1 EXHIBIT 4.7 DANIEL INDUSTRIES, INC. 1997 STOCK OPTION PLAN 2 DANIEL INDUSTRIES, INC. 1997 STOCK OPTION PLAN TABLE OF CONTENTS Section ARTICLE I - PLAN Purpose................................................................................................1.1 Effective Date of Plan.................................................................................1.2 ARTICLE II - DEFINITIONS Affiliate..............................................................................................2.1 Board of Directors.....................................................................................2.2 Code...................................................................................................2.3 Committee..............................................................................................2.4 Company................................................................................................2.5 Employee...............................................................................................2.6 Fair Market Value......................................................................................2.7 Incentive Option.......................................................................................2.8 Non-Employee Director..................................................................................2.9 Nonqualified Option...................................................................................2.10 Option................................................................................................2.11 Option Agreement......................................................................................2.12 Optionee..............................................................................................2.13 Outside Director......................................................................................2.14 Plan..................................................................................................2.15 Stock.................................................................................................2.16 10% Stockholder.......................................................................................2.17 ARTICLE III - ELIGIBILITY ARTICLE IV - GENERAL PROVISIONS RELATING TO OPTIONS Authority to Grant Options ............................................................................4.1 Dedicated Shares.......................................................................................4.2 Non-Transferability....................................................................................4.3 Requirements of Law....................................................................................4.4 Changes in the Company's Capital Structure.............................................................4.5 ARTICLE V - OPTIONS Type of Option.........................................................................................5.1 Option Price...........................................................................................5.2 3 Duration of Options....................................................................................5.3 Amount Exercisable.....................................................................................5.4 Exercise of Options....................................................................................5.5 Substitution Options...................................................................................5.6 No Rights as Stockholder...............................................................................5.7 ARTICLE VI - ADMINISTRATION ARTICLE VII - AMENDMENT OR TERMINATION OF PLAN ARTICLE VIII - MISCELLANEOUS No Employment Obligation...............................................................................8.1 Tax Withholding........................................................................................8.2 Written Agreement......................................................................................8.3 Indemnification of the Committee and the Board of Directors............................................8.4 Gender.................................................................................................8.5 Headings...............................................................................................8.6 Other Compensation Plans...............................................................................8.7 Other Options..........................................................................................8.8 Arbitration of Disputes................................................................................8.9 Governing Law.........................................................................................8.10 4 ARTICLE I PLAN I.1 PURPOSE. This Plan is a plan for employees, consultants and advisors of the Company and its Affiliates and is intended to advance the best interests of the Company, its Affiliates, and its stockholders by providing those persons who have substantial responsibility for the management and growth of the Company and its Affiliates with additional incentives and an opportunity to obtain or increase their proprietary interest in the Company, thereby encouraging them