarks, trademark rights, trade names, trade name rights, service
marks, service mark rights, copyrights, technology, know-how, processes and
other proprietary intellectual property rights and computer programs which are
material to the condition (financial or otherwise) or conduct of the business
and operations of Parent and its subsidiaries, taken as a whole. To Parent's
knowledge, (i) the use of such patents, patent rights, trademarks, trademark
rights, service marks, service mark rights, trade names, copyrights,
technology, know-how, processes and other proprietary intellectual property
rights and computer programs by Parent and its subsidiaries does not infringe
on the rights of any person, subject to such claims and infringements as do
not, in the aggregate, give rise to any liability on the part of Parent and its
subsidiaries which could have a material adverse effect with respect to Parent
and its subsidiaries, taken as a whole, and (ii) no person is infringing on any
right of Parent or any of its subsidiaries with respect to any such patents,
patent rights, trademarks, trademark rights, service marks, service mark
rights, trade names, copyrights, technology, know-how, processes and other
proprietary intellectual property rights and computer programs. No claims are
pending or, to Parent's knowledge, threatened that Parent or any of its
subsidiaries is infringing or otherwise adversely affecting the rights of any
person with regard to any patent, license, trademark, trade name, service mark,
copyright or other intellectual property right. To Parent's knowledge, no
person is infringing the rights of Parent or any of its subsidiaries with
respect to any patent, license, trademark, trade name, service mark, copyright
or other intellectual property right.
(t) Labor Matters. There are no collective bargaining
agreements or other labor union agreements or understandings to which Parent or
any of its U.S. subsidiaries is a party or by which any of them is bound, nor
is it or any of its subsidiaries the subject of any proceeding asserting that
it or any subsidiary has committed an unfair labor practice or seeking to
compel it to bargain with any labor organization as to wages or conditions. To
Parent's knowledge, since December 31, 1993, neither Parent nor any of its
significant subsidiaries has encountered any labor union organizing activity,
or had any actual or threatened employee strikes, work stoppages, slowdowns or
lockouts.
(u) Undisclosed Liabilities. Except as set forth in the
Parent SEC Documents, at the date of the most recent audited financial
statements of Parent included in the Parent SEC Documents, neither Parent nor
any of its subsidiaries had, and since such date neither Parent nor any of such
subsidiaries has incurred (except in the ordinary course of business), any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise), required by generally accepted accounting principles to be set
forth on a financial statement or in the notes thereto or which, individually
or in the aggregate, could reasonably be expected to have a material adverse
effect on Parent and its subsidiaries, taken as a whole.
(v) Opinion of Financial Advisor. Parent has been
advised by Simmons & Company International that the Merger Consideration is
fair to the holders of the Parent Shares from a financial point of view, a
signed copy of which opinion will be delivered to the Company for inclusion in
the Registration Statement.
(w) Board Recommendation. The Board of Directors of
Parent, at a meeting duly called and held, has by vote of those directors
present (i) determined that this Agreement and the transactions contemplated
hereby, including the Merger and the transactions contemplated thereby, are
fair to and in the best interests of the stockholders of Parent, and (ii)
resolved to recommend that the holders of the Parent Shares approve the Merger
and the transactions contemplated thereby.
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ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1. Conduct of Business of the Company.
(a) Ordinary Course. During the period from the date of
this Agreement to the Effective Time of the Merger (except as otherwise
specifically contemplated by the terms of this Agreement), the Company shall
and shall cause its significant subsidiaries to carry on their respective
businesses in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and, to the extent consistent therewith, use all
reasonable efforts to preserve intact their current business organizations,
keep available the services of their current officers and employees and
preserve their relationships with customers, suppliers, licensors, licensees,
distributors and others having business dealings with them, in each case
consistent with past practice, to the end that their goodwill and ongoing
businesses shall be unimpaired to the fullest extent possible at the Effective
Time of the Merger. Without limiting the generality of the foregoing, and
except as otherwise expressly contemplated by this Agreement, the Company shall
not, and shall not permit any of its subsidiaries to:
(i) (A) declare, set aside or pay any dividends on, or
make any other distributions in respect of, any of its capital stock,
other than dividends and distributions by any direct or indirect
wholly-owned subsidiary of the Company to the Company or a
wholly-owned subsidiary of the Company, (B) split, combine
or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (C) purchase, redeem
or otherwise acquire any shares of capital stock of the Company or any
of its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber
any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities
(other than, in the case of the Company, the issuance of shares of
Company Common Stock upon the exercise of Stock Options outstanding on
the date of this Agreement in accordance with their current terms);
(iii) amend its Certificate of Incorporation, By-laws or
other comparable charter or organizational document;
(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the
stock or assets of, or by any other manner, any business or any
corporation, partnership, association, joint venture, limited
liability company or other entity or division thereof or (B) any
assets that would be material, individually or in the aggregate, to
the Company and its subsidiaries taken as a whole, except purchases of
supplies and inventory in the ordinary course of business consistent
with past practice;
(v) sell, lease, mortgage, pledge, grant a Lien on or
otherwise encumber or dispose of any of its properties or assets,
except (A) sales of inventory in the ordinary course of business
consistent with past practice, (B) the sale of buildings in Orville,
Ohio and Glenrothes, Scotland, and (C) other immaterial transactions
not in excess of $250,000 in the aggregate;
(vi) (A) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities of the Company or any of its subsidiaries, guarantee any
debt securities of another person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any
of the foregoing, except for working capital borrowings under
currently existing revolving credit facilities incurred in the
ordinary course of business, or (B) make any loans, advances or
capital contributions to, or investments in, any other person, other
than to the Company or any direct or indirect wholly-owned subsidiary
of the Company;
(vii) make or incur any new capital expenditure, which,
singly or in the aggregate with all other expenditures, would exceed
$500,000;
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(viii) make any material election relating to Taxes or
settle or compromise any material Tax liability;
(ix) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved
against in, or contemplated by, the most recent consolidated financial
statements (or the notes thereto) of the Company included in the SEC
Documents or incurred in the ordinary course of business consistent
with past practice;
(x) waive the benefits of, or agree to modify in any
manner, any confidentiality, standstill or similar agreement to which
the Company or any of its subsidiaries is a party;
(xi) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization;
(xii) except as expressly permitted by this Agreement,
enter into any new collective bargaining agreement;
(xiii) change any material accounting principle used by it,
except as required by regulations promulgated by the SEC;
(xiv) settle or compromise any litigation (whether or not
commenced prior to the date of this Agreement) other than settlements
or compromises: (A) of litigation where the amount paid in settlement
or compromise does not exceed $100,000, or (B) in consultation and
cooperation with Parent, and, with respect to any such settlement,
with the prior written consent of Parent; or
(xv) authorize any of, or commit or agree to take any of,
the foregoing actions.
(b) Changes in Employment Arrangements. Neither the
Company nor any of its subsidiaries shall (except as may be required in order
to give effect to the requirements of Section 5.6) adopt or amend (except as
may be required by law) any bonus, profit sharing, compensation, stock option,
pension, retirement, deferred compensation, employment or other employee
benefit plan, agreement, trust, fund or other arrangement (including any
Company Benefit Plan) for the benefit or welfare of any employee, director or
former director or employee, increase the compensation or fringe benefits of
any officer of the Company or any of its subsidiaries, or, except as provided
in an existing Company Benefit Plan or in the ordinary course of business
consistent with past practice, increase the compensation or fringe benefits of
any employee or former employee or pay any benefit not required by any existing
plan, arrangement or agreement.
(c) Severance. Neither the Company nor any of its
subsidiaries shall grant any new or modified severance or termination
arrangement or increase or accelerate any benefits payable under its severance
or termination pay policies in effect on the date hereof.
(d) Other Actions. The Company shall not, and shall not
permit any of its subsidiaries to, take any action that would, or that could
reasonably be expected to, result in any of the representations and warranties
of the Company set forth in this Agreement becoming untrue.
SECTION 4.2. Conduct of Business of Parent and Sub.
(a) Ordinary Course. During the period from the date of
this Agreement to the Effective Time of the Merger (except as otherwise
specifically contemplated by the terms of this Agreement), Parent shall and
shall cause each of its significant subsidiaries to carry on their respective
businesses in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted. Without limiting the generality of the
foregoing, and except as otherwise expressly contemplated by this Agreement,
Parent shall not, and shall not permit any of its significant subsidiaries to:
(i) (A) declare, set aside or pay any dividends on, or
make any other distributions in respect of, any of its capital stock,
other than (I) dividends and distributions by any direct or indirect
wholly-owned subsidiary of Parent to Parent or a wholly-owned
subsidiary of Parent or (II) regular quarterly cash
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dividends declared or paid by Parent consistent with past practice,
(B) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock or (C) purchase,
redeem or otherwise acquire any shares of capital stock of Parent or
any of its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber
any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities
other than, in the case of Parent, (A) the issuance of Parent Shares
upon the exercise of Stock Options outstanding on the date of this
Agreement in accordance with their current terms, or (B) the issuance
of a number of Parent Shares, not to exceed 5% of the Parent Shares
currently outstanding, in connection with the acquisition of assets or
equity securities of other entities or businesses;
(iii) amend its Certificate of Incorporation, By-laws, or
other comparable charter or organizational document;
(iv) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization;
(v) change any material accounting principle used by it,
except as required by regulations promulgated by the SEC; or
(vi) authorize any of, or commit or agree to take any of,
the foregoing actions.
(b) Other Actions. Parent shall not, and shall not
permit any of its subsidiaries to, take any action that would, or that could
reasonably be expected to, result in any of the representations and warranties
of Parent or Sub set forth in this Agreement becoming untrue.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. Stockholder Approval; Preparation of Proxy
Statement; Preparation of Registration Statement. (a) Each of the Company and
Parent shall, as soon as practicable following the execution and delivery of
this Agreement on dates to be agreed upon between Parent and the Company, which
dates shall be set taking into account the status of pending regulatory matters
pertaining to the transactions contemplated hereby, duly call, give notice of,
convene and hold the Company Stockholders Meeting and the Parent Stockholders
Meeting, respectively, for the purpose of approving the Merger, this Agreement
and the transactions contemplated hereby. Subject to the provisions of
Sections 8.2(b) and 8.3(b), each of the Company and Parent will, through its
Board of Directors, recommend to its stockholders the approval and adoption of
the Merger.
(b) Promptly following the date of this Agreement, the
Company and Parent shall prepare and file with the SEC the Proxy Statement, and
Parent shall prepare and file with the SEC a registration statement on Form S-4
(the "Registration Statement"), in which the Proxy Statement will be included
as a prospectus. Each of the Company and Parent shall use its reasonable
efforts as promptly as practicable, subject to the setting of the date for the
Company Stockholders Meeting and Parent Stockholder Meeting as provided in
Section 5.1(a), to have the Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing. Each of the
Company and Parent will use its reasonable efforts to cause the Proxy Statement
to be mailed to the Company's stockholders and Parent's stockholders,
respectively, as promptly as practicable after the Registration Statement is
declared effective under the Securities Act. Parent shall also take such
reasonable actions (other than qualifying to do business in any jurisdiction in
which it is not now so qualified) as may be required to be taken under any
applicable state securities laws in connection with the issuance of Parent
Shares in the Merger, and the Company shall furnish all information concerning
the Company and the holders of the Shares and rights to acquire Shares pursuant
to the Stock Plans as may be reasonably requested in connection with any such
action. The Company and Parent will notify each other
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promptly of the receipt of any written or oral comments from the SEC or its
staff and of any request by the SEC or its staff for amendments or supplements
to the Proxy Statement or for additional information and will supply each other
with copies of all correspondence between the Company or Parent, respectively,
or any of its representatives, on the one hand, and the SEC or its staff, on the
other hand, with respect to the Proxy Statement or the Merger.
(c) Parent agrees to use its best efforts to effect the
listing on the NYSE prior to the Effective Time of the Merger, upon official
notice of issuance, Parent Shares to be issued pursuant to the Merger.
(d) Parent agrees to cause all Shares, if any, owned by
it or by Sub or any other subsidiary of Parent to be voted in favor of the
approval and adoption of this Agreement. The Company agrees to cause all
Parent Shares, if any, owned by it or any of its subsidiaries to be voted in
favor of the approval and adoption of this Agreement.
(e) The Company will cause its transfer agent to make
stock transfer records relating to the Company available to the extent
reasonably necessary to effectuate the intent of this Agreement.
SECTION 5.2. Letter of the Company's Accountants. The
Company shall use its best efforts to cause to be delivered to Parent a letter
of Coopers & Lybrand L.L.P., the Company's independent public accountants,
dated a date within two business days before the date on which the Registration
Statement shall become effective and addressed to Parent and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
In connection with the Company's efforts to obtain such letter, if requested by
Coopers & Lybrand L.L.P., Parent shall provide a representation letter to
Coopers & Lybrand L.L.P. complying with SAS 72, if then required.
SECTION 5.3. Letter of Parent's Accountants. Parent shall
use its best efforts to cause to be delivered to the Company a letter of Price
Waterhouse LLP, Parent's independent public accountants, dated a date within
two business days before the date on which the Registration Statement shall
become effective and addressed to the Company and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement. In
connection with Parent's efforts to obtain such letter, if requested by Price
Waterhouse LLP, the Company shall provide a representation letter to Price
Waterhouse LLP complying with SAS 72, if then required.
SECTION 5.4. Access to Information.
