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EXHIBIT 20
MEMORANDUM OF UNDERSTANDING
WHEREAS, there is now pending a putative class action lawsuit in the
Court of Chancery of the State of Delaware in and for New Castle County (the
"Court") entitled "Miller v. Daniel Industries, Inc., et al., C.A. No. 17175"
(the "Action"), brought on behalf of the stockholders of Daniel Industries, Inc.
("Daniel" or the "Company");
WHEREAS, the Class Action Complaint was filed in this Action on May 21,
1999 (hereinafter, the "Complaint");
WHEREAS, the Complaint challenges public disclosures concerning a
merger agreement among Daniel, non-party Emerson Electric Co. ("EEC") and
Emersub LXXIV, Inc. ("Emersub"). Pursuant to the agreement for the merger (the
"Merger Agreement"), Emersub has commenced a tender offer (the "Tender Offer")
for any and all shares of Daniel at $21.25 per share, which Tender Offer will be
followed by a cash out merger (the "Merger") at the same price. The Complaint
alleges, inter alia, that Daniel's Board of Directors (the "Individual
Defendants") breached their fiduciary duties to Daniel's stockholders by failing
to disclose all material information concerning the Tender Offer and Merger,
including inter alia, failing to provide information to enable the shareholders
to understand why Daniel's Board decided to sell the Company, failing to
disclose information concerning the range of values for the company that were
considered by Daniel's Board, not disclosing the assumptions that were made in
connection with certain projections of the future operating performance of
Daniel, and
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omitting information regarding the potential of alternative transactions and the
nature or amount of any competing bid for Daniel;
WHEREAS, on May 21, 1999, plaintiff moved to preliminarily enjoin the
Tender Offer and Merger, and the Court scheduled a preliminary injunction
hearing for June 11, 1999;
WHEREAS, plaintiff's counsel has reviewed documents made available on
an expedited basis by Daniel relating to the allegations made in the Complaint;
WHEREAS, plaintiff's counsel and defendants' counsel engaged in
arm's-length negotiations concerning a possible settlement of the action;
WHEREAS, Daniel and the Individual Defendants maintain that they were
not required to issue any supplemental disclosures and all defendants maintain
that they have committed no breaches of fiduciary duties or disclosure
violations whatsoever; and
WHEREAS, counsel for the parties have reached an agreement in principle
providing for the settlement of the Action between and among plaintiff, on
behalf of himself and the putative class of persons on behalf of whom plaintiff
has brought the Action, and defendants, on the terms and subject to the
conditions set forth below (the "Settlement");
NOW, THEREFORE, as a result of the foregoing and the negotiations among
counsel to the parties, the parties to the Action have agreed in principle as
follows:
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1. Daniel shall mail to all stockholders as soon as practicable an
amendment to its current Schedule 14D-9, which amendment shall contain the
supplemental disclosures attached hereto as Exhibit A.
2. Daniel will issue a press release as soon as reasonably practicable,
announcing that the parties to the Action have reached a settlement in
principle, subject to Court approval.
3. The mailing described in Paragraph 1 will be accompanied by a letter
to Daniel's stockholders stating that: (a) the mailing is being made prior to
the closing date of the Tender Offer, which is currently scheduled to close on
June 15, 1999; (b) the mailing is being made pursuant to an agreement in
principle to settle the Action, and that the stockholders will receive a Notice
of Settlement in more detail at a future date; and (c) nominees are requested
promptly to forward copies of the letter and its enclosures to any beneficial
holders for whom they act as nominees.
4. Daniel and the Individual Defendants maintain that they were not
required to issue any supplemental disclosures and all defendants maintain that
they have committed no breaches of fiduciary duties or disclosure violations
whatsoever.