to continue in the employ of the Company or any of its Affiliates. I.2 EFFECTIVE DATE OF PLAN. This Plan is effective June 17, 1997, if within one year of that date it shall have been approved by at least a majority vote of stockholders voting in person or by proxy at a duly held stockholders' meeting, or if the provisions of the corporate charter, by-laws or applicable state law prescribe a greater degree of stockholder approval for this action, the approval by the holders of that percentage, at a duly held meeting of stockholders. No Option shall be granted pursuant to this Plan after June 16, 2007. I-1 5 ARTICLE II DEFINITIONS The words and phrases defined in this Article shall have the meaning set out in these definitions throughout this Plan, unless the context in which any such word or phrase appears reasonably requires a broader, narrower, or different meaning. II.1 "AFFILIATE" means any parent corporation and any subsidiary corporation. The term "parent corporation" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if, at the time of the action or transaction, each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. The term "subsidiary corporation" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of the granting of the Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. II.2 "BOARD OF DIRECTORS" means the board of directors of the Company. II.3 "CODE" means the Internal Revenue Code of 1986, as amended. II.4 "COMMITTEE" means the committee designated by the Board of Directors. The Committee shall be comprised solely of at least two members who are both Outside Directors and Non-Employee Directors. II.5 "COMPANY" means Daniel Industries, Inc., a Delaware corporation. II.6 "EMPLOYEE" means a person employed by the Company or any Affiliate. II.7 "FAIR MARKET VALUE" of the Stock as of any date means (a) the average of the high and low sale prices of the Stock on that date (or, if there was no sale on such date, the next preceding date on which there was such a sale) on the principal securities exchange on which the Stock is listed; or (b) if the Stock is not listed on a securities exchange, an amount as determined by the Committee in its sole discretion. II.8 "INCENTIVE OPTION" means an Option granted under this Plan which is designated as an "Incentive Option" and satisfies the requirements of section 422 of the Code. II.9 "NON-EMPLOYEE DIRECTOR" means a "non-employee director" as that term is defined in Rule 16b-3 of the Securities Exchange Act of 1934. II.10 "NONQUALIFIED OPTION" means an Option granted under this Plan other than an Incentive Option. II-1 6 II.11 "OPTION" means either an Incentive Option or a Nonqualified Option granted under this Plan to purchase shares of Stock. II.12 "OPTION AGREEMENT" means the written agreement which sets out the terms of an Option. II.13 "OPTIONEE" means a person who is granted an Option under this Plan. II.14 "OUTSIDE DIRECTOR" means a member of the Board of Directors serving on the Committee who satisfies the criteria of section 162(m) of the Code. II.15 "PLAN" means the Daniel Industries, Inc. 1997 Stock Option Plan, as set out in this document and as it may be amended from time to time. II.16 "STOCK" means the common stock of the Company, $1.25 par value, or, in the event that the outstanding shares of common stock are later changed into or exchanged for a different class of stock or securities of the Company or another corporation, that other stock or security. II.17 "10% STOCKHOLDER" means an individual who, at the time the Option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any Affiliate. An individual shall be considered as owning the stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants; and stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, shall be considered as being owned proportionately by or for its stockholders, partners, or beneficiaries. II-2 7 ARTICLE III ELIGIBILITY The individuals who shall be eligible to receive Incentive Options shall be those key Employees as the Committee shall determine from time to time. The individuals who shall be eligible to receive Nonqualified Options shall be those key Employees, consultants and advisors of the Company or any of its Affiliates as the Committee shall determine from time to time. However, no member of the Committee shall be eligible to receive any Option or to receive stock, stock options, or stock appreciation rights under any other plan of the Company or any of its Affiliates, if to do so would cause the individual not to be an Outside Director or a Non-Employee Director. The Board of Directors may designate one or more individuals who shall not be eligible to receive any Option under this Plan or under other similar plans of the Company. III-1 8 ARTICLE IV GENERAL PROVISIONS RELATING TO OPTIONS IV.1 AUTHORITY TO GRANT OPTIONS. The Committee may grant Options to those individuals as it shall from time to time determine under the terms and conditions of this Plan. Subject only to any applicable limitations set out in this Plan, the number of shares of Stock to be covered by any Option shall be as determined by the Committee. IV.2 DEDICATED SHARES. The total number of shares of Stock with respect to which Options