(a) During the period from the date hereof to the
Effective Time of the Merger, except to the extent otherwise required by United
States regulatory considerations,
(i) the Company shall, and shall cause each of its
subsidiaries, officers, employees, counsel, financial advisors and
other representatives to, afford to Parent, and to Parent's
accountants, counsel, financial advisors and other
representatives, reasonable access to the Company's and its
subsidiaries' respective properties, books, contracts, commitments and
records and, during such period, the Company shall, and shall cause
each of its subsidiaries, officers, employees, counsel, financial
advisors and other representatives to, furnish promptly to Parent:
(A) a copy of each report, schedule, registration
statement and other document filed by the Company during such
period pursuant to the requirements of Federal or state
securities laws and
(B) all other information concerning its business,
properties, financial condition, operations and personnel as
Parent may from time to time reasonably request so as to
afford Parent a reasonable opportunity to make at its sole
cost and expense such review, examination and investigation of
the Company and its subsidiaries as Parent may reasonably
desire to make. The Company agrees to advise Parent of all
material developments with respect to the Company, its
subsidiaries and their respective assets and liabilities.
Without limiting the information required to be provided
pursuant to this Section 5.4(a)(i), the Company will, on or
before October 1, 1996, provide to Parent the following
information, in each case, as of the date hereof, each of
which upon delivery shall be deemed to have been represented
and warranted as true and correct as if so done on the date
hereof
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and shall thereafter be deemed incorporated herein as if made
as a representation or warranty in Article III hereof:
(1) a schedule showing the subsidiaries of
the Company, the states of incorporation or
organization of each thereof and the authorized and
outstanding capital stock or ownership interests of
each thereof, as well as such shares or ownership
interests owned by either the Company or another
identified subsidiary of the Company;
(2) a schedule listing all loan or
credit agreements, notes, bonds, security agreements,
mortgages, indentures, material leases, tax sharing
or allocation agreements, permits, concessions,
franchises or licenses to which any of the Company or
its subsidiaries is a party, by which any of their
respective property is subject or under which it
enjoys any benefit;
(3) a schedule listing all other
agreements or instruments to which any of the Company
or its subsidiaries is a party or by which any of
their respective property is subject, which involved
any obligation on the part of the Company or any
subsidiary to pay more than $500,000;
(4) a schedule listing all suits,
proceedings, investigations, or governmental audits,
inspections or assessments pending or, to the
Company's best knowledge, threatened against or
affecting the Company or any of its subsidiaries or
to which the Company or any of its subsidiaries is a
party or, in the case of threatened matters, a
possible party;
(5) a schedule listing all Company
Benefit Plans;
(6) a schedule listing all reports,
proxy statements, registration statements and any
other filings made by the Company with the SEC since
March 7, 1994;
(7) a schedule listing all intellectual
property owned by the Company or any of its
subsidiaries or as to which the Company or any such
subsidiary is a beneficiary as to which any formal
action has been taken to protect the same; and
(8) complete and accurate copies of (I)
any document, plan, arrangement, instrument,
agreement or report listed in any of the foregoing
schedules upon request by Parent, (II) the Company's
Certificate of Incorporation and By-laws and the
articles or certificates of incorporation, by-laws or
other similar organizational and governing documents
of its subsidiaries, and (III) with respect to each
Company Benefit Plan, as applicable, (t) the trust,
group annuity contract or other document which
provides the funding for the plan, agreement or
arrangement, (u) the three most recent annual Form
5500, 990 and 1041 reports, (v) the most recent
actuarial report or valuation statement, (x) the most
current summary plan description, booklet, or other
descriptive written materials, and each summary of
material modifications prepared after the last
summary plan description, (y) the most recent IRS
determination letter and all requests for rulings or
determinations from the IRS subsequent to the date of
that determination letter and (z) all other material
correspondence from the IRS or the Department of
Labor received which relates to one or more of the
plans, agreements or arrangements.
(ii) Parent shall, and shall cause each of its
subsidiaries, officers, employees, counsel, financial advisors and
other representatives to, afford to the Company, and to the Company's
accountants, counsel, financial advisors and other representatives,
reasonable access to Parent's and its subsidiaries' respective
properties, books, contracts, commitments and records and, during such
period, Parent shall, and shall cause each of its subsidiaries,
officers, employees, counsel, financial advisors and other
representatives to, furnish promptly to the Company:
(A) a copy of each report, schedule, registration
statement and other document filed by Parent during such
period pursuant to the requirements of Federal or state
securities laws and
(B) all other information concerning its business,
properties, financial condition, operations and personnel as
the Company may from time to time reasonably request so as to
afford the Company a reasonable opportunity to make at its
sole cost and expense such review, examination
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and investigation of Parent and its subsidiaries as the Company
may reasonably desire to make. Parent agrees to advise the
Company of all material developments with respect to Parent,
its subsidiaries and their respective assets and liabilities.
Without limiting the information required to be provided
pursuant to this Section 5.4(a)(ii), Parent will, on or before
October 1, 1996, provide to the Company the following
information, in each case, as of the date hereof, each of
which upon delivery shall be deemed to have been represented
and warranted as true and correct as if so done on the date
hereof and shall thereafter be deemed incorporated herein as
if made as a representation or warranty in Article III hereof:
(1) a schedule showing the subsidiaries of
Parent, the states of incorporation or organization
of each thereof and the authorized and outstanding
capital stock or ownership interests of each thereof,
as well as such shares or ownership interests owned
by either Parent or another identified subsidiary of
Parent;
(2) a schedule listing all loan or
credit agreements, notes, bonds, security agreements,
mortgages, indentures, material leases, tax sharing
or allocation agreements, permits, concessions,
franchises or licenses to which any of Parent or its
subsidiaries is a party, by which any of their
respective property is subject or under which it
enjoys any benefit;
(3) a schedule listing all other
agreements or instruments to which any of Parent or
its subsidiaries is a party or by which any of their
respective property is subject, which involved any
obligation on the part of Parent or any subsidiary to
pay more than $500,000;
(4) a schedule listing all suits,
proceedings, investigations, or governmental audits,
inspections or assessments pending or, to Parent's
best knowledge, threatened against or affecting
Parent or any of its subsidiaries or to which Parent
or any of its subsidiaries is a party or, in the case
of threatened matters, a possible party;
(5) a schedule listing all Parent
Benefit Plans;
(6) a schedule listing all reports,
proxy statements, registration statements and any
other filings made by Parent with the SEC since March
7, 1994;
(7) a schedule listing all intellectual
property owned by Parent or any of its subsidiaries
or as to which Parent or any such ubsidiary is a
beneficiary as to which any formal action has been
taken to protect the same; and
(8) complete and accurate copies of (I)
any document, plan, arrangement, instrument,
agreement or report listed in any of the foregoing
schedules upon request by the Company, (II) Parent's
Certificate of Incorporation and By-laws and the
articles or certificates of incorporation, by-laws or
other similar organizational and governing documents
of its subsidiaries, and (III) with respect to each
Company Benefit Plan, as applicable, (t) the trust,
group annuity contract or other document which
provides the funding for the plan, agreement or
arrangement, (u) the three most recent annual Form
5500, 990 and 1041 reports, (v) the most recent
actuarial report or valuation statement, (x) the most
current summary plan description, booklet, or other
descriptive written materials, and each summary of
material modifications prepared after the last
summary plan description, (y) the most recent IRS
determination letter and all requests for rulings or
determinations from the IRS subsequent to the date of
that determination letter and (z) all other material
correspondence from the IRS or the Department of
Labor received which relates to one or more of the
plans, agreements or arrangements.
(iii) (A) The Company agrees to permit Parent and
its representatives to have full access to all the books and
records of the Company and its subsidiaries and to request
Coopers & Lybrand L.L.P. to permit Price Waterhouse LLP, to
review and examine the work papers of Coopers & Lybrand L.L.P.
with respect to the Company and its subsidiaries, and the
officers of the Company will furnish to Parent such financial
and operating data and other information with respect to the
business and properties of the Company and its subsidiaries as
Parent shall from time to time reasonably request, and
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(B) Parent agrees to permit the Company and its
representatives to have full access to all the books and
records of Parent and its subsidiaries and to request Price
Waterhouse LLP to permit Coopers & Lybrand L.L.P., to review
and examine the work papers of Price Waterhouse LLP with
respect to Parent and its subsidiaries, and the officers of
Parent will furnish to the Company such financial and
operating data and other information with respect to the
business and properties of Parent and its subsidiaries as the
Company shall from time to time reasonably request.
(iv) The Company shall promptly notify Parent of any
notices from or investigations by Governmental Entities that could
materially affect the Company's business or assets. Parent will
promptly notify the Company of any notices from or investigations by
Governmental Entities that could materially affect the consummation of
the Merger.
(b) Except as required by law, each of the Company and
Parent shall, and shall cause its respective directors, officers, employees,
accountants, counsel, financial advisors and representatives and affiliates to,
(i) hold in confidence, unless compelled to disclose by judicial or
administrative process, or, in the opinion of its counsel, by other
requirements of law, all nonpublic information concerning the other party
furnished in connection with the transactions contemplated by this Agreement
until such time as such information becomes publicly available (otherwise than
through the wrongful act of such person), (ii) not release or disclose such
information to any other person, except in connection with this Agreement to
its auditors, attorneys, financial advisors, other consultants and advisors,
and (iii) not use such information for any competitive or other purpose other
than with respect to its consideration and evaluation of the transactions
contemplated by this Agreement. Any investigation by any party of the assets
and business of the other party and its subsidiaries shall not affect any
representations and warranties hereunder or either party's right to terminate
this Agreement as provided in Article VII.
(c) In the event of the termination of this Agreement,
each party promptly will deliver to the other party (and destroy all electronic
data reflecting the same) all documents, work papers and other material (and
any reproductions or extracts thereof and any notes or summaries thereto)
obtained by such party or on its behalf from such other party or its
subsidiaries as a result of this Agreement or in connection therewith so
obtained before or after the execution hereof.
SECTION 5.5. Reasonable Efforts; Notification. (a) Upon the
terms and subject to the conditions set forth in this Agreement, except to the
extent otherwise required by United States regulatory considerations and
otherwise provided in this Section 5.5, each of the parties agrees to use
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger, and the other transactions
contemplated by this Agreement, including (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and filings (including
filings with Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals or waivers from third parties, (iii) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (iv) the execution and delivery of any additional
instruments (including any required supplemental indentures) necessary to
consummate the transactions contemplated by this Agreement. In connection with
and without limiting the foregoing, each of the Company and Parent and its
respective Board of Directors shall (i) take all action necessary to ensure
that no state takeover statute or similar statute or regulation is or becomes
applicable to the Merger, (ii) if any state takeover statute or similar statute
or regulation becomes applicable to the Merger, take all action necessary to
ensure that the Merger may be consummated as promptly as practicable on the
terms contemplated by this Agreement and otherwise to minimize the effect of
such statute or regulation on the Merger and (iii) cooperate with each other in
the arrangements for refinancing any indebtedness of, or obtaining any necessary
new financing for, the Company and the Surviving Corporation.
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(b) The Company shall give prompt notice to Parent, and
Parent or Sub shall give prompt notice to the Company, of (i) any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate in any respect or (ii) the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided, however, that
no such notification shall affect the representations or warranties or
covenants or agreements of the parties or the conditions to the obligations of
the parties hereunder.
(c)(i) Each of the parties hereto shall file a premerger
notification and report form under the HSR Act with respect to the
Merger as promptly as reasonably possible following execution and
delivery of this Agreement. Each of the parties agrees to use
reasonable efforts to promptly respond to any request for additional
information pursuant to Section (e)(1) of the HSR Act.
(ii) The Company will furnish to Parent and Sub copies of
all correspondence, filings or communications (or memoranda setting
forth the substance thereof (collectively, "Company HSR Documents"))
between the Company, or any of its respective representatives, on the
one hand, and any Governmental Entity, or members of the staff of such
agency or authority, on the other hand, with respect to this Agreement
or the Merger; provided, however, that (x) with respect to documents
and other materials filed by or on behalf of the Company with the
Antitrust Division of the Department of Justice, the Federal Trade
Commission, or any state attorneys general that are available for
review by Parent and Sub, copies will not be required to be provided to
Parent and Sub and (y) with respect to any Company HSR Documents (1)
that contain any information which, in the reasonable judgment of
Vinson & Elkins L.L.P., should not be furnished to Parent or Sub
because of antitrust considerations or (2) relating to a request for
additional information pursuant to Section (e)(1) of the HSR Act, the
obligation of the Company to furnish any such Company HSR Documents to
Parent and Sub shall be satisfied by the delivery of such Company HSR
Documents on a confidential basis to Fulbright & Jaworski L.L.P.
pursuant to a confidentiality agreement in form and substance
reasonably satisfactory to Parent. Except as otherwise required by
United States regulatory considerations, Parent and Sub will furnish to
the Company copies of all correspondence, filings or communications (or
memoranda setting forth the substance thereof (collectively, "Parent
HSR Documents")) between Parent, Sub or any of their respective
representatives, on the one hand, and any Governmental Entity, or
member of the staff of such agency or authority, on the other hand,
with respect to this Agreement or the Merger; provided, however, that
(x) with respect to documents and other materials filed by or on behalf
of Parent or Sub with the Antitrust Division of the Department of
Justice, the Federal Trade Commission, or any state attorneys general
that are available for review by the Company, copies will not be
required to be provided to the Company, and (y) with respect to any
Parent HSR Documents (1) that contain information which, in the
reasonable judgment of Fulbright & Jaworski L.L.P., should not be
furnished to the Company because of antitrust considerations or (2)
relating to a request for additional information pursuant to Section
(e)(1) of the HSR Act, the obligation of Parent and Sub to furnish any
such Parent HSR Documents to the Company shall be satisfied by the
delivery of such Parent HSR Documents on a confidential basis to Vinson
& Elkins L.L.P. pursuant to a confidentiality agreement in form and
substance reasonably satisfactory to the Company.