5. The parties to the Action will attempt in good faith to agree upon
and execute as promptly as practicable but, in no event more than 45 days, an
appropriate Stipulation of Settlement (the "Stipulation") of all claims asserted
in the Complaint filed in the Action and all other claims (as described
hereinafter), if
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any, arising out of or relating, in whole or in part, to the Tender Offer or the
Merger, and such other documentation as may be required in order to obtain any
and all necessary or appropriate Court approvals of the Settlement, upon and
consistent with the terms set forth in this Memorandum of Understanding,
including that for the consideration set forth above, the Stipulation shall
provide for the dismissal of all such claims with prejudice and without costs to
any party (except as set forth herein). The Stipulation will also expressly
provide, inter alia:
a. for class certification pursuant to Delaware Chancery Court
Rule 23(b)(1) and (b)(2) of a non-opt out settlement class consisting
of all persons (other than defendants and their affiliates) who owned
or have owned stock of Daniel on or after May 21, 1999, and their
successors in interest and transferees, immediate and remote, through
and including the closing of the Merger (the "Class");
b. that all defendants have denied, and continue to deny, that
they have committed any violations of law, and that defendants are
entering into the Stipulation because the proposed Settlement would
eliminate the burden and expense of further litigation, would finally
put to rest all claims arising out of or relating in any way to the
Tender Offer or the Merger and would permit the Tender Offer to proceed
without risk of injunctive relief;
c. for the release of all claims of Class members, whether
known, unknown or unknowable, asserted or unasserted against defendants
and
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any of their present or former officers, directors, employees, agents,
attorneys, accountants, financial advisors, commercial bank lenders,
investment bankers, representatives, affiliates, associates, parents,
subsidiaries, general and limited partners and partnerships, heirs,
executors, administrators, successors and assigns, whether under state,
federal, common or administrative law (including claims arising under
the federal securities laws), and whether directly, derivatively,
representatively or arising in any other capacity, and in connection
with, or that arise out of any claim that was or could have been
brought in the Action or that relates in any way to the Merger (whether
or not such claim could have been asserted in the Action), the
negotiation, consideration or formulation of the Merger and the Merger
Agreement, or the Tender Offer, the fiduciary obligations of any of the
defendants or other persons to be released in connection with the
Tender Offer or Merger, or the disclosure obligations of any of the
defendants (or persons to be released) in connection with the Tender
Offer or Merger, or any other claim relating in any way to any of the
foregoing;
d. the parties to the Action will present the Settlement to the
Court for hearing and approval as soon as practicable and, following
appropriate notice to members of the Class, will use their best efforts
to obtain final Court approval of the Settlement, and the release and
dismissal of the Action with prejudice as against plaintiff and the
Class,
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with no right to opt-out of the Settlement and without awarding costs
to any party (except as provided herein). It is expressly acknowledged
that the Tender Offer may be, and is expected to be, closed prior to
final Court approval of the Settlement. As used in this Memorandum of
Understanding, "final Court approval" of the Settlement means that the
Court has entered an Order approving the Settlement in accordance with
the Stipulation, and that Order is finally affirmed on appeal or is no
longer subject to appeal;
e. provided that the Stipulation has been executed and final
Court approval of the Settlement (including the Class release) and
dismissal of the Action by the Court with prejudice has been obtained
in accordance with the Stipulation, plaintiff's counsel of record in
the Action may apply to the Court for an award of attorneys' fees and
reasonable out-of-pocket disbursements. Subject to the terms and
conditions of this Memorandum of Understanding and the contemplated
Stipulation, plaintiff's counsel may apply for an award of fees and
expenses the total amount of which shall not exceed $200,000, to be
paid by Daniel to Goodkind Labaton Rudoff & Sucharow, L.L.P., as
receiving agent for plaintiff's counsel, within ten (10) days after the
Court's award of attorneys fees and expenses becomes final. Defendants
and other releasees will not take any position regarding such an
application for fees and expenses; and
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f. Daniel shall cause the dissemination of notice of the
Settlement to members of the Class in accordance with Delaware law and
shall pay all costs and expenses incurred in providing such notice to
the members of the Class.
6. The consummation of the Settlement is subject to: (a) the
mailing of materials to stockholders of record as described in Paragraph 1 on or
before June 7, 1999; (b) the consummation of the Tender Offer; (c) the
completion by plaintiff of appropriate discovery in the Action reasonably
satisfactory to plaintiff's counsel; (d) the drafting and execution of the
Stipulation and other agreements necessary to effectuate the terms of the
proposed Settlement; and (e) final Court approval (as defined above) of the
Settlement and dismissal of the Action with prejudice and without awarding costs
to any party except as provided herein. Any of the defendants shall have the
right to withdraw from the proposed Settlement in the event that any claims
arising out of or relating, in whole or in part, to the Tender Offer or the
Merger (whether direct, derivative or otherwise) are commenced against any
person in any court prior to final Court approval of the Settlement, and such
claims are not dismissed or stayed in contemplation of dismissal. Plaintiff
shall have the right to withdraw from the proposed Settlement in the event that
plaintiff's counsel in the Action determine subsequent to the execution of this
Memorandum of Understanding but prior to the execution of the Stipulation that
the Settlement is not fair and reasonable. This Memorandum of Understanding
shall be null and void and of no force and effect in the event of any
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such withdrawal by any party or if, for any other reason, the Settlement is not
consummated. In such event, this Memorandum of Understanding shall not be deemed
to prejudice in any way the respective positions of the parties with respect to
the Action, and neither the existence of this Memorandum of Understanding nor
its contents shall be admissible in evidence or shall be referred to for any
purpose in the Action or in any other litigation or proceeding.