may be granted under the Plan shall be 730,000 shares. The shares may be treasury shares or authorized but unissued shares. The total number of shares of Stock with respect to which Incentive Options may be granted under the Plan shall be 730,000 shares. The maximum number of shares subject to Options which may be issued to any Optionee under the Plan during any period of three consecutive years is 365,000 shares. The number of shares stated in this Section 4.2 shall be subject to adjustment in accordance with the provisions of Section 4.5. If any outstanding Option expires or terminates for any reason or any Option is surrendered, the shares of Stock allocable to the unexercised portion of that Option may again be subject to an Option under the Plan. IV.3 NON-TRANSFERABILITY. Options shall not be transferable by the Optionee otherwise than by will or under the laws of descent and distribution, and shall be exercisable, during the Optionee's lifetime, only by him. IV.4 REQUIREMENTS OF LAW. The Company shall not be required to sell or issue any Stock under any Option if issuing that Stock would constitute or result in a violation by the Optionee or the Company of any provision of any law, statute, or regulation of any governmental authority. Specifically, in connection with any applicable statute or regulation relating to the registration of securities, upon exercise of any Option, the Company shall not be required to issue any Stock unless the Committee has received evidence satisfactory to it to the effect that the holder of that Option will not transfer the Stock except in accordance with applicable law, including receipt of an opinion of counsel satisfactory to the Company to the effect that any proposed transfer complies with applicable law. The determination by the Committee on this matter shall be final, binding and conclusive. The Company may, but shall in no event be obligated to, register any Stock covered by this Plan pursuant to applicable securities laws of any country or any political subdivision. In the event the Stock issuable on exercise of an Option is not registered, the Company may imprint on the certificate evidencing the Stock any legend that counsel for the Company considers necessary or advisable to comply with applicable law. The Company shall not be obligated to take any other affirmative action in order to cause the exercise of an Option and the issuance of shares thereunder, to comply with any law or regulation of any governmental authority. IV.5 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of IV-1 9 outstanding Options shall not affect in any way the right or power of the Company or its stockholders to make or authorize any adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Stock or its rights, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. If the Company shall effect a subdivision or consolidation of shares or other capital readjustment, the payment of a stock dividend, or other increase or reduction of the number of shares of the Stock outstanding, without receiving compensation for it in money, services or property, then (a) the number, class, and per share price of shares of Stock subject to outstanding Options under this Plan shall be appropriately adjusted in such a manner as to entitle an Optionee to receive upon exercise of an Option, for the same aggregate cash consideration, the equivalent total number and class of shares he would have received had he exercised his Option in full immediately prior to the event requiring the adjustment; and (b) the number and class of shares of Stock then reserved to be issued under the Plan shall be adjusted by substituting for the total number and class of shares of Stock then reserved, that number and class of shares of Stock that would have been received by the owner of an equal number of outstanding shares of such class of Stock as the result of the event requiring the adjustment. If the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if the Company is liquidated or sells or otherwise disposes of substantially all its assets while unexercised Options remain outstanding under this Plan, after the effective date of the merger, consolidation, liquidation, sale or other disposition, as the case may be, each holder of an outstanding Option shall be entitled, upon exercise of the Option, to receive, in lieu of shares of Stock, the number and class or classes of shares of stock or other securities or property to which the holder would have been entitled if, immediately prior to the merger, consolidation, liquidation, sale or other disposition, the holder had been the holder of record of a number of shares of Stock equal to the number of shares as to which the Option shall be so exercised; and (b) the Committee shall waive any limitations set out in or imposed under this Plan so that, from and after the effective date of the merger, consolidation, liquidation, sale or other disposition, as the case may be, all Options shall be exercisable in full. However, no Option will vest under the preceding sentence to the extent that such vesting could result in a diminution of any compensation that would otherwise be payable to the Optionee. The issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe for them, or upon conversion of shares or obligations of the Company convertible into shares or other securities, shall not affect, and no adjustment by reason of such issuance shall be made with respect to, the number, class, or price of shares of Stock then subject to outstanding Options. IV-2 10 ARTICLE V OPTIONS V.1 TYPE OF OPTION. The Committee shall specify whether a given Option shall constitute any Incentive Option or a Nonqualified Option. V.2 OPTION PRICE. The price at which Stock may be purchased under an Option shall not be less than the greater of: (a) 100% of the Fair Market Value of the shares of Stock on the date the Option is granted or (b) the aggregate par value of the shares of Stock on the date the Option is granted. In the case of any 10% Stockholder, the price at which shares of Stock may be purchased under an Incentive Option shall not be less than 110% of the Fair Market Value of the Stock on the date the Incentive Option is granted. V.3 DURATION OF OPTIONS. No Option shall be exercisable after the earlier of (a) 10 years from the date the Option is granted or (b) 30 days after the severance of the employment relationship between the Optionee and the Company and all Affiliates for any reason other than death. In the case of a 10% Stockholder, no Incentive Option shall be exercisable after the earlier of (a) five years from the date the Incentive Option is granted or (b) 30 days after the severance of the employment relationship between the Optionee and the Company and all Affiliates. V.4 AMOUNT EXERCISABLE. Each Option may be exercised from time to time, in whole or in part, in the manner and subject to the conditions the Committee, in its sole discretion, may provide in the Option Agreement, as long as the Option is valid and outstanding. To the extent that the aggregate Fair Market Value (determined as of the time an Incentive Option is granted) of the Stock with respect to which Incentive Options first become exercisable by the Optionee during any calendar year (under this Plan and any other incentive stock option plan(s) of the Company or any Affiliate) exceeds $100,000, the Incentive Options shall be treated as Nonqualified Options. In making this determination, Incentive Options shall be taken into account in the order in which they were granted. V.5 EXERCISE OF OPTIONS. Each Option shall be exercised by the delivery of written notice to the Committee setting forth the number of shares of Stock with respect to which the Option is to be exercised, together with: (a) cash, check, bank draft, or postal or express money order payable to the order of the Company for an amount equal to the option price of the shares, or (b) Stock at its Fair Market Value on the date of exercise, and/or any other form of payment which is acceptable to such committee, and specifying the address to which the certificates for the shares are to be mailed. Subject to Section 8.3, as promptly as practicable after receipt of written notification and payment, the Company shall deliver to the Optionee certificates for the number of shares with V-1 11 respect to which the Option has been exercised, issued in the Optionee's name. If shares of Stock are used in payment of the exercise price, the aggregate Fair Market Value of the shares of Stock tendered must be equal to or less than the aggregate exercise price of the shares being purchased upon exercise of the Option, and any difference must be paid by cash, check, bank draft, or postal or express money order payable to the Company. Delivery of the shares shall be deemed effected for all purposes when a stock transfer agent of the Company shall have deposited the certificates in the United States mail, addressed to the Optionee, at the address specified by the Optionee. Whenever an Option is exercised by exchanging shares of Stock owned by the Optionee, the Optionee shall deliver to the Company certificates registered in the name of the Optionee representing a number of shares of Stock legally and beneficially owned by the Optionee, free of all liens, claims, and encumbrances of every kind, accompanied by stock powers duly endorsed in blank by the record holder of the shares represented by the certificates, (with signature guaranteed by a commercial bank or trust company or by a brokerage firm having a membership on a registered national stock exchange). The delivery of certificates upon the exercise of Options is subject to the condition that the person exercising the Option provide the Company with the information the Company might reasonably request pertaining to exercise, sale or other disposition of an Option. V.6 SUBSTITUTION OPTIONS. Options may be granted under this Plan from time to time in substitution for stock options held by employees of other corporations who are about to become employees of or affiliated with the Company or any Affiliate as the result of a merger or consolidation of the employing corporation with the Company or any Affiliate, or the acquisition by the Company or any Affiliate of the assets of the employing corporation, or the acquisition by the Company or any Affiliate of stock of the employing corporation as the result of which it becomes an Affiliate