(iii) At the election of Parent, the Company and Parent
shall use reasonable efforts to defend all litigation under the Federal
or state antitrust laws of the United States which if adversely
determined would, in the reasonable opinion of Parent (based on the
advice of outside counsel), be likely to result in the failure of the
condition set forth in Section 6.2(h) not being satisfied, and to
appeal any order, judgment or decree, which if not reversed, would
result in the failure of such condition. Notwithstanding the
foregoing, nothing contained in this Agreement shall be construed so as
to require Parent, Sub or the Company, or any of their respective
subsidiaries or affiliates, to sell, license, dispose of, or hold
separate, or to operate in any specified manner, any assets or
businesses of Parent, Sub, the Company or the Surviving Corporation (or
to require Parent, Sub, the Company or any of their respective
subsidiaries or affiliates to agree to any of the foregoing). The
obligations of each party under Section 5.5(a) to use reasonable
efforts with respect to antitrust matters shall be limited to
compliance with the reporting provisions of the HSR Act and with its
obligations under this Section 5.5(c).
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SECTION 5.6. Employee Benefit Matters.
(a) At or before the Effective Time of the Merger, the
Company shall take such actions as may be necessary to cause each individual
employed by the Company and its subsidiaries immediately prior to the Effective
Time of the Merger (a "Company Employee") to have a fully vested and
nonforfeitable interest in such employee's accrued benefits under each Company
Benefit Plan that is intended to qualify under Section 401(a) of the Code.
(b) Parent may cause any Company Benefit Plan to be
terminated or discontinued at or after the Effective Time of the Merger,
provided that, to the extent Parent or its affiliates maintain a Parent Benefit
Plan of the same type for employees of Parent or any of its affiliates, Parent
shall take all actions necessary or appropriate to permit the Company Employees
participating in such Company Benefit Plan to immediately thereafter
participate in such Parent Benefit Plan of the same type maintained by Parent
or any of its affiliates for their employees generally (a "Replacement Plan");
provided, however, that if the Company Benefit Plan that is so terminated or
discontinued is a group health plan, then Parent shall permit each Company
Employee participating in such group health plan and his or her eligible
dependents to be covered under a Replacement Plan under the terms and
conditions of the Replacement Plan as modified to the extent necessary to (i)
provide medical and dental benefits to each such Company Employee and such
eligible dependents effective immediately upon the cessation of coverage of such
individuals under such group health plan, (ii) credit to such Company Employee,
for the year during which such coverage under such Replacement Plan begins, with
any deductibles and copayments already incurred during such year under such
group health plan, and (iii) waive any preexisting condition restrictions to the
extent that the preexisting condition restrictions were satisfied under such
group health plan. Parent, the Surviving Corporation, their affiliates, and the
Parent Benefit Plans (including, without limitation, the Replacement Plans)
shall recognize each Company Employee's years of service and level of seniority
with the Company and its subsidiaries for purposes of terms of employment and
eligibility, vesting and benefit determination under the Parent Benefit Plans
(other than benefit accruals under any defined benefit pension plan). Nothing
in this Agreement shall be construed to require Parent to provide any particular
type or amount of benefits for any person under any Parent Benefit Plan.
(c) Parent agrees to assume, effective as of the
Effective Time of the Merger, each option to purchase shares of Company Common
Stock granted under the Company's 1994 Stock Incentive Plan (an "Employee
Option") (whether or not vested) and, to the extent permitted, under the 1994
Nonemployee Directors' Stock Option Plan ("Director Option") that is currently
outstanding and which remains as of such time unexercised in whole or in part
and to substitute Parent Shares as purchasable under such assumed option
("Assumed Option"), with such assumption and substitution to be effected as
follows:
(i) the Assumed Option shall not give the optionee
additional benefits which he did not have under the Employee Option or
Director Option before such assumption;
(ii) the number of Parent Shares purchasable under any
Assumed Option shall be equal to the number of whole Parent Shares that
the holder of the Employee Option or Director Option being assumed
would have received upon consummation of the Merger had such Employee
Option been exercised in full prior to the Merger;
(iii) the per share option price of the Assumed Option
shall be equal to the per share option price of the Employee Option or
Director Option divided by .58; and
(iv) except for adjustment in the number and price of
option shares as set forth above, the Assumed Option or Director Option
shall contain substantially the same terms as the Employee Option
before such assumption.
As soon as practicable after the Effective Time of the Merger,Parent shall
deliver to such holders of Employee Options or Director Options appropriate
agreements evidencing its assumption of such options. Promptly after
the Merger, Parent shall file a registration statement on Form S-8 with the SEC
with respect to the Parent Shares issuable in respect of the Assumed Options and
Parent shall use its best efforts to maintain
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the effectiveness of such registration statement (and maintain the
current status of the prospectus or prospectuses contained therein)
for so long as such Assumed Options remain outstanding.
SECTION 5.7. Indemnification. (a) Parent and Sub agree that
all rights to indemnification for acts or omissions occurring prior to the
Effective Time of the Merger now existing in favor of the current or former
directors or officers of the Company and its subsidiaries as provided in their
respective certificates of incorporation or by-laws and Indemnity Agreements
shall survive the Merger, and Parent shall cause the Surviving Corporation to
continue such indemnification rights in full force and effect in accordance
with their terms as an obligation of the Surviving Corporation for a period of
not less than five years from the Effective Time of the Merger. Parent shall
cause to be maintained for a period of five years from the Effective Time of
the Merger (or such shorter period of time as shall be agreed to hereafter by
the Indemnification Representatives (or, upon the death of either, the sole
surviving Indemnification Representative) (as hereinafter defined)) the
Company's current directors' and officers' insurance and indemnification policy
to the extent that it provides coverage for events occurring at or prior to the
Effective Time of the Merger (the "D&O Insurance") for all persons who are
directors and officers of the Company on the date hereof or will cause to be
provided a comparable arrangement (which may include self-insurance by Parent).
Parent hereby guarantees the payment by the Surviving Corporation of the full
annual premium for such D&O Insurance or comparable arrangement regardless of
increases in the amount of such annual premium. The Company represents that
the current annual premium for the existing D&O Insurance, which is in full
force and effect and provides aggregate coverage of $10,000,000 million, is
$99,000 for the policy year ending May 20, 1997. The Company has furnished
Parent with a copy of the current D&O Insurance Policy and with copies of all
material correspondence and other written materials with respect thereto.
"Indemnification Representatives" shall mean Nathan M. Avery and Sheldon R.
Erikson.
(b) If the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then and in each such case, proper provisions shall be made so
that the successors and assigns of the Surviving Corporation, which shall be
financially responsible persons or entities, assume the obligations set forth
in this Section 5.7.
(c) The provisions of this Section 5.7 are intended to be
for the benefit of, and shall be enforceable by, the parties hereto and each
indemnified party, his heirs and representatives.
SECTION 5.8. Fees and Expenses. Except as provided in
Article VIII, all fees and expenses incurred in connection with the Merger,
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such fees or expenses, whether or not the Merger is
consummated.
SECTION 5.9. Public Announcements. Parent and Sub, on the
one hand, and the Company, on the other hand, will consult with each other
before issuing any press release or otherwise making any public statements with
respect to the transactions contemplated by this Agreement and shall not issue
any such press release or make any such public statement prior to such
consultation, except that each party may respond to questions from stockholders
and Parent may respond to inquiries from financial analysts and media
representatives in a manner consistent with its past practice and each party may
make such disclosure as may be required by applicable law or by obligations
pursuant to any listing agreement with any national securities exchange without
prior consultation to the extent such consultation is not reasonably
practicable. The parties agree that the initial press release or releases to be
issued in connection with the execution of this Agreement shall be mutually
agreed upon prior to the issuance thereof.
SECTION 5.10. Stockholder Litigation. The Company shall give
Parent the opportunity to participate in the defense or settlement of any
stockholder litigation against the Company and its directors relating to the
transactions contemplated by this Agreement until the Effective Time of the
Merger, and thereafter, shall give Parent the opportunity to direct the defense
of such litigation and, if Parent so chooses to direct such litigation, Parent
shall give the Company and its directors an opportunity to participate in such
litigation; provided, however, that no settlement of litigation shall be agreed
to without the consent of Parent, the Company and its directors, which consent
shall not be unreasonably withheld.
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SECTION 5.11. Accounting Matters. Neither the Company nor
Parent shall take or agree to take, nor shall they permit any of their
respective affiliates to take or agree to take, any action that would prevent
Parent from accounting for the business combination to be effected by the
Merger as a pooling of interests.
SECTION 5.12. Parent's Board of Directors. At the Effective
Time of the Merger, the directors of Parent shall elect two persons mutually
agreed to by the Chairman of the Board of Parent and the Chairman of the Board
of the Company to replace two of the existing directors of Parent, for a total
of nine directors.
SECTION 5.13. Appointment of Directors to Committees.
Parent's Board of Directors shall take the requisite action to appoint at the
Effective Time of the Merger the two Directors designated by the Chairman of
the Board of Parent and the Chairman of the Board of the Company to committees
of the Board of Directors of Parent, one being appointed to the Executive
Committee and the other being appointed to the Compensation Committee.
SECTION 5.14. Appointment of W. Todd Bratton as Executive
Vice President. Parent's Board of Directors shall take the requisite action to
elect W. Todd Bratton as an Executive Vice President of Parent at the Effective
Time of the Merger, understanding that Mr. Bratton will become an
employee-at-will of Parent but will be entitled to all rights under his
existing employment contract with the Company.
SECTION 5.15. Affirmation of this Agreement. If this
Agreement has not been terminated pursuant to Sections 7.1(f) or (g) on or
before October 14, 1996, the parties hereto agree that, on such date, they will
execute and deliver to each other a document whereby they reaffirm each and
every agreement (other than the first sentence in each of Sections 3.1 and 3.2),
representation and warranty contained or deemed to be contained herein,
including those contained in the Company Affirmation and Disclosure Document and
the Parent Affirmation and Disclosure Document, and, upon such reaffirmation,
each such agreement, representation and warranty shall, for all purposes, be
deemed agreements, representations and warranties contained in this Agreement
and made on and as of the date hereof.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation to Effect
the Merger. The respective obligation of each party to effect the Merger is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. The Company Stockholder
Approval and Parent Stockholder Approval shall have been obtained.
(b) NYSE Listing. Parent Shares issuable to the
Company's stockholders pursuant to the Merger shall have been approved for
listing on the NYSE, subject to official notice of issuance.
(c) HSR Act. The waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have been terminated
or shall have expired.
(d) No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect; provided,
however, that the parties hereto shall, subject to Section 5.5, use reasonable
efforts to have any such injunction, order, restraint or prohibition vacated.
(e) Registration Statement Effectiveness. The
Registration Statement shall be effective under the Securities Act on the
Closing Date, and all post-effective amendments filed shall have been declared
effective or shall have been withdrawn; and no stop-order suspending the
effectiveness thereof shall have been issued and no proceedings for that
purpose shall have been initiated or, to the knowledge of the parties,
threatened by the SEC.
(f) Blue Sky Filings. There shall have been obtained any
and all material permits, approvals and consents of securities or "blue sky"
authorities of any jurisdiction that are necessary so that the consummation
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of the Merger and the transactions contemplated thereby will be in compliance
with applicable laws, the failure to comply with which would have a material
adverse effect on Parent.
SECTION 6.2. Conditions of Parent and Sub. The obligation of
Parent and Sub to consummate the Merger are further subject to the satisfaction
at the Effective Time of the Merger, of the following conditions:
(a) Compliance. The agreements and covenants of the
Company to be complied with or performed on or before the Closing Date pursuant
to the terms hereof shall have been duly complied with or performed in all
material respects and Parent shall have received a certificate dated the
Closing Date and executed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to such effect.
(b) Certifications and Opinion. The Company shall have
furnished Parent with:
(i) a certified copy of a resolution or resolutions duly
adopted by the Board of Directors of the Company approving this
Agreement and consummation of the Merger and the transactions
contemplated hereby and directing the submission of the Merger to a
vote of the stockholders of the Company;
(ii) a certified copy of a resolution or resolutions duly
adopted by the holders of a majority of the outstanding Shares
approving the Merger and the transactions contemplated hereby;
(iii) a favorable opinion dated the Closing Date, in
customary form and substance, of Vinson & Elkins L.L.P., counsel for
the Company, dated the Closing Date to the effect that:
(A) The Company is a corporation duly
incorporated, validly existing and in good standing under the
laws of the State of Delaware and has corporate power to own
its properties and assets and to carry on its business as
presently conducted and as described in the Registration
Statement;
(B) The Company has the requisite corporate power
to effect the Merger as contemplated by this Agreement; the
execution and delivery of this Agreement did not, and the
consummation of the Merger will not, violate any provision of
the Company's Certificate of Incorporation or By-Laws; and
upon the filing by the Surviving Corporation of the
Certificate of Merger, the Merger shall become effective;
(C) Each of the U.S. subsidiaries is a
corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation,
and has corporate power to own its properties and assets and
to carry on its business as presently conducted; and
(D) The Board of Directors of the Company has
taken all action required by the DGCL and its Certificate of
Incorporation or its By-Laws to approve the Merger and to
authorize the execution and delivery of this Agreement and
the transactions contemplated hereby; the Board of Directors
and the stockholders of the Company have taken all action
required by the DGCL and its Certificate of Incorporation
and By-Laws to authorize the Merger in accordance with the
terms of this Agreement; and this Agreement is a valid and
binding Agreement of the Company enforceable in accordance
with its terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium or
other similar laws or judicial decisions now or hereafter in
effect relating to creditor's rights generally or governing
the availability of equitable relief.
(c) Representations and Warranties True. The
representations and warranties of the Company contained in this Agreement
(other than any representations and warranties made as of a specific date)
shall be true in all material respects (except to the extent the representation
or warranty is already qualified by materiality, in which case it shall be true
in all respects) on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date,
except as contemplated or permitted by this Agreement, and Parent shall have
received a certificate to that effect dated the Closing Date and executed on
behalf of the Company by the chief executive officer and the chief financial
officer of the Company.