7. The parties to the Action agree that except as expressly provided
herein, the Action shall be stayed pending submission of the proposed Settlement
to the Court for its consideration. Plaintiff's counsel agrees that the
defendants' time to answer or otherwise respond to the Complaint in the Action
is extended without date. Counsel shall enter into such documentation as shall
be required to effectuate the foregoing agreements.
8. This Memorandum of Understanding may be executed in counterparts by
any of the signatories hereto, including by telecopier, and as so executed shall
constitute one agreement.
9. This Memorandum of Understanding and the Stipulation contemplated by
it shall be governed by, and construed in accordance with, the laws of the State
of Delaware, without regard to Delaware's conflict of law rules.
10. This Memorandum of Understanding may be modified or amended only by
a writing signed by the signatories hereto.
11. This Memorandum of Understanding shall be binding upon and inure to
the benefit of the parties and their respective agents, executors, heirs,
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successors and assigns. Plaintiff and his counsel represent and warrant that
none of the claims or causes of action asserted in the Action have been
assigned, encumbered or in any manner transferred, in whole or in part.
Dated: June 4, 1999
Of Counsel: ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
Jonathan M. Plasse
GOODKIND LABATON RUDOFF
& SUCHAROW, L.L.P.
100 Park Avenue /s/ Norman M. Monhait
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New York, NY 10017 Norman M. Monhait
(212) 907-0700 Mellon Bank Center, Suite 1401
P.O. Box 1070
Wilmington, DE 19899
(302) 656-4433
Attorneys for Plaintiff
Of Counsel: MORRIS, NICHOLS, ARSHT & TUNNEL
Gerard G. Pecht
FULBRIGHT & JAWORSKI, L.L.P.
1301 McKinney, Suite 5100
Houston, TX 77010-3095 /s/ A. Gilchrist Sparks, III
(713) 651-5151 ------------------------------
A. Gilchrist Sparks, III
1201 North Market Street
P.O. Box 1347
Wilmington, DE 19899-1347
(302) 658-9200
Attorneys for Defendants Daniel
Industries, Inc.,
Ronald C. Lassiter,
Thomas J. Keefe, Michael M.
Carroll, W.A. Griffin, Brian E.
O'Neill, Ralph F. Cox, Leo E.
Linbeck, Jr., Nathan M. Avery
and Gibson Gayle, Jr.
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Of Counsel: RICHARDS, LAYTON & FINGER
Arthur F. Golden
Frances E. Bivens
DAVIS POLK & WARDWELL /s/ Allen M. Terrell, Jr.
450 Lexington Avenue -------------------------------
New York, NY 10017 Allen M. Terrell, Jr.
(212) 450-4000 Russell C. Silberglied
One Rodney Square
P.O. Box 551
Wilmington, DE 19899
(302) 658-6541
Attorneys for Defendant Emersub
LXXIV, Inc.
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Exhibit A
BACKGROUND OF THE TRANSACTION
On March 4, 1999, the Company received an unsolicited written proposal
for a business combination with another company in which the Company's
stockholders would receive cash and stock of the other company aggregating $15
per share of Common Stock. On the same date, the Company retained Simmons &
Company International ("Simmons"), as the Company's financial advisor, to assist
the Company in its consideration of the business combination proposal.
On March 16, 1999, the Board of Directors of the Company met to
consider the business combination proposal. At that meeting the Board discussed
the proposal with Simmons and the Company's management and legal advisors. The
Board, with the assistance of its advisors, also considered the Company's
business, historical and projected future performance, historical trading prices
for the Company's stock, market conditions, competition, possible alternative
transactions (including a sale of the Company) for maximizing value for the
Company's stockholders, the potential values for the Company using discounted
cash flows, various multiples and comparable transactions analyses and the range
of possible values that could be achieved if the Company were to remain
independent or pursue its other alternatives. After considering all of those
factors, the Board (i) determined that the business combination proposal was
inadequate and rejected it and (ii) decided to initiate a strategic review to
evaluate its options for maximizing the value of the Company to its
stockholders, including a possible business combination with a larger company.