of the Company. The terms and conditions of the substitute Options granted may vary from the terms and conditions set out in this Plan to the extent the Committee, at the time of grant, may deem appropriate to conform, in whole or in part, to the provisions of the stock options in substitution for which they are granted. V.7 NO RIGHTS AS STOCKHOLDER. No Optionee shall have any rights as a stockholder with respect to Stock covered by his Option until the date a stock certificate is issued for the Stock. V-2 12 ARTICLE VI ADMINISTRATION This Plan shall be administered by the Committee. All questions of interpretation and application of this Plan and Options shall be subject to the determination of the Committee. A majority of the members of the Committee shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members shall be as effective as if it had been made by a majority vote at a meeting properly called and held. This Plan shall be administered in such a manner as to permit the Options granted under it which are designated to be Incentive Options to qualify as Incentive Options. In carrying out its authority under this Plan, the Committee shall have full and final authority and discretion, including but not limited to the following rights, powers and authorities, to: (a) determine the persons to whom and the time or times at which Options will be made, (b) determine the number of shares and the purchase price of Stock covered in each Option, subject to the terms of the Plan, (c) determine the terms, provisions and conditions of each Option, which need not be identical, (d) accelerate the time at which any outstanding Option may be exercised, (e) define the effect, if any, on an Option of the death, disability, or retirement of the Optionee, (f) prescribe, amend and rescind rules and regulations relating to administration of this Plan, and (g) make all other determinations and take all other actions deemed necessary, appropriate, or advisable for the proper administration of this Plan. The actions of the Committee in exercising all of the rights, powers, and authorities set out in this Article and all other Articles of this Plan, when performed in good faith and in its sole judgment, shall be final, conclusive and binding on all parties. VI-1 13 ARTICLE VII AMENDMENT OR TERMINATION OF PLAN The Board of Directors of the Company may amend, terminate or suspend this Plan at any time, in its sole and absolute discretion; provided, however, that to the extent required to maintain the status of any Incentive Option under the Code, no amendment that would (a) change the aggregate number of shares of Stock which may be issued under Incentive Options, (b) change the class of employees eligible to receive Incentive Options, or (c) decrease the exercise price for Incentive Options below the Fair Market Value of the Stock at the time it is granted, shall be made without the approval of the Company's stockholders. Subject to the preceding sentence, the Board shall have the power to make any changes in this Plan and in the regulations and administrative provisions under it or in any outstanding Incentive Option as in the opinion of counsel for the Company may be necessary or appropriate from time to time to enable any Incentive Option granted under this Plan to continue to qualify as an incentive stock option or such other stock option as may be defined under the Code so as to receive preferential Federal income tax treatment. VII-1 14 ARTICLE VIII MISCELLANEOUS VIII.1 NO EMPLOYMENT OBLIGATION. The granting of any Option shall not constitute an employment contract, express or implied, nor impose upon the Company or any Affiliate any obligation to employ or continue to employ any Optionee. The right of the Company or any Affiliate to terminate the employment of any person shall not be diminished or affected by reason of the fact that an Option has been granted to him. VIII.2 TAX WITHHOLDING. The Company or any Affiliate shall be entitled to deduct from other compensation payable to each Optionee any sums required by federal, state, or local tax law to be withheld with respect to the grant or exercise of an Option. In the alternative, the Company may require the Optionee (or other person exercising the Option) to pay the sum directly to the Company or an Affiliate. If the Optionee (or other person exercising the Option) is required to pay the sum directly, payment in cash or by check of such sums for taxes shall be made on the date of exercise. The Company shall have no obligation upon exercise of any Option until payment has been received, unless withholding (or offset against a cash payment) as of or prior to the date of exercise is sufficient to cover all sums due with respect to that exercise. The Company and its Affiliates shall not be obligated to advise an Optionee of the existence of the tax or the amount which the employer corporation will be required to withhold. VIII.3 WRITTEN AGREEMENT. Each Option shall be embodied in a written Option Agreement which shall be subject to the terms and conditions of this Plan and shall be signed by the Optionee and by a member of the Committee on behalf of the Committee and the Company. The Option Agreement may contain