(d) Affiliate Letters. Parent shall have received from
the Company a list of such persons, if any, as counsel for the Company state
may be "affiliates" of the Company, within the meaning of Rules 144 and 145(c)
of the Commission pursuant to the Securities Act, and shall have received from
such persons
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undertakings in writing to the effect that no disposition will be made by such
persons of any Parent Shares received or to be received pursuant to the Merger
except in compliance with the applicable provisions of the Securities Act and
the rules and regulations thereunder. Parent shall not be required to maintain
the effectiveness of the Registration Statement for the purpose of resale by
stockholders of the Company who may be "affiliates" pursuant to Rule 145
under the Securities Act.
(e) Tax Opinion. Parent shall have received an opinion
of Fulbright & Jaworski L.L.P., in form and substance satisfactory to Parent,
to the effect that for federal income tax purposes and conditioned upon certain
representations of managements of the Company and Parent as to certain
customary facts and circumstances regarding the Merger: (i) the Merger will
qualify as a "reorganization" within the meaning of Section 368(a) of the Code
and (ii) no gain or loss will be recognized by the Company, Sub or Parent as a
result of the Merger.
(f) Pooling Accounting. Parent and Company shall have
received a letter from Price Waterhouse LLP, in form and substance satisfactory
to Parent and Company, to the effect that the Merger should be accounted for as
a pooling of interests under generally accepted accounting principles and
applicable regulations of the SEC.
(g) Consents, etc. Parent shall have received evidence,
in form and substance reasonably satisfactory to it, that such licenses,
permits, consents, approvals, authorizations, qualifications and orders of
governmental authorities and other third parties as are necessary in connection
with the transactions contemplated hereby have been obtained, except such
licenses, permits, consents, approvals, authorizations, qualifications and
orders which are not, individually or in the aggregate, material to Parent or
the Company or the failure of which to have received would not (as compared to
the situation in which such license, permit, consent, approval, authorization,
qualification or order had been obtained) materially detract from the aggregate
benefits to Parent of the transactions reasonably contemplated hereby.
(h) No Litigation. There shall not be pending or
threatened by any Governmental Entity any suit, action or proceeding (or by any
other person any suit, action or proceeding which has a reasonable likelihood
of success), (i) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by
this Agreement or seeking to obtain from Parent or any of its subsidiaries any
damages that are material in relation to Parent and its subsidiaries taken as a
whole, (ii) seeking to prohibit or limit the ownership or operation by the
Company, Parent or any of their respective subsidiaries of any material portion
of the business or assets of the Company, Parent or any of their respective
subsidiaries, to dispose of or hold separate any material portion of the
business or assets of the Company, Parent or any of their respective
subsidiaries, as a result of the Merger or any of the other transactions
contemplated by this Agreement, (iii) seeking to impose limitations on the
ability of Parent or Sub to acquire or hold, or exercise full rights of
ownership as to any shares of Common Stock of the Surviving Corporation,
including, without limitation, the right to vote the Common Stock of the
Surviving Corporation on all matters properly presented to the stockholders of
the Surviving Corporation or (iv) seeking to prohibit Parent or any of its
subsidiaries from effectively controlling in any material respect the business
or operations of the Company or its subsidiaries.
(i) Fairness Opinion. Parent shall have received an
opinion from Simmons & Company International to the effect that the terms of
the Merger are fair to the holders of Parent Shares from a financial point of
view.
(j) No Material Adverse Change. There shall not have
occurred any material adverse change with respect to the Company since the date
hereof.
SECTION 6.3. Conditions of the Company. The obligations of
the Company to consummate the Merger are further subject to the satisfaction at
the Effective Time of the Merger of the following conditions:
(a) Compliance. The agreements and covenants of Parent
to be complied with or performed on or before the Closing Date pursuant to the
terms hereof shall have been duly complied with or performed in all material
respects and the Company shall have received a certificate dated the Closing
Date on behalf of Parent by the chief executive officer and the chief financial
officer of Parent to such effect.
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(b) Certifications and Opinion. Parent shall have
furnished the Company with:
(i) a certified copy of a resolution or resolutions duly
adopted by the Board of Directors or a duly authorized committee
thereof of Parent approving this Agreement and consummation of the
Merger and the transactions contemplated hereby, including the
issuance, listing and delivery of the Parent Shares pursuant hereto;
(ii) a certified copy of a resolution or resolutions duly
adopted by the holders of a majority of the Parent Shares present or
represented by proxy and entitled to vote at the Parent Stockholder
Meeting, approving the Merger and the transactions contemplated hereby;
(iii) a favorable opinion, dated the Closing Date, in
customary form and substance, of Fulbright & Jaworski L.L.P., counsel
for Parent to the effect that:
(A) Parent and the Sub are corporations duly
incorporated, validly existing and in good standing under the
laws of the State of Delaware and have corporate power to own
their properties and assets and to carry on their business as
presently conducted and as described in the Proxy Statement.
Sub has the requisite corporate power to merge with the
Company as contemplated by this Agreement and Parent has the
requisite corporate power to carry out its obligations under
this Agreement. The execution and delivery of this Agreement
did not, and the consummation of the Merger will not, violate
any provision of Parent's or Sub's Certificate of
Incorporation or By-Laws;
(B) Parent and Sub have taken all action required
under the DGCL, their Certificates of Incorporation or their
By-Laws to authorize such execution and delivery and the
transactions contemplated by this Agreement, including the
Merger, in accordance with the terms of this Agreement; and
this Agreement is a valid and binding agreement of Parent and
Sub enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws or judicial
decisions now or hereafter in effect relating to creditor's
rights generally or governing the availability of equitable
relief; and
(C) The Parent Shares to be issued pursuant to
the Merger have been duly authorized and, when issued and
delivered as contemplated hereby, will have been legally and
validly issued and will be fully paid and non-assessable and
no stockholder of Parent will have any preemptive right of
subscription or purchase in respect thereof under Delaware law
or Parent's Certificate of Incorporation or By-laws.
(c) Representations and Warranties True. The
representations and warranties of Parent contained in this Agreement (other
than any representations and warranties made as of a specific date) shall be
true in all material respects (except to the extent the representation or
warranty is already qualified by materiality, in which case it shall be true in
all respects) on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, except as
contemplated or permitted by this Agreement, and the Company shall have received
a certificate to that effect dated the Closing Date and executed on behalf of
Parent by the chief executive officer and the chief financial officer of
Parent.
(d) Tax Opinion. The Company shall have received an
opinion of Vinson & Elkins L.L.P., in form and substance satisfactory to the
Company, to the effect that for federal income tax purposes and conditioned
upon certain representations of managements of the Company and Parent as to
certain customary facts and circumstances regarding the Merger: (i) the Merger
will qualify as a "reorganization" within the meaning of Section 368(a) of the
Code; (ii) each of the Company, Parent and Sub are parties to the
reorganization within the meaning of Section 368(b) of the Code; and (iii) no
gain or loss will be recognized by the stockholders of the Company upon the
receipt by them of Parent Shares in exchange for their Shares pursuant to the
Merger.
(e) Fairness Opinion. As of the date of the Company
Stockholders Meeting, Jefferies shall not have revoked, modified or materially
changed its opinion referred to in Section 3.1(v) in any manner adverse to the
holders of the Shares.
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(f) No Material Adverse Change. There shall not have
occurred any material adverse change with respect to Parent since the date
hereof.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination. This Agreement may be terminated
at any time prior to the Effective Time of the Merger, whether before or after
approval of matters presented in connection with the Merger by the stockholders
of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if the stockholders of the Company fail to
give any required approval of the Merger and the transactions
contemplated hereby upon a vote at a duly held meeting of
stockholders of the Company or at any adjournment thereof;
(ii) if the stockholders of Parent fail to give
any required approval of the Merger and the transactions
contemplated hereby upon a vote at a duly held meeting of
stockholders of Parent or at any adjournment thereof;
(iii) if any court of competent jurisdiction or any
governmental, administrative or regulatory authority, agency
or body shall have issued an order, decree or ruling or taken
any other action permanently enjoining, restraining or
otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and
nonappealable; or
(iv) if the Merger shall not have been consummated
on or before January 31, 1997, unless the failure to
consummate the Merger is the result of a material breach of
this Agreement by the party seeking to terminate this
Agreement.
(c) by Parent or the Company to the extent permitted
under Section 8.2 or 8.3;
(d) by Parent, if the Company breaches any of its
representations or warranties herein or fails to perform in any material
respect any of its covenants, agreements or obligations under this Agreement;
(e) by the Company, if Parent or Sub breaches any of its
representations or warranties herein or fails to perform in any material
respect any of its covenants, agreements or obligations under this Agreement;
(f) by Parent within four weeks of date hereof, if the
results of Parent's due diligence review of the Company and its subsidiaries
referred to in Section 5.4(a)(i) hereof or any matter referred to in the
Company Affirmation and Disclosure Document shall not be satisfactory to
Parent;
(g) by the Company within four weeks of the date hereof,
if the results of the Company's due diligence review of Parent and its
subsidiaries referred to in Section 5.4(a)(ii) hereof or any matter referred to
in the Parent Affirmation and Disclosure Document shall not be satisfactory to
the Company.
SECTION 7.2. Effect of Termination. In the event of
termination of this Agreement by either the Company or Parent as provided in
Section 7.1, this Agreement shall forthwith become void and have no effect,
without any liability or obligation on the part of Parent, Sub or the Company,
other than the confidentiality provisions of Sections 5.4(b) and (c) and the
provisions of Sections 5.8, 8.2, 8.3 and Article IX.
SECTION 7.3. Amendment. This Agreement may be amended by the
parties at any time before or after any required approval of matters presented
in connection with the Merger by the stockholders of the Company or Parent;
provided, however, that after any such approval, there shall be made no
amendment that by law requires further approval by such stockholders without
the further approval of such stockholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties.
SECTION 7.4. Extension; Waiver. At any time prior to the
Effective Time of the Merger, the parties may, to the extent legally allowed,
(a) extend the time for the performance of any of the obligations or the other
acts of the other parties, (b) waive any inaccuracies in the representations
and warranties contained
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herein or in any document delivered pursuant hereto or (c) subject to the
proviso of Section 7.3, waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not
constitute a waiver of such rights.
SECTION 7.5. Procedure for Termination, Amendment, Extension
or Waiver. A termination of this Agreement pursuant to Section 7.1, an
amendment of this Agreement pursuant to Section 7.3 or an extension or waiver
pursuant to Section 7.4 shall, in order to be effective, require in the case of
Parent, Sub or the Company, action by its Board of Directors or the duly
authorized designee of its Board of Directors.
ARTICLE VIII
SPECIAL PROVISIONS AS TO CERTAIN MATTERS
SECTION 8.1. Takeover Defenses of the Company. As promptly
as practicable after the date of this Agreement, but in no event later than 10
days following announcement of the execution of this Agreement, the Company
will amend the Company Rights Agreement, as necessary, (i) to prevent this
Agreement or the consummation of the transactions contemplated hereby from
resulting in the distribution of separate rights certificates or the occurrence
of a Distribution Date (as defined therein) or being deemed a Triggering Event
(as defined therein) and (ii) to provide that neither Parent nor Sub shall be
deemed to be an Acquiring Person (as defined therein) by reason of the
transactions contemplated by this Agreement. The Company shall take such
action with respect to any other anti-takeover provisions in its charter or
afforded it by statute to the extent necessary to consummate the Merger on the
terms set forth in the Agreement.
SECTION 8.2. No Solicitation. (a) The Company shall not, nor
shall it permit any of its subsidiaries to, nor shall it authorize or permit
any officer, director or employee of or any investment banker, attorney or
other advisor, agent or representative of the Company or any of its
subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage the
submission of any takeover proposal, (ii) enter into any agreement (other than
confidentiality and standstill agreements in accordance with the immediately
following proviso) with respect to any takeover proposal, or (iii) participate
in any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any takeover proposal; provided, however, in the case of
this clause (iii), that prior to the vote of stockholders of the Company for
approval of the Merger (and not thereafter if the Merger is approved thereby)
to the extent required by the fiduciary obligations of the Board of Directors of
the Company, determined in good faith by a majority of the disinterested members
thereof based on the advice of outside counsel, the Company may, in response to
an unsolicited request therefor, furnish information to any person or "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) pursuant to a
confidentiality agreement on substantially the same terms as provided in Section
5.4(b) hereof. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding sentence by any
officer, director or employee of the Company or any of its subsidiaries or any
investment banker, attorney or other advisor, agent or representative of the
Company, whether or not such person is purporting to act on behalf of the
Company or otherwise, shall be deemed to be a material breach of this Agreement
by the Company. For purposes of this Agreement, "takeover proposal" means (i)
any proposal, other than a proposal by Parent or any of its affiliates, for a
merger or other business combination involving the Company, (ii) any proposal or
offer, other than a proposal or offer by Parent or any of its affiliates, to
acquire from the Company or any of its affiliates in any manner, directly or
indirectly, an equity interest in the Company or any subsidiary, any voting
securities of the Company or any subsidiary or a material amount of the assets
of the Company and its subsidiaries, taken as a whole, or (iii) any proposal or
offer, other than a proposal or offer by Parent or any of its affiliates, to
acquire from the stockholders of the Company by tender offer, exchange offer or
otherwise more than 20% of the outstanding Shares.
(b) Neither the Board of Directors of the Company nor any
committee thereof shall, except in connection with the termination of this
Agreement pursuant to Sections 7.1 (a), (b) or (g), (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Parent or Sub the
approval or
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recommendation by the Board of Directors of the Company or any such committee of
this Agreement or the Merger or take any action having such effect or (ii)
approve or recommend, or propose to approve or recommend, any takeover proposal.