Later on March 16, 1999, the Company announced publicly that its Board
of Directors had received and rejected the unsolicited proposal described above
and that the Board had decided to initiate a strategic review to evaluate its
options for maximizing the value of the Company to its stockholders. The Company
also announced that it had retained Simmons to assist the Company with its
strategic review.
In the course of the Company's review, 28 potential purchasers for the
Company were given the opportunity to sign confidentiality agreements. The
Company and Simmons believed that these 28 parties constituted the companies
that could be expected both to have an interest in pursuing a transaction with
the Company and to be able to consummate a transaction at an acceptable price.
Nineteen of these parties, including Parent, agreed to execute confidentiality
agreements. Thereafter, Simmons distributed the Company's Confidential
Descriptive Memorandum prepared by Simmons and the Company to each of the
interested parties that had executed a confidentiality agreement. The
Confidential Descriptive Memorandum contained a more detailed analysis of the
Company's business than was available publicly and included portions of the
Company's strategic business plan, projections for the Company as a whole as
well as for its business units and a description of the key underlying
assumptions by business unit used in developing the projections.
Interested parties were invited to submit preliminary indications of
interest on April 19, 1999 based on the information provided, subject to
confirmatory due diligence, stating the price and form
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of consideration (including cash, stock or a combination of the two) that they
would be willing to pay in an acquisition transaction involving the Company.
Subsequent to the receipt and review of the preliminary indications of interest,
the Company invited nine of those interested parties separately to attend a
presentation by the Company's management, to tour the Company's plant and office
facilities in Houston, Texas and to review selected due diligence materials in a
data room at the Company's offices. Eight of those interested parties, including
Parent, participated in that due diligence review of the Company. Each of these
eight interested parties was also provided with two versions of the Company's
proposed merger agreement, one for use with a stock for stock acquisition and
the other for use in a cash acquisition.
The eight interested parties were invited to submit firm proposals by
May 24, 1999 which were to state, among other things, the price each was willing
to pay to acquire the Company, the form of consideration to be paid to the
Company's stockholders and any financing or other contingencies, and to include
their comments on the applicable version of the Company's proposed form of
merger agreement.
Throughout the proposal solicitation process, the Company and its
advisors were in regular contact with the interested parties regarding their due
diligence investigation of the Company and their bids for the Company.
At the request of Parent, C.F. Knight, Chairman & CEO of Parent, and
D.N. Farr, Senior Executive Vice President of Parent responsible for the Process
Control business of Parent, met on May 7, 1999 with key management of the
Company, including R.C. Lassiter, the Chairman of the Board and CEO of the
Company. Following that meeting, Mr. Knight proposed to Mr. Lassiter that Parent
acquire the Company for $21.25 per Share in cash. Messrs. Lassiter, Knight and
Farr discussed Parent's proposal and tentatively agreed on it, subject to the
approval of the Boards of Directors of the Company, Parent and Purchaser,
negotiation of definitive agreements and receipt by the Company of a fairness
opinion from Simmons.
Among other things, Parent's offer of $21.25 in cash per Share was
higher than any indication of interest submitted previously by any other party
and, in the Company's opinion, was likely to be superior to any bid that any
other potential purchaser was likely to make. In addition, Parent's proposed
terms permitted another bidder to make a superior proposal which Parent could
respond to with a more favorable proposal; or if the Parent did not do so, the
Company could terminate its Merger Agreement with Parent and the Purchaser and,
subject to paying certain termination fees and expense reimbursement to Parent,
enter into a merger agreement with the alternative bidder. To date, the Company
has not received any proposal or indication of interest higher than $21.25 per
Share.
Between May 7, 1999 and May 12, 1999, representatives of the Company
and Parent (including financial and legal advisors) met to negotiate the terms
of the Merger Agreement and the Stock Option Agreement.
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On May 12, 1999, at a meeting of the Board of Directors of the Company,
the Board received a presentation by Simmons and its opinion that, as of that
date, and based on the assumptions made, matters considered and limits of review
set forth therein, the consideration to be received by the holders of the Shares
(other than Parent and its affiliates) in the Offer and the Merger is fair to
such holders from a financial point of view. After discussion and consideration
of the factors previously described in item 4 of the Company's Schedule 14D-9,
the Board unanimously approved the Offer and the Merger (including the execution
of the Merger Agreement and the Stock Option Agreement) based on its conclusion
that Parent's offer of $21.25 in cash per Share was superior to all other
options available to the Company for maximizing value to its stockholders,
including the option to remain independent. The Board also unanimously
recommended that stockholders tender their Shares pursuant to the Offer.
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