any other provisions that the Committee in its discretion shall deem advisable which are not inconsistent with the terms of this Plan. VIII.4 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS. With respect to administration of this Plan, the Company shall indemnify each present and future member of the Committee and the Board of Directors against, and each member of the Committee and the Board of Directors shall be entitled without further act on his part to indemnity from the Company for, all expenses (including attorney's fees, the amount of judgments and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by him in connection with or arising out of any action, suit, or proceeding in which he may be involved by reason of his being or having been a member of the Committee and/or the Board of Directors, whether or not he continues to be a member of the Committee and/or the Board of Directors at the time of incurring the expenses--including, without limitation, matters as to which he shall be finally adjudged in any action, suit or proceeding to have been found to have been negligent in the performance of his duty as a member of the Committee or of the Board of Directors. However, this indemnity shall not include any expenses incurred by any member of the Committee and/or the Board of Directors in VIII-1 15 respect of matters as to which he shall be finally adjudged in any action, suit or proceeding to have been guilty of gross negligence or willful misconduct in the performance of his duty as a member of the Committee or the Board of Directors. In addition, no right of indemnification under this Plan shall be available to or enforceable by any member of the Committee or the Board of Directors unless, within 60 days after institution of any action, suit or proceeding, he shall have offered the Company, in writing, the opportunity to handle and defend same at its own expense. This right of indemnification shall inure to the benefit of the heirs, executors or administrators of each member of the Committee and the Board of Directors and shall be in addition to all other rights to which a member of the Committee and the Board of Directors may be entitled as a matter of law, contract, or otherwise. VIII.5 GENDER. If the context requires, words of one gender when used in this Plan shall include the others and words used in the singular or plural shall include the other. VIII.6 HEADINGS. Headings of Articles and Sections are included for convenience of reference only and do not constitute part of this Plan and shall not be used in construing the terms of this Plan. VIII.7 OTHER COMPENSATION PLANS. The adoption of this Plan shall not affect any other stock option, incentive or other compensation or benefit plans in effect for the Company or any Affiliate, nor shall this Plan preclude the Company from establishing any other forms of incentive or other compensation for employees of the Company or any Affiliate. VIII.8 OTHER OPTIONS. The grant of an Option shall not confer upon an Optionee the right to receive any future or other Options under this Plan, whether or not Options may be granted to similarly situated Optionees, or the right to receive future Options upon the same terms or conditions as previously granted. VIII.9 ARBITRATION OF DISPUTES. Any controversy arising out of or relating to the Plan or an Option Agreement shall be resolved by arbitration conducted pursuant to the arbitration rules of the American Arbitration Association. The arbitration shall be final and binding on the parties. VIII.10 GOVERNING LAW. The provisions of this Plan shall be construed, administered, and governed under the laws of the State of Texas. VIII-2 16 INCENTIVE STOCK OPTION AGREEMENT DANIEL INDUSTRIES, INC. 1997 STOCK OPTION PLAN This STOCK OPTION AGREEMENT (the "Agreement") is made between DANIEL INDUSTRIES, INC., a Delaware corporation (the "Company"), and___________________ (the "Employee"). The Board of Directors of the Company has adopted the Daniel Industries, Inc. 1997 Stock Option Plan (the "Plan"), a copy of which is attached hereto and incorporated by reference herein. The Company considers that its interests will be served by granting the Employee an option to purchase shares of common stock of the Company as an inducement for his continued and effective performance of services for the Company or an affiliate of the Company as defined in the Plan (an "Affiliate"). IT IS AGREED: 1. Subject to the terms of the Plan and this Agreement, on __________, 1997 (the "Date of Grant"), the Company hereby grants to the Employee an incentive stock option (the "Option") to purchase shares of the common stock of the Company, $1.25 par value per share ("Stock"), at a price of $__________ per share, subject to adjustment as provided in the Plan. The Option is exercisable according to the following schedule: (a) On the day after the first anniversary of the Date of Grant, the Option may be exercised with respect to up to 1/3 of the shares subject to the Option; (b) after each succeeding anniversary of the Date of Grant, the Option may be exercised with respect to up to an additional 1/3 of the shares subject to the Option, so that after the expiration of the third anniversary of the Date of Grant the Option shall be exercisable in full; and (c) to the extent not exercised, installments shall be cumulative and may be exercised in whole or in part. If the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if the Company is liquidated or sells or otherwise disposes of substantially all its assets while any portion of this Option remains outstanding, from and after the effective date of the merger, consolidation, liquidation, sale or other disposition, as the case may be, the Option shall be exercisable in full. However, the Option will not vest under the preceding sentence to the extent that such vesting could result in a diminution of any compensation that would otherwise be payable to the Employee. 