Notwithstanding the foregoing, in the event the Board of Directors of the
Company receives a takeover proposal that, in the exercise of its fiduciary
obligations (as determined in good faith by a majority of the disinterested
members thereof based on the advice of outside counsel), it determines to be a
superior proposal, the Board of Directors may withdraw or modify its approval or
recommendation of this Agreement or the Merger and may (subject to the following
sentence) terminate this Agreement, in each case at any time after midnight on
the next business day following Parent's receipt of written notice (a "Notice of
Superior Proposal") advising Parent that the Board of Directors has received a
takeover proposal which it has determined to be a superior proposal, specifying
the material terms and conditions of such superior proposal (including the
proposed financing for such proposal and a copy of any documents conveying such
proposal) and identifying the person making such superior proposal. The Company
may terminate this Agreement pursuant to the preceding sentence only if the
stockholders of the Company shall not yet have voted upon the Merger and the
Company shall have paid to Parent the Termination Fee (as defined in Section
8.3). Any of the foregoing to the contrary notwithstanding, the Company may
engage in discussions with any person or group that has made an unsolicited
takeover proposal for the limited purpose of determining whether such proposal
is a superior proposal. Nothing contained herein shall prohibit the Company
from taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) following Parent's receipt of a Notice of Superior Proposal.
(c) In the event that the Board of Directors of the
Company or any committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent or Sub the approval or
recommendation by the Board of Directors of the Company or any such committee
of this Agreement or the Merger or take any action having such effect or (ii)
approve or recommend, or propose to approve or recommend, any takeover
proposal, Parent may terminate this Agreement.
(d) For purposes of this Agreement, a "superior proposal"
means any bona fide takeover proposal to acquire, directly or indirectly, for
consideration consisting of cash, securities or a combination thereof, all of
the Shares then outstanding or all or substantially all the assets of the
Company, and otherwise on terms which a majority of the disinterested members
of the Board of Directors of the Company determines in its good faith
reasonable judgment (based on the written advice of a financial advisor of
nationally recognized reputation, a copy of which shall be provided to Parent)
to be more favorable to the Company's stockholders than the Merger.
(e) In addition to the obligations of the Company set
forth in paragraph (b), the Company shall promptly advise Parent orally and in
writing of any takeover proposal or any inquiry with respect to or which could
lead to any takeover proposal, the material terms and conditions of such
inquiry or takeover proposal (including the financing for such proposal and a
copy of such documents conveying such proposal), and the identity of the person
making any such takeover proposal or inquiry. The Company will keep Parent
fully informed of the status and details of any such takeover proposal or
inquiry.
SECTION 8.3. Fee and Expense Reimbursements.
(a) The Company agrees to pay Parent a fee in immediately
available funds of $2,000,000 (the "Termination Fee") promptly upon the
termination of the Agreement in the event this Agreement is terminated by
Parent or the Company as permitted by Section 8.2. Further, in the event the
stockholders of the Company do not approve the Merger and this Agreement is
terminated, the Company agrees to pay to Parent the Termination Fee if, after
the date hereof and before the termination of this Agreement or within six
months following the date of termination of this Agreement, a takeover proposal
shall have been made; provided that such takeover is ultimately consummated.
The Termination Fee shall be payable promptly upon termination of this
Agreement if the foregoing events shall have occurred prior to termination.
Otherwise, the Termination Fee shall be payable promptly upon the consummation
of such takeover following termination of this Agreement.
(b) In the event the Board of Directors of Parent
receives a takeover proposal involving Parent because of which, in the exercise
of its fiduciary obligations (as determined in good faith by a majority of the
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disinterested members thereof based on advice of outside counsel), it determines
it is necessary to withdraw or modify its approval or recommendation of this
Agreement or the Merger, Parent may terminate this Agreement at any time after
midnight on the next business day following such determination by advising the
Company that the Board of Directors has received a takeover proposal which it
has determined requires such action, specifying the material terms and
conditions of such proposal (including the proposed financing for such proposal
and a copy of any documents conveying such proposal) and identifying the person
making such proposal. Parent may terminate this Agreement pursuant to the
preceding sentence only if the stockholders of Parent shall not yet have voted
upon the Merger and Parent shall have paid to the Company the Parent Termination
Fee (as hereinafter defined). Parent agrees to pay the Company a fee in
immediately available funds of $2,000,000 (the "Parent Termination Fee")
promptly upon (i) the termination of this Agreement pursuant to the first
sentence of this Section 8.3(b) or (ii) the stockholders of Parent not approving
the Merger as a result of a hostile takeover of the Parent after the date of
this Agreement. For purposes hereof, a "takeover proposal involving Parent"
shall mean (i) any proposal for a merger or other business combination involving
the Parent, (ii) any proposal or offer to acquire from the Parent or any of its
affiliates in any manner, directly or indirectly, an equity interest in the
Parent or any subsidiary, any voting securities of the Parent or any subsidiary
or a material amount of the assets of the Parent and its subsidiaries taken as a
whole, or (iii) any proposal or offer to acquire from the stockholders of Parent
by tender offer, exchange offer or otherwise, more than 20% of the Parent
common stock.
(c) In the event this Agreement is terminated by Parent
or the Company pursuant to Sections 7.1(b)(i) or (d), the Company shall assume
and pay, or reimburse Parent for, all reasonable fees and expenses incurred by
Parent or Sub (including the fees and expenses of its counsel, accountants and
financial advisors) through the date of termination and which are specifically
related to the Merger, this Agreement and the matters contemplated by this
Agreement, but not to exceed $300,000 in the aggregate, promptly, but in no
event later than two business days after submission of a request for payment of
the same.
(d) In the event this Agreement is terminated by the
Company or Parent pursuant to Section 7.1(b)(ii) or (e), Parent shall assume
and pay, or reimburse the Company for, all reasonable fees and expenses
incurred by the Company (including the fees and expenses of its counsel,
accountants and financial advisors) through the date of termination and which
are specifically related to the Merger, this Agreement and the matters
contemplated by this Agreement, but not to exceed $300,000 in the aggregate,
promptly, but in no event later than two business days after the submission of
a request for payment of the same.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1. Nonsurvival of Representations and Warranties.
None of the representations, warranties, covenants or agreements in this
Agreement or in any instrument delivered by the Company pursuant to this
Agreement shall survive the Effective Time of the Merger, except any covenant or
agreement of the parties which by its terms contemplates performance after the
Effective Time of the Merger.
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SECTION 9.2. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or by facsimile or sent by overnight courier to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Sub, to
Daniel Industries, Inc.
9753 Pine Lake Drive
Houston, Texas 77055
Telephone: (713) 467-6000
Facsimile: (713) 827-4805
Confirmation: (713) 827-4870
Attention: W. A. Griffin, III
President and Chief Executive Officer
with a copy to:
Daniel Industries, Inc.
9753 Pine Lake Drive
Houston, Texas 77055
Telephone: (713) 467-6000
Facsimile: (713) 827-4805
Confirmation: (713) 827-4870
Attention: Thomas L. Sivak
General Counsel
with a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Telephone: (713) 651-5151
Facsimile: (713) 651-5246
Confirm: (713) 651-5496
Attention: Charles H. Still, Esq.
(b) if to the Company, to
Bettis Corporation
18703 GH Circle
P.O. Box 508
Waller, Texas 77484
Telephone: (713) 463-5100
Facsimile: (713) 463-5189
Confirm: (713) 463-5100
Attention: W. Todd Bratton
President and Chief Executive Officer
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with a copy to:
Vinson & Elkins L.L.P.
2500 First City Tower
1001 Fannin
Houston, Texas 77002-6760
Telephone: (713) 758-4592
Facsimile: (713) 615-5531
Confirm: (713) 758-4592
Attention: T. Mark Kelly, Esq.
SECTION 9.3. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person
that directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first person;
(b) "knowledge" means, with respect to any matter stated
herein to be "to the Company's knowledge," or similar language, the actual
knowledge of the Chairman of the Board, the Chief Executive Officer, President,
any Vice President or Chief Financial Officer of the Company, and with respect
to any matter stated herein to be "to Parent's knowledge," or similar language,
the actual knowledge of the Chairman of the Board, the Chief Executive Officer,
President, any Vice President, Chief Financial Officer or General Counsel of
Parent.
(c) "material adverse effect" or "material adverse
change" means, when used in connection with any person, any change or effect
(or any development that, insofar as can reasonably be foreseen, is likely to
result in any change or effect) that is materially adverse to the business,
properties, assets, condition (financial or otherwise) or results of operations
of that person and its subsidiaries, taken as a whole.
(d) "person" means an individual, corporation,
partnership, association, trust, unincorporated organization or other entity;
and
(e) a "subsidiary" of any person means any corporation,
partnership, association, joint venture, limited liability company or other
entity in which such person owns over 50% of the stock or other equity
interests, the holders of which are generally entitled to vote for the election
of directors or other governing body of such other legal entity.
SECTION 9.4. Interpretation. When a reference is made in
this Agreement to a Section, Exhibit or Schedule, such reference shall be to a
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
SECTION 9.5. Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties.
SECTION 9.6. Entire Agreement; No Third-Party Beneficiaries.
This Agreement (including the documents and instruments referred to herein) and
the Confidentiality Agreement (a) constitute the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof and (b) except for
the provisions of Sections 5.6 and 5.7, are not intended to confer upon any
person other than the parties any rights or remedies hereunder.
SECTION 9.7. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
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SECTION 9.8. Assignment. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties without the prior written consent of the other parties, except that Sub
may assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to Parent or to any direct or indirect
wholly-owned subsidiary of Parent, and such assignment shall relieve Sub of all
of its obligations hereunder. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 9.9. Enforcement of the Agreement. The parties agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States located in the State of Texas or in any other Texas state court,
this being in addition to any other remedy to which they are entitled at law or
in equity. In addition, each of the parties hereto (a) consents to submit
itself to the personal jurisdiction of any Federal or state court sitting in the
Southern District of Texas in the event any dispute between the parties hereto
arises out of this Agreement solely in connection with such a suit between the
parties, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and (c)
agrees that it will not bring any action relating to this Agreement in any court
other than a Federal or state court sitting in the State of Texas or in the
Southern District of Texas.
SECTION 9.10. Severability. In the event any one or more of
the provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions,
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
DANIEL INDUSTRIES, INC.
By /s/ James M. Tidwell
------------------------------------------
James M. Tidwell
Vice President - Finance
BLUE ACQUISITION, INC.
By /s/ James M. Tidwell
------------------------------------------
James M. Tidwell
Vice President
BETTIS CORPORATION
By /s/ W. Todd Bratton
-------------------------------------------
W. Todd Bratton
President
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<PAGE> 197
APPENDIX B
[SIMMONS LETTERHEAD]
November 6, 1996
Board of Directors
Daniel Industries, Inc.
9753 Pine Lake Drive
Houston, Texas 77055
Members of the Board:
You have requested the opinion of Simmons & Company International ("Simmons")
as investment bankers as to the fairness, from a financial point of view, to
the holders of shares of common stock, par value $1.25 per share (the "Daniel
Common Stock"), of Daniel Industries, Inc. ("Daniel") of the exchange ratio in
the proposed merger of a wholly owned subsidiary of Daniel with Bettis
Corporation ("Bettis"), pursuant to the Agreement and Plan of Merger (the
"Merger Agreement") dated September 17, 1996, among Daniel, such subsidiary and
Bettis (the "Proposed Merger").
As more specifically set forth in the Merger Agreement, in the Proposed Merger
each issued and outstanding share of common stock, $.01 par value, of Bettis
("Bettis Common Stock") will be converted into 0.58 (the "Exchange Ratio") of a
share of Daniel Common Stock.
Simmons, as a specialized energy-related investment banking firm, is
continuously engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, private placements of debt and
equity, and the management and underwriting of sales of equity and debt to the
public. Simmons has previously rendered investment banking services to Daniel
in connection with a number of transactions for which Simmons received
customary compensation. In addition, in the ordinary course of business,
Simmons may actively trade the securities of Daniel and Bettis for its own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
In connection with rendering its verbal advice and its subsequent written
opinion, Simmons reviewed and analyzed, among other things, the following: (i)
the Merger Agreement; (ii) the financial statements and other information
concerning Daniel, including the Annual Reports on Form 10-K for each of the
years in the three-year period ended September 30, 1995, the Quarterly Reports
on Form 10-Q of Daniel for the quarters ended December 31, 1995, March 31, 1996
and June 30, 1996 and the Current Report on Form 8-K of Daniel related to
events occurring on November 28, 1995; (iii) certain other internal
information, primarily financial in nature, concerning the business and
operations of Daniel furnished by Daniel for purposes of Simmons' analysis;
(iv) certain publicly available information concerning the trading of, and the
trading market for, Daniel Common Stock; (v) certain publicly available
information concerning Bettis, including the Annual Reports on Form 10-K of
Bettis for each of the fiscal years in the two-year period ended December 31,
1995, the Quarterly Reports on Form 10-Q of Bettis for the quarters ended March
31, 1996 and June 30, 1996, and the Current Reports on Form 8-K related to
events occurring on June 20, 1996, as amended, and July 9, 1996, as amended;
(vi) certain other internal information, primarily financial in nature,
concerning the business and operations of Bettis furnished by Bettis for
purposes of Simmons' analysis; (vii) certain publicly available information
concerning the trading of, and the trading market for, Bettis Common Stock;
(viii) certain publicly available information with respect to certain other
companies that Simmons believed to be comparable to Daniel or Bettis and the
trading markets for certain of such other companies' securities; (ix) certain
publicly available information concerning the estimates of the future operating
and financial performance of Daniel, Bettis and comparable companies prepared by
industry experts unaffiliated with either Daniel or Bettis; and (x) certain
publicly available information concerning the nature and terms of certain
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<PAGE> 198
other transactions considered relevant to the inquiry. Further, Simmons made
such other analyses and examinations as deemed necessary or appropriate.
Simmons also met with certain officers and employees of Daniel and Bettis to
discuss the foregoing, as well as other matters believed relevant to the
inquiry.
In arriving at its opinion, Simmons assumed and relied upon the accuracy and
completeness of all of the financial and other information provided by Daniel
and Bettis, or publicly available, and did not attempt independently to verify
any of such information. Based on the terms set forth in the Merger Agreement,
Simmons also assumed that the Proposed Merger would be treated for federal
income tax purposes as a reorganization within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended, and would be treated as a
"pooling of interests" for accounting purposes. Simmons did not conduct a
detailed physical inspection of any of the assets, properties or facilities of
Daniel or Bettis, nor did Simmons make or obtain any independent evaluations or
appraisals of any of such assets, properties or facilities.
In conducting its analysis and arriving at its opinion, Simmons considered such
financial and other factors as it deemed appropriate under the circumstances
including, among others, the following: (i) the historical and current
financial position and results of operations of Daniel and Bettis; (ii) the
business prospects of Daniel and Bettis; (iii) the historical and current
market for Daniel Common Stock, for Bettis Common Stock and for the equity
securities of certain other companies believed to be comparable to Daniel or
Bettis; (iv) the respective contributions in terms of various financial
measures of Daniel and Bettis to the combined company, and the relative pro
forma ownership of Daniel after the Proposed Merger by the current holders of
Daniel Common Stock and Bettis Common Stock; and (v) the nature and terms of
certain other acquisition transactions that Simmons believed to be relevant.
Simmons also took into account its assessment of general economic, market and
financial conditions and its experience in connection with similar transactions
and securities valuation generally. Simmons' opinion necessarily was based
upon conditions as they existed and could be evaluated on, and on the
information made available at, the dates of its verbal advice and written
opinion.
Simmons is acting as financial advisor to Daniel in this transaction and will
receive a customary fee for its services.
Based upon and subject to the foregoing, Simmons is of the opinion, as
investment bankers, that the Exchange Ratio in the Proposed Merger is fair to
the holders of Daniel Common Stock from a financial point of view.
Sincerely,
SIMMONS & COMPANY INTERNATIONAL
Ben A. Guill
Managing Director
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<PAGE> 199
APPENDIX C
[Jefferies Letterhead]
November 6, 1996
The Board of Directors
Bettis Corporation
18703 GH Circle
P.O. Box 508
Waller, Texas 77484
Members of the Board:
You have advised us that Bettis Corporation ("Bettis" or the "Company")
proposes to merge with Daniel Industries, Inc. ("Daniel") through a tax free
merger (the "Merger") of Bettis with a wholly-owned acquisition subsidiary of
Daniel. Following the Merger, Bettis will be a wholly-owned subsidiary of
Daniel. The Merger will be effected pursuant to an Agreement and Plan of
Merger dated September 17, 1996 (which, with the exhibits thereto, is defined
herein as the "Agreement") to which each of Bettis and Daniel (including its
acquisition subsidiary) is a party. You have requested our opinion as to the
fairness, from a financial point of view, to the holders of Bettis Common Stock
(as defined below), of the consideration to be received by such holders
pursuant to the Merger.
As more specifically set forth in the Agreement, and subject to the
terms and conditions thereof, upon consummation of the Merger, each outstanding
share of Bettis common stock, $0.01 par value ("Bettis Common Stock"), will be
converted into the right to receive 0.58 of a share (the "Exchange Ratio") of
Daniel common stock, $1.25 par value ("Daniel Common Stock"). We understand
that the Merger will be accounted for as a pooling-of-interests transaction in
accordance with generally accepted accounting principles as described in
Accounting Principles Board Opinion No. 16.
Jefferies & Company, Inc. ("Jefferies") will receive a fee of $125,000
from Bettis upon delivery of this opinion. Jefferies has acted as financial
advisor to Bettis in connection with the Merger and received a retainer fee of
$50,000 upon execution of an engagement letter. In addition, Jefferies will
receive a fee equal to 1% of the "aggregate consideration" (as defined in the
engagement letter) upon consummation of the Merger, with fees paid pursuant to
the retainer and the delivery of this opinion to be credited against such
amount. Jefferies has previously rendered certain investment banking and
financial advisory services to Bettis for which it has received customary
compensation. In addition, in the ordinary course of Jefferies' business, it
actively trades the securities of Bettis for its own account and for the
accounts of its customers, and, accordingly, may at any time hold a long or
short position in such securities. Jefferies has not rendered any investment
banking or financial advisory services to Daniel in this transaction.
In our review and analysis and in rendering our opinion, we have assumed
and relied upon the accuracy and completeness of all the financial and other
information provided to us by Bettis' and Daniel's management, or publicly
available, and have not assumed any responsibility for the independent
verification of such information. We have not conducted a physical inspection
of any of the properties or facilities of Bettis and Daniel, nor have we made
or considered any independent evaluations or appraisals of any of such
properties or facilities. The Exchange Ratio was based on negotiations between
Daniel and Bettis, and Jefferies did not assist in determining such Exchange
Ratio.
In conducting our analysis and rendering our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others,
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<PAGE> 200
the following: (i) the historical and current financial condition and results of
operations of Bettis and Daniel; (ii) certain non-public financial and
non-financial information prepared by the management of Bettis and Daniel, which
data was made available to us in our role as financial advisor to Bettis; (iii)
published information regarding the financial performance and operating
characteristics of a selected group of companies which we deemed comparable;
(iv) business prospects of Bettis when taking into consideration the impact of
the Merger; (v) the historical and current market price for Bettis Common Stock
and Daniel Common Stock and for the equity securities of certain other companies
with businesses that we consider relevant to our inquiry; (vi) publicly
available information, including research reports on companies we considered
relevant to our inquiry; (vii) the respective contributions in terms of various
financial measures of Bettis and Daniel to the combined company, and the
relative pro forma ownership of Daniel after the proposed Merger by the current
holders of Bettis Common Stock and Daniel Common Stock, and (viii) the nature
and terms of other recent acquisition transactions in the oil service industry.
We have also taken into account general economic, monetary, political, market
and other conditions as well as our experience in connection with similar
transactions and securities valuation generally. Our opinion is based upon all
of such conditions as they exist and can be evaluated on the date hereof.
Existing conditions are subject to rapid and unpredictable changes and such
changes would impact Jefferies' opinion. Our opinion does not constitute a
recommendation of the Merger over any alternative transactions which may be
available to Bettis and does not address Bettis' underlying business decision to
effect the Merger. Finally, we are not opining as to the market value of the
consideration to be received by Bettis or the prices at which any of the
securities of Daniel may trade following the consummation of the Merger.
Based upon and subject to the foregoing, and upon such other matters as
we consider relevant, we are of the opinion as investment bankers that the
consideration to be received by the holders of Bettis Common Stock pursuant to
the Merger is fair, from a financial point of view, to such holders.
It is understood and agreed that this opinion is provided solely for the
use of the Board of Directors of Bettis as one element in the Board's
consideration of the Merger and may not be used for any other purpose, or
otherwise referred to, relied upon or circulated without our prior written
consent. Without limiting the foregoing, this opinion does not constitute a
recommendation to any stockholder (or any other person) as to how such person
should vote with respect to the Merger.
Very truly yours,
Jefferies & Company, Inc.
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<PAGE> 201
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. Indemnification of Directors and Officers
The Certificate of Incorporation of Daniel Industries, Inc. (the
"Company") contains a provision that eliminates the personal liability of a
director to the Company and its stockholders for monetary damages for breach of
his fiduciary duty as a director, except liability (i) for any breach of the
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for payment of an improper dividend or improper
repurchase of the Company's stock under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. Except as set forth above, if a director were to
breach his fiduciary duty in performing his duties as a director, neither the
Company nor its stockholders could recover monetary damages from the director,
and the only course of action available to the Company's stockholders would be
equitable remedies, such as an action to enjoin or rescind a transaction
involving a breach of fiduciary duty. To the extent certain claims against
directors are limited to equitable remedies, the provision in the Company's
Certificate of Incorporation may reduce the likelihood of derivative litigation
and may discourage stockholders or management from initiating litigation
against directors for breach of their fiduciary duty. Additionally, equitable
remedies may not be effective in many situations. If a stockholder's only
remedy is to enjoin the completion of the Board of Directors' action, this
remedy may be ineffective if the stockholder does not become aware of a
transaction or event until after it has been completed. In such a situation,
it is possible that the stockholders and the Company would have no effective
remedy against the directors. The Company's Certificate of Incorporation
further provides that, if the Delaware General Corporation Law is amended to
allow the further elimination or limitation of the liability of directors, then
the liability of the Company's directors shall be limited or eliminated to the
fullest extent permitted by the amended Delaware General Corporation Law.
Article IX of the Company's By-laws provides that each person who is
or was a director or officer of the Company, or who serves or served any other
enterprise or organization as such at the request of the Company, shall be
indemnified by the Company to the fullest extent permitted by the Delaware
General Corporation Law.
Delaware corporations also are authorized to obtain insurance to
protect officers and directors from certain liabilities, including liabilities
against which the corporation cannot indemnify its directors and officers. The
Company currently has in effect a directors' and officers' liability insurance
policy, which provides coverage in the amount of $10,000,000, subject to a
maximum deductible of $200,000, per loss and excludes coverage for dishonest,
fraudulent or criminal acts and situations where the officer or director gained
a personal advantage or profit.
ITEM 21. Exhibits and Financial Statement Schedules
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger dated September 17, 1996, by and among the Company, Blue Acquisition Inc. and
Bettis Corporation (incorporated from Appendix A to Joint Proxy Statement/Prospectus included in this Form
S-4).
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 1, 1996.
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).
</TABLE>
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<PAGE> 202
<TABLE>
<S> <C>
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).
5.1 Opinion of Fulbright & Jaworski L.L.P., regarding legality of
securities.
*8.1 Opinion of Fulbright & Jaworski L.L.P., regarding certain tax matters.
*8.2 Opinion of Vinson & Elkins L.L.P., regarding certain tax matters.
23.1 Consent of Fulbright & Jaworski L.L.P. (included in Exhibits 5.1
and 8.1).
*23.2 Consent of Price Waterhouse LLP.
*23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Vinson & Elkins L.L.P. (included in Exhibit 8.2).
24.1 Powers of Attorney.
99.1 Proxy card for use at Special Meeting.
*99.2 Consent of Nathan M. Avery pursuant to Rule 438.
*99.3 Consent of Thomas J. Keefe pursuant to Rule 438.
</TABLE>
- --------------------
* Filed herewith.
ITEM 22. Undertakings
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended (the
"Securities Act"), each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to section 15(d) of
the Exchange Act) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
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<PAGE> 203
The undersigned registrant hereby undertakes that:
(1) Prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of
this registration statement, by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the
applicable form; and
(2) Every prospectus (i) that is filed pursuant to paragraph
(1) immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act, and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE> 204
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Amendment No. 1 to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on November 5, 1996.
DANIEL INDUSTRIES, INC.
By /s/ W. A. GRIFFIN, III
-------------------------------------
W. A. Griffin, III
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No.
1 to Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C> <C>
/s/ W. A. GRIFFIN, III President, Chief Executive Officer and November 5, 1996
- ------------------------------------- Director (Principal Executive Officer)
W. A. Griffin, III
/s/ JAMES M. TIDWELL Vice President, Finance and Chief Financial November 5, 1996
- ------------------------------------- Officer (Principal Financial Officer)
James M. Tidwell
/s/ MARY R. BESHEARS Controller (Principal Accounting Officer) November 5, 1996
- -------------------------------------
Mary R. Beshears
* Director November 5, 1996
- -------------------------------------
Ralph F. Cox
* Director November 5, 1996
- -------------------------------------
Ralph H. Clemons, Jr.
* Director November 5, 1996
- -------------------------------------
Gibson Gayle, Jr.
* Chairman Emeritus and a Director November 5, 1996
- -------------------------------------
W. A. Griffin
* Chairman of the Board November 5, 1996
- -------------------------------------
Ronald C. Lassiter
* Director November 5, 1996
- -------------------------------------
Leo E. Linbeck, Jr.
* Director November 5, 1996
- -------------------------------------
Brian E. O'Neill
* Director November 5, 1996
- -------------------------------------
Richard L. O'Shields
* /s/ JAMES M. TIDWELL
- -------------------------------------
James M. Tidwell
as attorney-in-fact
</TABLE>
II-4
<PAGE> 205
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated September 17, 1996, by and
among the Company, Blue Acquisition Inc. and Bettis
Corporation (incorporated from Appendix A to Joint Proxy
Statement/Prospectus included in this Form S-4)
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 1, 1996.
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).
5.1 Opinion of Fulbright & Jaworski L.L.P., regarding legality of
securities.
*8.1 Opinion of Fulbright & Jaworski L.L.P., regarding certain tax
matters.
*8.2 Opinion of Vinson & Elkins L.L.P. regarding certain tax matters.
23.1 Consent of Fulbright & Jaworski L.L.P. (included in Exhibits
5.1 and 8.1).
*23.2 Consent of Price Waterhouse LLP.
*23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Vinson & Elkins L.L.P. (included in Exhibit 8.1).
24.1 Powers of Attorney.
99.1 Proxy card for use at Special Meeting.
*99.2 Consent of Nathan M. Avery pursuant to Rule 438.
*99.3 Consent of Thomas J. Keefe pursuant to Rule 438.
</TABLE>
- ------------------------
* Filed herewith.