17 NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT OR THE PLAN TO THE CONTRARY, NO PORTION OF THE OPTION SHALL BE EXERCISABLE BEFORE THE DATE ON WHICH THE STOCKHOLDERS OF THE COMPANY HAVE APPROVED THE PLAN. 2. To the extent that the aggregate fair market value of Stock with respect to which incentive stock options are exercisable for the first time by the Employee during any calendar year (under the Plan or any other plan of the Company or its Affiliates) exceeds $100,000, the options will be treated as nonqualified stock options. For purposes of this rule, the fair market value of the Stock is determined at the time the option for the Stock is granted. 3. The Option granted to the Employee under this Agreement shall not be transferable or assignable by the Employee other than by will or the laws of descent and distribution, and shall be exercisable during the Employee's lifetime only by him. 4. The Option shall terminate and become null and void on the earlier of (a) the last day of the ten year period commencing on the Date of Grant or (b) 30 days after the severance of the employment relationship between the Employee and the Company and all Affiliates. In the event of the severance of the employment relationship between the Employee and the Company and all Affiliates for any reason, the Option shall not continue to vest after such severance of employment. 5. Upon the death of the Employee while in the employ of the Company or its Affiliate, his executors, administrators or any person or persons to whom his Option may be transferred by will or by the laws of descent and distribution, shall have the right, at any time prior to the earlier of one year from the date of the Employee's death or the expiration date of the Option to exercise the Option with respect to the number of shares that the Employee would have been entitled to exercise if he were still alive. 6. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the party against whom enforcement of any such change or termination is sought. 7. The Company shall not be deemed by the grant of the Option (as distinguished from a separate employment agreement, if any) to be required to employ the Employee for any period. 8. The Employee consents to the placing on the certificate for any shares covered by the Option of an appropriate legend restricting resale or other transfer of such shares except in accordance with the Securities Act of 1933 and all applicable rules thereunder. 9. The Employee shall not have any rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of the stock certificate or certificates to him for such shares following his exercise of the Option pursuant to its terms and conditions and payment for the shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such certificate or certificates are issued. 18 10. In the event of any difference of opinion concerning the meaning or effect of the Plan or this Agreement, such difference shall be resolved by the committee referred to in the Plan. 11. The validity, construction and performance of this agreement shall be governed by the laws of the State of Texas. Any invalidity of any provision of this Agreement shall not affect the validity of any other provision. 12. All offers, notices, demands, requests, acceptances or other communications hereunder shall be in writing and shall be deemed to have been duly made or given if mailed by registered or certified mail, return receipt requested. Any such notice mailed to the Company shall be addressed to its principal office, and any notice mailed to the Employee shall be addressed to the Employee's residence address as it appears on the books and records of the Company or to such other address as either party may hereafter designate in writing to the other. 13. This Agreement shall, except as herein stated to the contrary, inure to the benefit of and bind the legal representatives, successors and assigns of the parties hereto. 14. This Option is an incentive stock option which is intended to be governed by section 422 of the Internal Revenue Code of 1986, as amended. 15. In accepting this Option, the Employee accepts and agrees to be bound by all the terms and conditions of the Plan which pertain to incentive stock options granted under the Plan. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered to be effective as of the day and year first above written. DANIEL INDUSTRIES, INC. By: ------------------------------------ --------------------------------------- Employee