<PAGE> 1
BY-LAWS
OF
DANIEL INDUSTRIES, INC.
(as amended through February 1, 1996)
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.
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<PAGE> 2
SECTION 1.4. NOTICE OF MEETINGS. Written notice of each meeting of
stockholders, stating 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
2
<PAGE> 3
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 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
3
<PAGE> 4
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
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
4
<PAGE> 5
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 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.
5
<PAGE> 6
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.
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 and/or advisory directors of the corporation. The Board of Directors
may designate one or more directors and/or advisory 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,
6
<PAGE> 7
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 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.
7
<PAGE> 8
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 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
8
<PAGE> 9
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.
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
9
<PAGE> 10
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 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
10
<PAGE> 11
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 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.
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<PAGE> 12
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 such other authority and perform such
other duties as may be determined from time to time
12
<PAGE> 13
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
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<PAGE> 14
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 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
14
<PAGE> 15
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.
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
15
<PAGE> 16
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
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
16
<PAGE> 17
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 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
17
<PAGE> 18
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 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.
18
<PAGE> 19
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.
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".
19
<PAGE> 1
EXHIBIT 8.1
[FULBRIGHT & JAWORSKI L.L.P. LETTERHEAD]
November 5, 1996
Daniel Industries, Inc.
9753 Pine Lake Drive
Houston, Texas 77055
Gentlemen:
You have requested our opinion concerning certain federal income
tax consequences of the proposed statutory merger (the "Merger") of Blue
Acquisition, Inc., a Delaware corporation ("Sub") and wholly-owned subsidiary
of Daniel Industries, Inc., a Delaware corporation ("Parent"), with and into
Bettis Corporation, a Delaware corporation ("Company"). Descriptions of the
parties and of the Merger and related transactions are set forth in the
Agreement and Plan of Merger, dated as of September 17, 1996 (the "Agreement"),
entered into by Company, Sub, and Parent. Company and Parent have represented
to us that the information contained in the Agreement is accurate and complete
in all material respects as of its execution date. Also, we assume such
information will be accurate and complete in all respects material hereto as of
the effective time of the Merger.
BACKGROUND
In connection with this opinion we have reviewed the Agreement,
and Company and Parent have represented to us that the Merger and related
transactions will be carried out in accordance with the terms of the Agreement.
SUMMARY OF TRANSACTIONS
Pursuant to the Agreement, at the effective time Sub will be
merged with and into Company pursuant to the provisions of and with the effect
provided in the Delaware General Corporation Law. Company will be the
surviving corporation resulting from the Merger. In the Merger, the Company
will succeed to all of the assets of Sub.
At the effective time of the Merger, the issued and outstanding
capital stock of Company will consist solely of shares of common stock, $.01
par value. In the Merger, each share of Company common stock, $.01 par value,
including the related right to purchase one one-thousandth of a share of Series
A Junior Participating Preferred Stock, $.01 par value, of the Company
(collectively, the "Company Stock") not
<PAGE> 2
November 5, 1996
Page 2
owned by Company, Parent, Sub or any wholly-owned subsidiary of Company, Parent
or Sub, will be converted into fifty-eight one-hundredths (.58) of a share of
voting common stock, $1.25 par value, including the related right to purchase
one one-hundredth interest in a share of Series A Junior Participating
Preferred Stock, $1.00 par value, of Parent (collectively, the "Parent Stock")
as provided in the Agreement.
Under the Agreement, cash will be paid in lieu of any fractional
shares of Parent Stock. Apart from the cash paid in lieu of fractional shares,
the consideration paid to Company shareholders for their Company Stock will
consist solely of Parent Stock.
The Agreement provides that the parties intend the Merger to
constitute a reorganization, within the meaning of section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"). Further, Company and
Parent have made certain representations to us in certificates dated the same
date as this opinion. Copies of those certificates are attached hereto as
Exhibit A.
Based upon the foregoing and such legal considerations as we deem
relevant, it is our opinion that for federal income tax purposes:
1. The Merger will constitute a reorganization under section
368(a) of the Code.
2. No gain or loss will be recognized by Company, Sub, or
Parent as a result of the Merger.
MISCELLANEOUS
This opinion is based on statutes, regulations promulgated
thereunder, and governmental rulings and court decisions published to date, all
of which are subject to change by the Congress, governmental agencies, and the
courts. Our opinion does not address all tax consequences applicable to the
Merger and is limited to the conclusions set forth above, and no other opinions
are expressed or implied. Further, our opinion is limited to the federal
income tax consequences of the transactions described herein. Thus, for
example, no opinion is expressed concerning any state, local, or foreign tax
consequences of such transactions.
The parties have not requested or received any advance ruling from
the Internal Revenue Service (the "Service") pertaining to the transactions
described herein. Our opinion is not binding upon the Service or any court.
Accordingly, the Service may challenge some or all of the conclusions set forth
above in an audit of a Company shareholder or of one or more of the parties to
the Merger. If such challenge occurs, it may be necessary to resort to
administrative proceedings or litigation in an effort to
<PAGE> 3
November 5, 1996
Page 3
sustain such conclusions, and there can be no assurance that such conclusions
ultimately will be sustained.
The opinions set forth above are based in part upon facts and
representations concerning the transactions contained in the Agreement and upon
the additional representations set forth in the certificates of Company and
Parent, copies of which are attached hereto as Exhibit A. We have not made an
independent investigation to determine the accuracy or completeness of such
facts and representations, and our opinion is conditioned on the accuracy and
completeness of such facts and representations and upon the assumption that
they will be accurate and complete as of the effective time of the Merger.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement on Form S-4 (Registration No. 333-14635) filed with
the Securities and Exchange Commission, and to the reference to us under the
captions "The Merger -- Certain U.S. Federal Income Tax Consequences" and
"Legal Matters" in the Joint Proxy Statement/Prospectus forming a part of the
Registration Statement. In giving this consent, however, we do not hereby
admit that we are within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
This opinion is given to you by us solely for your use and is not
to be quoted or otherwise referred to or furnished to any governmental agency
(other than the Securities and Exchange Commission as an exhibit to the
Registration Statement or to the Service in connection with an examination of
the transactions contemplated by the Agreement) or to other persons without our
prior written consent.
Very truly yours,
Fulbright & Jaworski L.L.P.
Attachments
<PAGE> 4
DANIEL INDUSTRIES, INC.
OFFICER'S CERTIFICATE
The undersigned, a duly authorized officer of Daniel Industries, Inc.,
a Delaware corporation ("PARENT"), and acting as such, in connection with the
opinions to be delivered by the law firms of Fulbright & Jaworski L.L.P. and
Vinson & Elkins L.L.P. with respect to the Agreement and Plan of Merger dated
as of September 17, 1996 (the "AGREEMENT"), between Parent, Blue Acquisition,
Inc., a Delaware corporation and a wholly-owned subsidiary of Parent ("SUB"),
and Bettis Corporation, a Delaware corporation ("COMPANY"), and recognizing
that said law firms will rely on this Certificate in delivering their
respective opinions, hereby certifies as follows:
1. The fair market value of the Parent stock and other
consideration to be received by the Company's shareholders will be
approximately equal to the fair market value of Company stock surrendered by
such shareholders in exchange therefor.
2. Prior to the Merger, Parent will be in control of Sub within
the meaning of section 368(c) of the Internal Revenue Code of 1986, as amended
(the "CODE").
3. Following the Merger, Company will hold at least 90 percent of
the fair market value of its net assets and at least 70 percent of the fair
market value of its gross assets and at least 90 percent of the fair market
value of Sub's net assets and at least 70 percent of the fair market value of
Sub's gross assets held immediately
-1-
<PAGE> 5
prior to the Merger, taking into account amounts used to pay merger expenses,
and any distributions other than regular dividends.
4. Parent has no plan or intention to (i) liquidate Company, (ii)
merge Company with and into another corporation, (iii) sell or otherwise
dispose of the stock of Company except for transfers of stock to corporations
controlled (within the meaning of section 368(c) of the Code) by Parent, (iv)
cause or permit Company to issue additional shares of its capital stock that
would result in Parent losing control (within the meaning of section 368(c) of
the Code) of Company, (v) cause or permit Company to sell or otherwise dispose
of any of its assets or any of the assets acquired from Sub, except for
dispositions made in the ordinary course of business or transfers of assets to
a corporation controlled by Company, or (vi) reacquire any of Parent stock
issued to the holders of Company stock pursuant to the Merger.
5. Sub will have no liabilities assumed by Company, and will not
transfer to Company any assets subject to liabilities, in the Merger.
6. Following the Merger, Company will continue its historic
business or use a significant portion of its historic business assets in a
business.
7. Parent and Sub will each pay their respective expenses, if
any, incurred in connection with the Merger.
8. There is no intercorporate indebtedness existing between
Parent and Company or between Sub and Company that was issued or acquired or
will be settled at a discount.
9. Parent does not own and has not owned during the past five
years, any shares of the capital stock of Company.
-2-
<PAGE> 6
10. Parent is not an investment company as defined in section
368(a)(2)(F)(iii) and (iv) of the Code.
11. None of the compensation to be received by any
shareholder-employee of Company will be separate consideration for, or
allocable to, any of his or her shares of Company stock; none of the shares of
Parent stock to be received by any shareholder-employee will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employee will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services.
12. The payment of cash in lieu of fractional shares of Parent
stock is solely for the purpose of avoiding the expense and inconvenience to
Parent of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be paid
instead of issuing fractional shares of Parent stock will not exceed one
percent of the total consideration that will be issued pursuant to the Merger
to the Company shareholders in exchange for their Company stock. The
fractional share interests will be aggregated, and no Company shareholder will
receive cash in an amount greater than the value of one full share of Parent
stock.
13. The Merger and related transactions will be carried out in
accordance with the terms of the Agreement, including attachments thereto.
14. Parent is authorized to make all of the representations made
by it and set forth herein.
-3-
<PAGE> 7
We understand that (i) you will rely upon the above representations by
us in connection with issuing your opinion, (ii) the representations in this
Certificate are made as of the date hereof and as of the effective date of the
Merger, and (iii) you may disclose these representations in connection with
issuing your opinion.
Dated: November 1, 1996.
DANIEL INDUSTRIES, INC.
By James M. Tidwell
---------------------------------
Its Vice President, Finance
-4-
<PAGE> 8
BETTIS CORPORATION
OFFICER'S CERTIFICATE
The undersigned, a duly authorized officer of Bettis Corporation, a
Delaware corporation ("COMPANY"), and acting as such, in connection with the
opinions to be delivered by the law firms of Fulbright & Jaworski L.L.P. and
Vinson & Elkins L.L.P. with respect to the Agreement and Plan of Merger dated
as of September 17, 1996 (the "AGREEMENT"), between Daniel Industries, Inc., a
Delaware corporation ("PARENT"), Blue Acquisition, Inc., a Delaware corporation
and a wholly-owned subsidiary of Parent ("SUB"), and Company, and recognizing
that said law firms will rely on this Certificate in delivering their
respective opinions, hereby certifies as follows:
1. The fair market value of the Parent stock and other
consideration to be received by the Company's shareholders will be
approximately equal to the fair market value of Company stock to be surrendered
by such shareholders in exchange therefor.
2. After discussions with shareholders of the Company (including
shareholders who own five percent or more of the Company common stock)
management of the Company knows of no plan or intention, and to the best
knowledge of such management, there is no plan or intention by any shareholder
of Company who owns five percent or more of the Company common stock, or on the
part of the remaining shareholders of Company, to sell, exchange, or otherwise
dispose of a number of shares of Parent stock to be received in the Merger that
would reduce the Company's shareholders' ownership of Parent stock to a number
of shares having a value, as of the date of the Merger, of less than 50 percent
of the value of all of the Company stock (including shares of Company stock
exchanged for cash in lieu of fractional shares of Parent stock) outstanding
immediately prior to the date of the Merger. Shares of Company stock and
shares of Parent stock held by Company shareholders and
-1-
<PAGE> 9
otherwise sold, redeemed, or disposed of prior or subsequent to the Merger have
been considered in making this certification.
3. Company and the shareholders of Company will each pay their
respective expenses, if any, incurred in connection with the Merger.
4. There is no intercorporate indebtedness existing between
Parent and Company or between Sub and Company that was issued, acquired, or
will be settled at a discount.
5. In the Merger, shares of Company stock representing control of
Company, as defined in section 368(c) of the Internal Revenue Code of 1986, as
amended (the "CODE"), will be exchanged solely for voting stock of Parent. For
purposes of this representation, shares of Company stock exchanged for cash or
other property originating with Parent will be treated as outstanding Company
stock on the date of the Merger.
6. At the time of the Merger, Company will not have outstanding
any warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in Company that, if exercised
or converted, would affect Parent's acquisition or retention of control of
Company, as defined in section 368(c) of the Code.
7. Company is not an investment company as defined in section
368(a)(2)(F)(iii) and (iv) of the Code.
8. On the date of the Merger, the fair market value of the assets
of Company will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
9. Company is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of section 368(a)(3)(A) of the Code. That
is, Company is not
-2-
<PAGE> 10
a party to a case under Title 11 of the United States Code or to a
receivership, foreclosure or similar proceeding in a federal or state court.
10. Company will file its federal income tax returns in a manner
which treats the Merger as a reorganization under section 368(a) of the Code.
11. The Merger and related transactions will be carried out in
accordance with the terms of the Agreement, including attachments thereto.
12. The Company is not, on the date of the Merger, and was not,
during the five-year period ending on the date of the Merger, a United States
real property holding corporation, within the meaning of section 897(c)(2) of
the Code (a "USRPHC") or, if the Company is or was a USRPHC, no foreign
shareholder of the Company exchanging stock of the Company for stock of the
Parent pursuant to the Merger held directly or indirectly at any time during
the five-year period ending on the date of the exchange, more than five percent
of the Company stock. For this purpose, a foreign shareholder of the Company
is any shareholder of the Company that is not a citizen or resident of the
United States or a domestic corporation, domestic partnership or domestic
estate or trust, within the meaning of section 7701(a)(30) of the Code.
13. The Company has not transferred any asset to its shareholders
in anticipation of the Merger.
14. The Company is authorized to make all of the representations
made by it and set forth herein.
We understand that (i) you will rely upon the above representations by
us in connection with issuing your opinion, (ii) the representations in this
Certificate are
-3-
<PAGE> 11
made as of the date hereof and as of the effective date of the Merger, and
(iii) you may disclose these representations in connection with issuing your
opinion.
Dated: November 4, 1996.
BETTIS CORPORATION
By W. Todd Bratton
---------------------------------
Its President
-4-
<PAGE> 1
[VINSON & ELKINS LETTERHEAD]
November 4, 1996
Bettis Corporation
18703 GH Circle
Waller, Texas 77484
Gentlemen:
You have requested our opinion with respect to certain federal income
tax consequences under the Internal Revenue Code of 1986, as amended (the
"Code") of the merger of Blue Acquisition Inc. ("Acquisition"), a wholly-owned
subsidiary of Daniel Industries, Inc. ("Parent") with and into Bettis
Corporation (the "Company") as hereinafter described (the "Merger"). Our
opinion is based upon the Agreement and Plan of Merger dated as of September
17, 1996, by and among the Company, Parent, and Acquisition (the "Merger
Agreement") and the facts set forth in the Registration Statement on Form S-4
filed by Parent with the Securities and Exchange Commission on October 22,
1996, and all amendments thereto (the "Registration Statement").(1) In
addition, in connection with this opinion, the Company and Parent have executed
Officer's Certificates setting forth representations regarding certain facts.
Our opinion is based upon the initial accuracy of those representations and
upon the accuracy of those representations at the Effective Time.
FACTS
THE COMPANY
The Company is a Delaware corporation with its principal office at
18703 GH-Circle, Waller, Texas, 77484. The Company maintains its books and
records on an accrual basis of accounting and its taxable year ends on December
31. The Company manufactures pneumatic, hydraulic and electric valve actuators
and control systems used world-wide for the automation of valves in numerous
energy and industrial markets.
The Company's authorized capital stock consists of (i) 30,000,000
shares of $.01 par value voting common stock ("Company Common Stock") of which
8,483,435 were issued and outstanding
- ------------------------
(1) Capitalized terms used but not defined herein have the meanings ascribed
to them in the Merger Agreement.
<PAGE> 2
Bettis Corporation
Page 2
November 4, 1996
as of August 31, 1996, and (ii) 1,000,000 shares of preferred stock, par value
$0.01 per share, of which no shares are issued and outstanding.
The Company Common Stock is traded on the New York Stock Exchange.
PARENT
Parent is a Delaware corporation with its principal office at 9753
Pine Lake Drive, Houston, Texas 77056. Parent maintains its books on an
accrual method of accounting and has a fiscal year that ends on September 30.
Parent is engaged in providing products and systems used primarily by
producers, refiners and transporters of oil and natural gas.
Parent's authorized capital stock consists of (i) 20,000,000 shares of
common stock, par value $1.25 per share ("Parent Common Stock"), of which
12,136,813 shares were issued and outstanding as of August 31, 1996, and (ii)
1,000,000 shares of preferred stock, $1.00 par value per share, none of which
are issued and outstanding.
Parent Common Stock is traded on the New York Stock Exchange.
ACQUISITION
Acquisition is a Delaware corporation and a wholly-owned subsidiary of
Parent. Except for obligations incurred in connection with its incorporation
or organization or the negotiation and consummation of the Merger Agreement and
the transactions contemplated by the Merger Agreement, Acquisition has neither
incurred any obligation or liability nor engaged in any business or activity.
THE MERGER
The Merger Agreement provides for the merger of Acquisition with and
into the Company in accordance with the Delaware General Corporation Law. As a
result of the Merger, the separate existence of Acquisition shall cease and the
Company, as the Surviving Corporation in the Merger, shall be a wholly-owned
subsidiary of Parent, shall continue its corporate existence under the laws of
the State of Delaware, and shall succeed to all of the properties, rights,
debts and liabilities of the Company and Acquisition.
At the Effective Time, each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares held in
the Company's treasury or by any of the Company's subsidiaries and shares held
by Parent, Acquisition or any other subsidiary of Parent, which shares shall be
canceled) shall, by virtue of the Merger and without any action on the part of
Acquisition, the Company or the holder thereof, be converted into and shall
become .58 of a fully paid and nonassessable share of Parent Common Stock.
<PAGE> 3
Bettis Corporation
Page 3
November 4, 1996
No fractional shares of Parent Common Stock shall be issued in the
Merger, but in lieu thereof, each holder of shares of Company Common Stock
otherwise entitled to a fraction of a share of Parent Common Stock shall be
entitled to receive an amount of cash (without interest) determined by
multiplying the average closing price for Parent Common Stock as reported on
the New York Stock Exchange Composite Transactions for the ten business trading
days next preceding the Effective Time by the fractional share interest to
which such holder would otherwise be entitled.
Holders of shares of Company Common Stock and holders of shares of
Parent Common Stock are not entitled to dissenters' appraisal rights.
At the Effective Time, each outstanding share of common stock of
Acquisition shall be converted into one share of common stock of the Surviving
Corporation.
BUSINESS PURPOSE
The Board of Directors of the Company has concluded that the Merger is
in the best interest of the Company and its stockholders. In reaching this
conclusion, the Board of Directors considered, among other factors, (i) the
projected financial performance of the combined entity, (ii) the projected
market capitalization and trading multiples of the combined entity, (iii) the
recent and prior market prices of the Company Common Stock and the Parent
Common Stock, (iv) the increased financial flexibility expected to result from
the Merger, (v) increased liquidity for the Company shareholders, and (vi) the
financial analysis and opinion of Jefferies & Company, Inc. The Company Board
of Directors believes that the Merger is an opportunity for the Company
stockholders to participate in a combined enterprise that has significantly
greater business and financial resources the Company would have absent the
Merger and to receive a premium for their Company Common Stock based on recent
market prices.
STATEMENT OF AUTHORITIES
Section 368(a)(1)(A) of the Code defines a "reorganization" to include
a statutory merger or consolidation. Section 368(a)(2)(E) provides that a
transaction otherwise qualifying under section 368(a)(1)(A) shall not be
disqualified by reason of the fact that stock of a corporation (referred to as
the "controlling corporation") which before the merger was in control of the
merged corporation is used in the transaction, if (i) after the transaction,
the corporation surviving the merger holds substantially all of its properties
and of the properties of the merged corporation (other than stock of the
controlling corporation distributed in the transaction), and (ii) in the
transaction, former shareholders of the surviving corporation exchanged, for an
amount of voting stock of the controlling corporation, an amount of stock in
the surviving corporation which constitutes control of such corporation.
Section 368(b) of the Code provides that the term "a party to a
reorganization" includes both corporations, in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another, and that in the case of a reorganization qualifying under section
368(a)(1)(A) by reason of section 368(a)(2)(E), also includes the controlling
corporation referred
<PAGE> 4
Bettis Corporation
Page 4
November 4, 1996
to in section 368(a)(2)(E). Section 368(c) provides that the term "control"
means the ownership of stock possessing at least 80 percent of the total
combined voting power of all classes of stock entitled to vote and at least 80
percent of the total number of shares of all other classes of stock of the
corporation.
Section 368(a)(2)(F) of the Code provides generally that if two or
more parties to a transaction described in section 368(a)(1) were investment
companies (as defined in section 368(a)(2)(F)(iii) and (iv)) immediately before
the transaction, then the transaction shall not be considered to be a
reorganization with respect to any such investment company (and its
shareholders). Section 368(a)(3) provides additional rules with respect to the
reorganization of a corporation in a title 11 or similar case.
Section 354(a)(1) of the Code provides that no gain or loss shall be
recognized if stock or securities in a corporation a party to a reorganization
are, in pursuance of the plan of reorganization, exchanged solely for stock or
securities in such corporation or in another corporation a party to the
reorganization.
Treas. Reg. Section 1.368-1(b) provides that requisite to a
reorganization under the Code are a continuity of the business enterprise under
the modified corporate form and a continuity of interest therein on the part of
those persons who, directly or indirectly, were the owners of the enterprise
prior to the reorganization.
Treas. Reg. Section 1.368-1(d) provides that the continuity of
business enterprise is satisfied if the acquiring corporation either (i)
continues the historic business of the acquired corporation or (ii) uses a
significant portion of the acquired corporation's historic business assets in a
business.
In Revenue Procedure 77-37, 1977-2 C.B. 568, the Internal Revenue
Service published operating rules used in considering requests for rulings
involving corporate reorganizations. Section 3.02 of Revenue Procedure 77-37
provides that the "continuity of interest" requirement of Treas. Reg. Section
1.368-1(b) is satisfied if there is continuing interest through stock ownership
in the acquiring corporation (or a corporation in control thereof) on the part
of the former shareholders of the acquired corporation which is equal in value,
as of the effective date of the reorganization, to at least 50% of the value of
all of the formerly outstanding stock of the acquired corporation as of the
same date. Sales, redemptions, and other dispositions of stock occurring prior
or subsequent to the reorganization will be considered in determining whether
there is a 50 percent continuing interest through stock ownership as of the
effective date of the reorganization. Revenue Procedure 77-37, by its terms,
does not define, as a matter of law, the lower limits of continuity of
interest. See, e.g., John A. Nelson Co. v. Helvering, 296 U.S. 374 (1935);
Helvering v. Minnesota Tea Co., 296 U.S. 378 (1935); Miller v. Commissioner,
84 F.2d 415 (6th Cir. 1936); and United States v. Adkins-Phelps, Inc., 400
F.2d 737 (8th Cir. 1968).
In Revenue Procedure 86-42, 1986-2 C.B. 722, the Internal Revenue
Service set forth standard representations to be submitted as a prerequisite to
the issuance of rulings on the tax
<PAGE> 5
Bettis Corporation
Page 5
November 4, 1996
consequences of a reorganization described in section 368(a)(1)(A) and section
368(a)(2)(E) of the Code, which to the extent relevant are substantially the
same as the representations set forth in the Parent and Company Officer's
Certificates. In Revenue Procedure 90-56, 1990-2 C.B. 639, the Internal
Revenue Service stated that it will no longer issue advance rulings on whether
a transaction constitutes a corporate reorganization within the meaning of
section 368(a)(1)(A) of the Code, but did not revoke Revenue Procedure 86-42.
CONCLUSIONS
Based upon the facts as summarized above and the representations set
forth in the Officer's Certificates of the Company and the Parent and the
authorities and ruling policies of the Internal Revenue Service discussed above
as applied to those facts and representations, and conditioned upon our
understanding that the transactions contemplated by the Merger Agreement will
be carried out strictly in accordance with the terms of the Merger Agreement,
it is our opinion that:
(i) the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of section 368(a) of
the Code;
(ii) each of Parent, Acquisition and the Company will be a
party to the reorganization within the meaning of section 368(b) of
the Code; and
(iii) no gain or loss for Federal income tax purposes will
be recognized by a shareholder of the Company as a result of the
Merger with respect to shares of Company Common Stock converted into
shares of Parent Common Stock (except to the extent of cash received
in lieu of fractional shares of Parent Common Stock).
We express no opinion as to the tax treatment of the Merger under the
provisions of any other sections of the Code which also may be applicable
thereto or to the tax treatment of any conditions existing at the time of, or
effects resulting from, the transactions which are not specifically addressed
in the foregoing opinion.
This opinion is given to you by us solely for your use and is not to
be quoted or otherwise referred to or furnished to any governmental agency
(other than to the Securities and Exchange Commission as an exhibit to the
Registration Statement or to the Internal Revenue Service in connection with an
examination of the transactions contemplated by the Merger Agreement) or to
other persons without our prior written consent.
Very truly yours,
VINSON & ELKINS L.L.P
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Amendment No. 1 to Registration Statement on Form S-4
of Daniel Industries, Inc. of our report dated November 21, 1995 appearing on
page 18 of Daniel Industries, Inc.'s Annual Report on Form 10-K for the year
ended September 30, 1995. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Houston, Texas
November 6, 1996
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EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
related to the merger of Daniel Industries, Inc. and Bettis Corporation of (i)
our report dated February 26, 1996, on our audits of the consolidated financial
statements and financial statement schedule of Bettis Corporation at December
31, 1995 and 1994 and for each of the three years in the period ended December
31, 1995 (ii) our report dated September 3, 1996, on our audits of the combined
financial statements of Prime Actuator Control Systems Limited and Prime
Actuator Control Systems, Inc. at July 31, 1995 and 1994 and for the years then
ended and (iii) our report dated September 20, 1996, on our audits of the
consolidated financial statements of Shafer Valve Company at October 31, 1995
and 1994, and for each of the three years in the period ended October 31, 1995.
We also consent to the references to our firm under the caption "Experts".
COOPERS & LYBRAND L.L.P.
Houston, Texas
November 6, 1996
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EXHIBIT 99.2
CONSENT
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, the undersigned hereby consents to being named in the Registration
Statement on Form S-4 (Registration No. 333-14635) of Daniel Industries, Inc.
(the "Company") as a person that is about to become a director of the Company.
Nathan M. Avery
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EXHIBIT 99.3
CONSENT
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, the undersigned hereby consents to being named in the Registration
Statement on Form S-4 (Registration No. 333-14635) of Daniel Industries, Inc.
(the "Company") as a person that is about to become a director of the Company.
/s/ THOMAS J. KEEFE
-------------------------------
Thomas J. Keefe
